Why No Motto Philadelphia Half Eagles May be the Best Value in Today's Dated Gold Market

Why No Motto Philadelphia Half Eagles May be the Best Value in Today's Dated Gold Market

I have written these words before but I still feel that the No Motto Philadelphia half eagle date run, issued from 1840 through 1865, contains a number of under-appreciated issues. These issues clearly don’t include the 1862-1865 which are now in strong demand due to their Civil War issuance, but which do include nearly all the dates made between 1840 and 1861.

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Buying the Jump Grade

A few recent  coin sales that were made by my firm have given me an idea for a blog that I think is interesting. I've written about this before so I'll try to approach what I think is an important concept from a new perspective. The concept of value is extremely important to me when I buy a coin for my inventory and I try and share this with clients of DWN. In a nutshell, my core belief in coin buying is that, with most coins, there is a point at which you can "overbuy" . There are obvious examples of this and not so obvious ones.

The basis of my concept is what I refer to as the "jump" grade for a coin. The jump grade is the point at which the value spread for a coin becomes out of whack and the higher grade(s) for a coin no longer make sense.

 Let's look at a hypothetical pricing structure for a coin in higher grades:

     MS63:  $2500

     MS64:  $5000

     MS65:  $90000

This seems far-fetched, right? In truth, this is the exact value spread chart for a 1920 St. Gaudens double eagle, an issue that I consider to be the poster child for buying the jump grade which is MS64.

In this case, an MS64 example at $5,000 seems to make alot more sense than an MS65 at $90,000, especially given the fact that the single PCGS MS65 1920 Saint that has ever been graded isn't all that much nicer than a number of the 64's that I've seen or sold. So why would anyone buy a $90,000 version of a coin that can be represented in a set by a nice $5,000 version?

The answer is more complicated than you think. Obviously, part of it is vanity. Very high end collectors demand the finest coins and if a finest known coin jumps nearly 20x in value over the next grade down, that's just the reality of the market. If you are putting together a set of Saints that is competing for the finest in the set registry, the opportunity to add a finest known population one/none better coin (and the huge number of "points" that come with such a coin) is far and few between.

But what about the rest of us; we coin buyers without unlimited funds?

I'd like to share a few of my personal philosophies about value in numismatics.

     1.  Most collectors overbuy common coins and underbuy key coins. This is especially true for gold collectors who focus on 20th century issues. Let me give you an example. If you are collecting high grade Indian Head half eagles by date, why spend $25,000-30,000 on a common date in MS66 when you can buy a perfectly acceptable MS65 for half that amount? I think I'd rather pocket the $12,500-15,000 difference and apply it to a truly rare coin like a 1911-D. Conversely, the same collector who is working on the killer set of Indian half eagles would be foolish to scrimp on a classic issue like a 1929 and buy a "details grade" cleaned example so he could save money.

     2.  Issues with large underlying populations are dangerous purchases. Let me give you an example, along with a chart:

     1879-S Double Eagle

     Grade          PCGS Population          Value Range

     MS61                        225                        4000-5000+

     MS62                         59                          11000-13000+

     MS63                           3                           40000++

This issue actually has not one but two jump grades. For many collectors, the choice will be clear: buy an MS61 because in MS62 the price of this issue jumps almost threefold. An important point to consider is how many of the 225 coins graded MS61 (the actual number factoring in resubmissions is probably still 125-150) could become MS62 someday? Even if the number is just 10-20% percent of the total, that's still potentially as many as 15-30 new MS62 coins. Is the market deep enough to handle that high an influx and still maintain current value levels?

But for collectors with deeper pockets, MS62 is the jump grade for this issue, especially given the fact that they are unlkely to have the chance to buy an MS63 ( considering that the PCGS population is just three  and none have traded at auction since 2006). My personal choice would be a nice MS61 but I would buy a high end MS62 at, say, $15,000 if it were an obvious "just miss" coin.

