The recent Coin World “Coin Values” (or Trends as we long-time dealers call it) features a number of price reductions in the various Liberty Head gold series. This has caused some interesting pricing anomalies that have major ramifications for collectors of rare date gold coins. The grade range that appears to be severely affected by the Trends revisions is AU50 to AU58. This makes sense as this is the grade range that, in my opinion, has been most severely compromised by the grading services over the years. I think this especially true for the AU55 and AU58 grades; a range that includes many coins that are marginal quality at best.
A number of factors caused these values to be reduced by the Trends editor(s). One is, of course, auction prices. As I have stated a number of times in the past, one of the biggest problems with coin pricing is the fact that one bad apple can literally spoil the whole bunch. Let me give you an example. Let’s say that Trends in AU58 for a specific Charlotte quarter eagle was $9,000 in AU58. Then let’s say that a really, really low end example in an AU58 holder sells at auction for $4,000. Does this mean that the price of this issue should suddenly be cut in half?
I would argue that it shouldn’t. But I would also argue that a compression of values for rare date gold is inevitable.
Value compression is not without precedent. Two of the most famous examples that I can think of are the Iowa half dollar (worth $85 in XF and $100 in MS65) and the Roanoke half dollar (worth $160 in XF and $180 in MS64). The reason why values become compressed for a specific coin is that the market believes that a premium is unmerited. In the case of the Roanoke half dollar, the reason is obvious: because of the cluttered design, an AU58 Roanoke looks essentially no different from an MS64. For better or worse, this is what has happened with certain branch mint gold coins due to erratic grading standards.
Let me give you an example. The more sophisticated segment of the rare date gold market believes that a choice, original coin graded EF45 is preferable to a bright, shiny processed AU53. Because of this, it tends to place a value premium on the nice 45 coin. The same collector who is willing to spend, say $2,500 on a Choice EF would probably pass on a crappy AU53 example of the same date at $3,000; even though the higher graded example is seemingly the “better deal.”
There are now at least three distinct segments of the rare date gold market. There are the serious hard-core collectors with some budget constraints who will spend $1,500-3,500 on a coin without flinching. This segment of the market is as strong as ever; maybe even more so than in the 2004-2006 Boom Years. The next segment is the casual uninformed investor, the deal-seeker or the “world-is-coming-to-an-end-so-I need-to-own-gold” buyer. They are the likely buyers of the not-so-nice coins that might range from slightly overgraded to blatantly overgraded. This segment of the market is extremely weak right now. The third segment of the market is the high budget connoisseur who is searching for coins that are in or near the Condition Census for the issue; maybe even the finest known. This segment of the market is clearly not as strong as it was a few years ago but if the right coin comes along, these buyers will pay strong prices.
With the existence of these three segments what has happened is that the market has become stronger at the lower end, much weaker at the middle end and slightly weaker but still capable of a wallop on the higher end. As a result, a coin that is worth $2,000 in EF45 and $10,000 in MS60 might only be worth $3,000-4,000 in schlocky AU53. And it might be a hard sale for a dealer even at this compressed level.
Now, here’s where the interesting play comes in for the savvy buyer. I think some nice quality AU53 and AU55 coins are going to get dragged down along with the schlock. Let’s say that you are able to buy a nice Charlotte or Dahlonega quarter eagle in properly graded AU53 for $2,750-3,250 (when a nice EF45 is worth $2,250-2,500). In this case, paying the extra 20% or so for a coin that is demonstrably better is an excellent value. If the collector learns which AU53 quarter eagles are nice for the grade, they are getting coins that are more cosmetically appealing than a nice EF45 and a compressed value that makes plenty of sense to me.