First Quarter 2012: A Quick Recap
/My take on the first quarter of 2012 was if you ask ten different coin dealers how their business was, you'd get ten different answers. "Isn't this always the case," you ask? "Not really," I'd answer, explaining that depending on the business model of the dealer in question, the response you'd get might be vastly different. Confused? Let me explain. As I have written many times in the past, the coin market has become highly bifurcated in the last decade. But just as the market has changed, so has the way(s) of doing business. Ten years ago, you were a "coin dealer." Today, you can be an "online" dealer or a "brick and mortar" dealer; a "classic coin" dealer or a "modern coin" dealer; a "bullion-oriented" dealer or a "rarities-oriented" dealer...the variations are seemingly endless. And with these endless variations comes potential conflicting answers to the "how was your first quarter" question.
To simplify things, if you are a dealer who sells mostly moderns or generic or bullion-related products, your Q1 of 2012 was not very good. Metals prices were mostly trending downwards during this period and prices were weak as a result. If you are an Old School coin dealer with a good following, a good website and a good supply of interesting coins, you probably had a quarter that ranged from very good to excellent. My own experience for the quarter was excellent.
Here are a few observations that I have about the current state of the market.
1. Rarity Is En Vogue: I noticed a subtle change in the rare gold market around two or three years ago. Coins that I formerly couldn't give away were suddenly in demand; not necessarily in overwhelming demand but at least they could be sold. During Q1 of 2012, it was all about rarity.
Let me give you an example. An 1863-S half eagle in nice EF40 has always seemed like a pretty neat coin to me. It certainly has alot going for it: Civil War date of issue, low original mintage figure (17,000), low survival rate (probably no more than 60 or so known), proven rarity in high grades and overall affordability. But until recently, this is a coin that I might have liked conceptually but the reality was that it was a hard sell. Plain and simple.
This has clearly changed. The rare gold market has become more about rarity than at any time I can remember and suddenly a coin doesn't have to have a C or a D on the reverse (or, in some cases, the obverse!) to be popular. Formerly hard-to-sell coins like San Francisco half eagles and eagles from the 1850's and 1860's and Philadelphia issues of the same era aren't necessarily flying off the shelves but they are newly-popular and certainly enough so that I am embracing them and offering them on my website as often as possible.
2. The Littlejohn Effect. If you collect dated gold, you know about the not-so-secret sale of the Littlejohn Estate that was held in San Francisco in February. It contained oodles of interesting, seldom-seen dated gold issues and it was interesting from a number of standpoints. I've already written about this sale and don't want to beat a dead horse but what I think this sale did was convert some former non-believer coin dealers. It's hard to say if they'll be in the rare gold market after they sell their Littlejohn purchases (especially if they don't get the grades they expected or if they learn they paid too much...)
3. Pricing Hits a Wall. I've expressed my dismay before about current pricing guides and how inaccurate they have become. For me, guides like CDN and Coin World Trends have gone from being essential parts of my business to virtual afterthoughts.
Something happened to me at the recent Baltimore show that illustrates my dismay with pricing guides and made me have a "this is crazy, I need to do something about this" moment. I was able to buy a lovely 1864-S eagle in PCGS VF30. If you are not familiar with this issue, it is a major rarity; the second rarest date in the Liberty Head eagle series after the 1875. I paid over $30,000 for it and was thrilled to do so. I based this on the sale of a much inferior VF30 example in the Littlejohn auction for $34,500 as well as some other transactions (auction and private treaty) that have occurred within the last five years.
And yet...when I went to check Trends on the coin, just for grins really as I had already written a check for it, I saw that this date was "valued" at $5,500 in VF20 and $12,500. In a word: stupid! Yes, I understand that the Littlejohn price record was too fresh to have made it into Trends. But I would have paid more than Trends for this date twenty frickin' years ago, let alone today. Grrr.....
4. The Low Hanging Fruit Theory of Coin Dealing: As gold and silver raced up and up the last few years and people fell all over themselves to buy modern coins, I had this thought on more than one occasion: am I an idiot for stubbornly remaining a dealer in "real" coins? I have coin dealer friends making Monopoly money selling modern junque, why not me?
Well, I'm just fine with my no-moderns policy. But many coin firms who formerly sold large numbers of scarce and semi-scarce gold coins remain modern coin or semi-numismatic dealers. What this has done, in turn, is to evaporate the premiums on many coins, especially in areas like MS63 and MS64 St. Gaudens double eagles. This trend was never more clear than it was during Q1 of 2012. And I would expect it to remain so in Q2 and Q3 if not beyond. The larger coin firms will continue to sell the easy-to-understand moderns and semi-numismatic items as long as they can ride this horse.
5. Good Coins Remain Hard to Find: In spite of a few fresh rare gold deals hitting the market during Q1, it remained hard to locate good coins. And for every neat coin like the aforementioned 1864-S eagle that I was able to buy, I could have sold more. Many more, in the case of the 1864-S.
The market is collector-based right now and that's clearly good. But what's not so good is that collectors tend to hold on to their best coins and this means that once something like an 1864-S eagle is sold, you won't see this coin again for years. So we have a classic "be careful what you wish for scenario." The market is strong, coins are being sold to informed buyers and the overall fundamentals are solid. The one glitch in the equation right now is there is an inadequate supply to meet the increased demand. Its something that I have always said would happen.
What do I expect for Q2? If metals prices remain weak, I don't think the market will be all that robust. However, the economy is clearly rebounding and there is more discretionary income available for things like gold coins. I'm not certain that my own business will be quite as good in Q2 as it was during the first quarter but I think the immediate future of the rare date gold market is very good and it is likely to stay good for a while.