3.  "Boring" coins deserve "boring" grades in most sets.  To me, a coin like a Dahlonega quarter eagle is interesting. That's why I don't think you can really "overbuy" in this series. There are very, very few D mint quarter eagles graded MS65 (or even MS64) and just about any coin graded as such, unless its horribly overgraded, is worthy of consideration for an advanced Dahlonega specialist.

But a coin like an 1898-S half eagle is boring. There were nearly 1.4 million struck, thousands and thousands exist and most range from nice to very nice. I have a hard time getting excited about a nice 1898-S half eagle; even the direct-from-the-mint to-John Clapp piece, now graded MS68 by PCGS. This coin last sold for $81,600 and I can think of alot of U.S. gold coins at this price point that I'd rather own. The only real "function" that this MS68 example might properly serve is as a type representative in a knock-your-socks off set.

4.  Type collecting looks at jump grades differently than date collecting.  Type collectors just buy one example of a specific design unlike date collectors who buy numerous. So a type collector will look at a jump grade differently. Going back to our earlier example of the Indian Head half eagle, for type purposes an MS66 might make sense and this becomes the jump grade; given that the next grade up (MS67) is likely to cost $70,000 or more.

5. You can throw the book away when it comes to dual rarities.  There are coins that are rare because of their grade and there are coins that are rare because few are known. Then there is the "rarest of the rare." These are coins that I refer to as "dual rarities" because they check boxes on both sides. An example of a dual rarity is a coin like the Byron Reed 1864 quarter eagle, which is graded MS67 by NGC. This is a coin that is not only very rare in any grade, it is an amazing piece from a condition and appearance standpoint.

I'm going to write an article on dual rarities and it should appear in the next few days on my website www.raregoldcoins.com.

Whether you have a coin budget of $1,000 or $1,000,000, you want to get the best value you can every time you make a purchase. Understanding the concept of the jump grade can help you as you mull decisions for your collection.

How Do You Price Really Special Coins?

In the recent Schuyler Rumsey coin auction, there were a number of coins that I would define as "really special." After the sale was over, I thought about the prices they brought and was initially pretty stunned. Upon further reflection, I still think that these coins brought strong prices but the numbers now make a little more sense . Let's take a look at some of these specific coins and then ask (and answer) a bigger question: how do you price a really special coin? This was not a condition-related sale and there were only a few coins that brought a tremendous amount of money because they were high grade for the issue. Examples of such coins include the 1852-O eagle in PCGS AU55 (Lot 982) that brought $18,400 and the 1870-CC eagle in PCGS EF45 (Lot 1030) that sold for $97,750. In both cases these coins sold to savvy dealers who clearly believed that the coins would upgrade significantly. If they don't upgrade, both coins will prove to be bad deals for their buyers.

But the coins that were of real interest to me in the sale were the still-slightly-under-the-radar rarities like the 1864-S eagle, the 1873 eagle and the 1876 eagle. These aren't coins that condition is solely relevant. They are what I call "fundamental rarities" or coins that are rare in all grades.

In the Liberty Head eagle series, the 1864-S, 1873 and 1876 are three of the rarest collectable issues. In fact, the only eagle that is rarer is the 1875 which is, for all intents and purposes, nearly impossible to find.

The 1864-S eagle in the Rumsey sale (Lot 1017) was graded VF30 by PCGS. It was a coin that I thought was accurately graded and, in spite of a scratch on the reverse, it was evenly worn and rather handsome for the grade. This coin sold for $34,500; by far a record price for the date in this grade. I know the buyer of this coin; he is a very sophisticated collector. The underbidder was a knowledgeable dealer. Were these two individuals crazy or were they savvy?

Before we can accurately answer that question, some background information about the 1864-S is in order. And after this, we need to look at ways in which really special coins (which any 1864-S eagle is) are priced.

