Value Compression
/An interesting recent trend in the rare gold coin market has been what I refer to as “value compression.” In years past, a small jump in a rare gold coin’s grade could mean an enormous jump in value. But the value jumps between certain grades are not nearly as great as they used to be. Why is this? I think the explanation is relatively simple. In the past, there used to be a lot of visual difference between, say, Extremely Fine-40 and Extremely Fine-45. And the difference between an Extremely Fine-40 and an About Uncirculated-50 coin was quite dramatic.
In today’s world, there often is virtually no aesthetic difference between an EF40 and an EF45 and, often times, an EF40 and an AU50 do not show all that much visual difference. As a result of this, the difference in values between the two levels has shrunken considerably. After all, why pay a premium price for something that does not appear to be tangibly “better?”
A perfect example of this is a common date Charlotte or Dahlonega half eagle in EF40 and AU50. In the past, you could expect to pay at least double—possibly even triple—for an AU50 as opposed to an EF40. As an example, if a nice Extremely Fine 1853-C half eagle was worth around $750-1,000 you could expect to pay around $1,500 to $2,000 for a nice quality AU coin.
Today, the value spread between these two grade ranges has compressed considerably. A nice EF 1853-C half eagle is a $2,500 coin while a solid AU is worth $3,250-3,500. What the market has realized is that there is not enough cosmetic difference between these grade levels to justify paying double or even triple for the higher graded coin.
In many cases I agree with this value compression. But I also think this compression of values has overreacted in some cases, leaving the higher grade coins very undervalued.
Let me give you an example. I recently sold a really nice 1853-C half eagle graded AU58 by NGC to a collector for $4,250. I thought I priced the coin a little on the cheap side but I like this collector a lot and wanted to pass onto him what I thought was a great purchase by me. If I owned a decent but nothing special EF45 example of this date, I would be able to sell it for $2,250 to $2,500. In my opinion, a very nice AU58 coin at around double the price of a decent EF45 is an extremely good value.
I can give you other examples of this but don’t want to beat a dead horse. My point is that with the current compression of values in the rare date gold market, there are some surprisingly good values in the AU55 and AU58 grades.
There are still numerous gold coins where a one point upgrade can mean tens of thousands of dollars in price difference. As an example, the price spread between a 1911-D and a 1915-S half eagle (to name just two) in MS64 to MS65 is well over $100,000. Think about that for a second…a measly one point increase can be the difference between, say, a $50,000 and a $150,000 coin. And the scariest part of that statement is that there are only about three people in the world who can actually tell the difference between an MS64 Indian Head half eagle and an MS65 (actually that’s a bit of an exaggeration…although not by much!).
Because of the demonstrable rarity of coins like a 1911-D or 1914-S half eagle in Gem Uncirculated, it is likely that such coins will always have a large premium over the next grade down. But how about for lower grade Uncirculated coins like MS61 and MS62?
My prediction is that we will see values further compress between the MS60 and MS61 and the MS61 and MS62 range very soon. In most cases, there just isn’t enough visual difference between, say, an MS60 1849-C quarter eagle and the same date in MS62 to justify the current Trends price jump from $25,000 (for an MS60) to $60,000 (for an MS62).
We are already seeing price compression in the AU58 to MS62 price range for small coins like gold dollars. As an example, an 1854-D gold dollar jumps from $15,000 in MS60 to just $20,000 in MS62. Why such a small jump? Because, the vast majority of slabbed MS62 examples of this date aren’t all that much better looking than MS60’s or MS61’s. On bigger coins, like eagles and double eagles, where the visual difference between MS60 and MS62 is more pronounced, it is likely that this price compression will not be as great.