In numismatics, there are essentially two types of coins. There are coins that are condition rarities and there are coins that are absolute rarities. A condition rarity is a coin whose value is primarily derived from its high degree of preservation. An absolute rarity is a coin whose rarity is based more on the total number known to exist than its grade. As a long-time participant in the coin market, I tend to prefer coins that are absolute rarities. Let’s take a look at a few specific coins that easily fall into one of the two categories. Then, let’s take a look at another category (and for my money the most interesting): a coin that is not only an absolute rarity but a condition rarity as well.
Most new collectors buy coins based on condition. This makes sense. They are introduced to coins through mass marketers or they buy modern coins directly from the United States mint. Mass marketers can’t sell absolute rarity for an obvious reason: there isn’t a large enough supply and mass marketing entails selling products on a large scale.
Certain mass marketed coins aren’t strictly condition rarities in the truest sense of the word. A coin that most people would consider to be a condition rarity would be a common date St. Gaudens double eagle in MS65. But this really isn’t the case. A damaged, virtually destroyed Saint has a current market value of around $1,200 while an MS65 is worth $2,500. The 2x value ratio for a Gem is low when compared to the basal value.
A coin that I would consider a classic condition rarity is an Indian Head half eagle. This is a coin that is worth just a bit over $300 in very low grades but over $15,000 in MS65. That’s a 300x value ratio. I appreciate the fact that a true MS65 Indian Head half eagle is a reasonably scarce coin. But I have a hard time attributing this much value to a high grade example, especially based on the fact that the series is not terrifically popular with date collectors.
So what is there to like and not to like about a condition rarity such as an Indian Head half eagle in MS65? What I don’t like about this coin is exactly what turns me off about condition rarity in general: a significant portion of this coin’s value is based on a subjective factor such as one grading point. In MS64, an Indian Head half eagle is worth $3,500. Most collectors would have a hard time telling an MS64 from an MS65 and a number of already-certified MS65 Indian Head half eagles might come back MS64 if they were (re)submitted for a regrade. And if certified grading were to suddenly disappear, you have a very expensive piece of plastic; in this case (pun intended) one that might be the only thing keeping a $15,000 coin from becoming a $3,500 one.
Another thing I don’t like about this coin is a point I touched on earlier. In theory, an MS65 Indian Head half eagle is a scarce coin. If you go to a major show, you won’t see more than a handful and it is unlikely that any will be what I would consider choice for the grade. But the demand for this coin isn't really all that high. It’s a coin that’s rarely mass marketed (there aren’t enough to go around) and type collectors of 20th century Gem gold don’t appear to be extremely plentiful right now. So while the supply is admittedly low, the demand for this type in Gem might be even lower.
A coin does not have to be expensive to be an absolute rarity. Here’s a totally random example: an 1869 half eagle. Only 1,760 were produced and given the fact that the survival rate for Philadelphia half eagles from this era tends to be around 2-3% it’s safe to assume that only 35-50 pieces are known. I’d estimate that at least half of the known coins are either damaged or well-worn, making an accurately graded EF45 to AU50 piece about as nice as most collectors are going to locate.
What’s interesting about this coin to me is the fact that its rarity is not predicated solely on its grade. You can’t buy a ratty, worn-out 1869 half eagle for $300 like you can an Indian Head half eagle. Basal value for this issue is probably around $1,000. This means that any 1869 half eagle that is gradable (i.e., not harshly cleaned or exhibiting major damage) has a value of at least $1,000 or so.
What’s even more interesting about this coin is that is value level does not skyrocket as you go higher and higher up the circulated coin ladder. You can figure that a decent quality AU55 is going to cost you around $4,000-5,000. That is a 4x to 5x ratio over the world’s worst 1869 half eagle, which seems like good relative value to me.
There is one key point that I haven’t made (yet) which is important. While the 1869 half eagle is a coin with true absolute rarity, it is also a coin with limited collector demand. At this point in time, there are few collectors attempting to assemble date sets of Liberty Head half eagles. This lack of demand, obviously, limits the upside potential of this issue.
Let’s choose another example of a coin that is an absolute rarity but one with a higher degree of collector demand. How about an 1861-D gold dollar? This is a coin that is truly rare in all grades (with fewer than 100 known) AND one with a high level of demand. It is admittedly an expensive coin but there always seems to be collectors looking for an 1861-D gold dollar; both at the low end and at the high end of the grading and price spectrum. If I were an investor looking to purchase a $30,000 U.S. gold coin with good long-term upside, I’d personally be more interested in a coin like the 1861-D gold dollar than, say, a 1907 High Relief in MS64.
As I mentioned earlier in this article, there is one final subcategory of coin: one that combines both condition rarity and absolute rarity. Coins like this are far and few between and they form the cornerstones of truly great advanced collections. Remember the 1861-D gold dollar that I just mentioned? An example that graded MS63 or MS64 and which was properly graded and cosmetically appealing would epitomize this high grade/high rarity hybrid. It would be one of the finest known examples of a coin that is rare in all grades. Given the fact that it would probably command “only” a 5x to 6x premium over a very average quality example, the upside potential is apparent.
What's my all-time favorite number one "hyrbid" rare U.S. gold coin? That's hard to say but one that clearly stands out for me is the Bass/Norweb 1864-S half eagle graded MS65 by PCGS. This coin is a classic in every sense of the word: its extremely rare in all grades, the coin itself is an amazing screaming Gem and it is the finest known by a mile. There's not many U.S. gold coins that hit a home run on three of these parameters and this one does.