The 1864-S is the second rarest Liberty Head eagle after the 1875. There are probably no more than 20-25 known to exist. In my experience, the opportunity to purchase one occurs maybe once every three to five years. This is verified by the fact that only one piece (Bowers and Merena 7/06: 1640, PCGS EF45 at $50,600) had sold in the last five years. To find a piece that was comparable to Rumsey:1017 you had to go all the way back to the Richmond I: 2074 example (graded EF40 by NGC and selling for $10,350 but a coin which, as I recall, was really no better than the PCGS VF30 being offered).

Using comparable auction prices to help determine the price of a rare coin has become commonplace in the last few years. In the case of the 1864-S, this was not a good method for at least two of the following reasons:

The number of auction records for VF30 1864-S eagles is virtually nonexistent. The last coin sold at auction as "VF30" was a raw, cleaned example in July 1997 that brought $8.050. Clearly, this is of no help.

Since the Richmond I: 2074 coin was sold back in 2004, the market for this issue has totally changed. This is proven by the $50,600 that an EF45 brought just two years later. But that was six years ago and, if anything, the number of collectors who want an 1864-S eagle in any grade has at least doubled--if not tripled.

Since we can safely state that using auction comparables to price an 1864-S eagle isn't going to work, then how about checking a published price guide like Coin World Trends? According to the most recent edition, values for the 1864-S eagle are $5,500 in VF20 and $12,500. These were probably accurate in 1992 but in 2012 they are clearly completely and utterly irrelevant in 2012 (but that's another story...)

Before I render my verdict on whether the 1864-S in the Rumsey sale was a good deal or a bad deal, I think there are two other points to touch on.

The first is opportunity cost. If you are a deep-pocketed collector and you are particpating in a challenging series with a number of really special issues included (Liberty Head eagles are a poster child for this) you always have to determine how often will you have the chance to buy an acceptable example. In the case of the 1864-S, it's been pretty well established that its going to be once every three to five years if you are lucky. So the chance to buy a decent one represents an exceptionally important opportunity for the serious collector.

Second is the fact that any really special coin is part of what I refer to as a transaction-driven market. What I mean by this is that when you buy an 1864-S eagle in PCGS VF30 for $34,500 you have essentially created a new market. Yes, this market is considerably higher than it was the last time that one traded. But the reality of the market is that since a VF30 just traded for $34,000 in a public transaction, all the geniuises that live by comparable auction prices realized are now going to see this $34,000 trade. Even if Trends ignores this transaction and keeps their estimated value at 1992 levels, the bar has still been raised.

Let's take a less involved look at the other two really rare date eagles that I mentioned above.

The 1873 eagle in the sale (Lot 1040) was graded EF45 by PCGS. It sold for $43,125.

While not as rare as the 1864-S, the 1873 eagle is still a seriously rare issue with an estimated three dozen or so known from an original mintage of just 800. I have handled two or three in the last five years and actually had a reasonably hard time selling them as I found this to be an issue that lacked the rarity recognition that other issues in the series have.

The last EF45 to sell at auction (an NGC EF45 coin) brought $11,212 in Superior's 9/08 auction. The last transaction of any sort was an NGC AU58 sold by Heritage in June 2010 that realized $27,600. Based on these two transaction and on my knowledge of the series, I figured that the 1873 in the Rumsey sale would bring somewhere in the $15,000-20,000 range.

Why did it sell for so much this time? I think there are a few reasons. First of all, at least two people really wanted this coin. Even though the opening bid was a very strong $24,000, these two bidders slugged it out until the final bell rang at $37,500. Strong price? Yes! Crazy price? Maybe not...

As I thought about the 1873, I had the following realization. For years, this was an absurdly undervalued date. The NGC AU58 that sold for 28 grand in 2010? Even though it wasn't a cosmetically appealing coin, even then I knew it was really cheap. And here's why. For years, the quartet of very rare business strike Type Three Philadelphia double eagles traded in the $5,000-10,000 range for decent EF examples. But after they suddenly got hot, prices rose to $20,000, then to $30,000, then even higher. An 1873 eagle is just as rare as any of the Big Five Philly Type Threes. Why should it sell at such a discount? Especially now that Liberty Head eagles have some strong collector support?

