A potential new client recently asked me a basic but interesting question: which gold coins are the best investments? As those of you who know me realize, I don’t really tout coins as an “investment.” But I want my customers to make money on the coins that they purchase from me and I try to steer them towards pieces that I think will appreciate in value over the course of time. In my opinion, there are a few factors that make specific coins a good investment and which should perform well. Some of these factors are as follows:
1. Liquidity: Does a specific type of coin sell very quickly when I list it on my website or does it tend to languish for an interminable period of time? I notice that certain coins are consistently good sellers. Generally speaking, they fall in the “sweet spot” pricing range of $2,500 to $7,500. They are usually coins with an interesting history and pieces with good aesthetic appeal. As a rule of thumb, the more expensive a coin is the less liquid it becomes (although, in the last three to five years, very expensive coins and ultra-rarities have been remarkably liquid). As I told the gentleman who inquired about coins as investments, the pieces that are the most liquid are the best to own.
The “quality of liquidity” is important as well. Will the person most likely to buy your coin(s) be a specialized collector or a dealer? I personally like coins that I can sell to end-users as opposed to dealers who will look at them primarily as commodities and be more conscious of price than quality.
2. Popularity: Popularity and liquidity are not the same thing. A coin can be liquid but be a part of a not especially popular series (an 1838-C half eagle is an example of coin that is very popular but it is from a series—Charlotte half eagles—that I would not describe as being immensely popular) while a popular coin can be relatively illiquid (an example of this would be an unappealing, lower grade High Relief which most collectors would probably pass on and spend a bit more money to acquire a nice piece). An excellent collection could be created out of nothing but very popular coins—pieces like 1861-D gold dollars, 1839-O quarter eagles, 1838-C and 1839-D half eagles, 1838-D and 1839-D half eagles, 1838 eagles, 1861-O double eagles, etc. I refer to issues like this as the “Krugerrands of Rare Date Gold” as they are coins that are almost like cash.
In the same vein, I am an advocate of “absolute rarity” as opposed to “condition rarity.” A coin like an 1841-O eagle is rare in all grades and I will buy any example I can find, unless it has been harshly cleaned or damaged. An 1843-O eagle is not a rare coin in lower grades and I will generally not purchase a piece unless it grades at least AU55. Give the choice of owning a nice EF40 1841-O eagle or an AU55 1843-O eagle, I would personally rather have the former.
3. Rarity: It would seem obvious that the rarer the coin, the better the investment it is. This is actually not always the case. If a coin is very rare but it is part of a series that is not popular and/or readily liquid, then it may not necessarily be a good investment. An 1846 eagle is a genuinely rare coin that is nearly impossible to find in any grade higher than EF45 to AU50. If I were offered a nice, original AU55 I would certainly purchase it. But this is a coin that I would not expect to sell quickly and it might actually take me a number of months to move it. The problem with this coin is that it is a member of a series (Liberty Head eagles) that does not have many specialists and it is a Philadelphia issue.
The perfect “investment quality” coin is one that is not only rare but which is popular and liquid. A coin that scores highly on all three of these fronts is one that should perform well.
4. Historic Price Performance: With the advances in price dissemination available to collectors, it is easier than ever to track how coins have performed over the past three to five years. We have been in the midst of what is ostensibly the greatest sustained bull market in numismatic history and if a specific coin hasn’t done well since the early 2000’s, than the chances are good it isn’t going to do very well when this market finally cools off.
By the same token, an investor wants to avoid a coin that is currently at an all-time high in price. If you look at the price levels for a coin like a 1911-D quarter eagle in Uncirculated, you can see that it was selling for considerably more money by the beginning of 2006 than it had at any time since the halcyon days of the late 1980’s. It didn’t take a rocket scientist to figure that the 1911-D had probably risen to the point where it was no longer a good value. And this is exactly what has happened, as the value of this issue has dropped 10-20% in the past few months.
If you are a bottom-line oriented coin buyer, avoid issues which appear to be at a market peak. Conversely, being a total contrarian might not be a great idea either. The perfect coins to buy are those that have shown some price increases in recent years but whose price levels still make sense, considering their rarity and grade.