The 1876 eagle in the Rumsey sale (Lot 1047) was graded AU53 by PCGS and it also sold for $43,125. To me, this was a very surprising price.

I find the 1876 to be less rare than the 1873, despite a lower mintage of 687 coins. There are around forty to fifty known and I can recall having owned at least three in the last two to three years. Like the 1873, they were not an easy sell even with the fact that the mintage figure is the second lowest in the whole series after the 1875.

Heritage 10/10: 4892, graded AU53 by PCGS, was a good comparable to the Rumsey coin and it sold for $14,950. I figured the Rumsey coin might bring as much as $20,000 and it opened at just $13,000. Again, two bidders slugged it out and this time, the match lasted longer.

Good deal or bad deal? I liked the coin better than the 1873 (I thought it migt upgrade to AU55 if resubmitted) but I didn't think that the 1876 carried as much opportunity cost. In other words, I would have told a collector that if this one doesn't work out, it's possible that another decent coin will turn up in a year or so; maybe even less. So, on this one, I'm going to have to vote more towards the "not a bad deal but probably not a good deal" camp.

As is so often the case in my writing (and my thinking!) I've gotten a bit off track and still don't feel that I've totally answered the original question in this blog: "how do you price really special coins?"

I've mentioned above that published price information is not a good indicator for really rare coins. And while sometimes helpful, auction price data has to be very subtly interpreted to be truly helpful.

Ultimately, the price of a really special coin boils down to what your gut feels that it is worth. If you are willing to pay $25,000 for a decent 1864-S eagle and you've been waiting four years for the chance to buy one, shouldn't you be willing to pull the trigger at $30,000 or even $35,000?

What I find most helpful is knowing the series in question very well. As I mentioned above, the Liberty Head eagle series has become more popular in the last two or three years than at any time I can remember. So pre-2010 auction prices often have to be taken with a grain of salt. And it helps to know that certain other rare issues, like the 1883-O, have a number of recent auction trades and private sales in the $40,000-70,000 range. The 1883-O is more popular than the 1873 and the 1876 but it is of comparable rarity. If an AU50 example of this date is worth $50,000-60,000 then shouldn't an 1876 in AU53 be worth at least half this?

These are the sort of questions that make numismaics such an enjoyable pasttime to me. Do you have questions or comments regarding the values of really special rare coins? If so, please feel free to email me at dwn@ont.com

Are Gem Type Two Gold Dollars Underpriced or Overpriced?

I recently bought and sold a coin that I hadn't handled in quite a few years: a Gem Type Two gold dollar. For those of us of a certain age, this is an exciting coin and one that got me to thinking: is this a type that is underpriced or overpriced? My thoughts on this subject follow. Back in the 1980's, my mentor in the rare coin business, Paul Nugget, told me an interesting story about Type Two gold dollars. He said that in the 1970's, Type Two gold dollars were essentially unknown in Gem Uncirculated and were very hard to locate even in what, today, would represent the MS63 to MS64 grade range. I have always found it curious that this once-rare type became so much more available in the ensuing years; a subplot to this story that I'll touch on in a moment.

For those of you who are wondering "what is a Type Two gold dollar," it is a short-lived design type of gold dollar that was introduced in 1854 and replaced in 1856. It features a small Indian Princess portrait on the obverse and it is a type that is notorious for strike-related problems such as clashmarks and weakness at the centers as a result of a flawed design that made it nearly impossible to fully strike up.

The two issues of this design that are seen most often are the 1854 and 1855 Philadelphia dollars. When people refer to "Type Two dollars" as a specific type coin, it is likely that they are speaking about one of these. Type Two dollars were also made, for one year only, in Dahlonega (1855-D), Charlotte (1855-C), New Orleans (1855-O) and San Francisco (1856-S). The branch mint issues are scarce to rare and remain very popular with collectors.

When collecting gold coins by type was in its heyday, the Type Two dollar was the single rarest and most expensive member of the twelve-piece type set. I can remember Type Two gold dollars in MS65 trading for over $50,000; in some cases as much as $55,000 to $60,000.

Today, the same coin is worth $30,000 at most (if the coin is really nice, in a PCGS holder and CAC approved) and more likely around $27,500.

What happened?

As far as I can tell, there were at least four things that occurred, all of which conspired to really hurt this market. The first is gradeflation. When Type Two gold dollars were worth $50,000+, they were superb coins. Today, I see many (if not most) Type Two gold dollars graded MS65 and I go "meh..." The coins range from not-so-nice to decent but very few are what I feel are Gems. This lessening of standards has clearly hurt the market for this type.

The second factor is a change in collector taste. In the 1980's and 1990's, many rare coin firms encouraged new collectors and investors to assemble twelve coin gold type sets. When these sets were in vogue, the Type Two dollar was the key issue. But these firms have stopped selling Gem U.S. gold for type sets and the whole concept has, for all intents and purposes, fallen off the map. When no one is collecting gold type sets, the demand for Gem Type Two gold dollars drops appreciably.

The third factor is an inversion of the classic supply and demand ratio for these coins. A decade ago, there were always people looking for Type Two gold dollars in Gem for their sets but very few coins around. Today, there are few people looking for them but a reasonably large supply. As I write this article, PCGS and NGC have combined to grade 149 Type Two gold dollars in MS65. Even factoring in resubmissions, it is still likely that as many as 90-110 Gem Type Two gold dollars have been graded, not to mention another 37 combined by PCGS and NGC in MS66. Clearly there are not 100 collectors who want Gem Type Two gold dollars.

(Interestingly, the level of demand for branch mint Type Two gold dollars has soared in the last decade. By virtue of being scarce, interesting and numismatically significant due to theit status as one-year types, coins like 1855-C and 1855-D dollars have risen in value--dramatically in the case of the latter--and are far more in demand than high grade examples from the Philadelphia mint).

I think there is one more factor that has hurt the value of this type: its small size. Let's face it, coin collectors are not getting any younger and the typical demographic of collectors who can afford a $30,000 Type Two gold dollar is over 55 and unable to see a coin this small without strong magnification.

Before closing, I'd like to address one point I raised earlier in this article. I mentioned that there is an aura of mystery around Gem Type Two gold dollars. How did a type that was virtually unknown in Gem thirty years ago become a coin that is featured for sale in every major auction these days? Part of it is certainly gradeflation but I think the answer is deeper than this. I don't know for certain but I think there is/was a hoard of high quality Type Two dollars that was quietly and brilliantly released into the market, a few at a time, for years. I don't know the specifics about it but how else can you explain a coin going from virtually unknown to nearly ubiquitous?

So what's my conclusion? Are Gem Type Two gold dollar undervalued or overvalued? Given the current state of the market, I'd have to pick overvalued. At $30,000 or so for a real Gem, they just don't seem like a good buy to me. At $15,000 for an MS65 I am certainly a buyer and maybe even at $20,000 for the right coin. But at $30,000 I'd rather have a nice, well struck 1855-D dollar in Choice AU or a properly graded MS63 1855-O dollar.

Why Are Some Rare Coins Undervalued?

Why are some coins clearly undervalued? I could answer this question existentially and say “because some have to be.” But the answer to this question is worth a little more exploration. Here are some things to consider about the valuations of coins. First and foremost, many of the areas of the rare coin market are thinly traded. In some cases, published prices for coins are speculative due to no examples having ever traded or they represent older price levels that have not been updated in many years. There are times when I am trying to figure what to bid for a very special rare coin at auction and I’m not sure I can scientifically pinpoint the exact price level. This can even be the case with coins that aren’t all that special but which haven’t traded in a long enough period of time to make their current value baffling.

Coin values are predicated by a supply and demand ratio. I have used this scenario enough times that it is now a semi-cliché but consider the following. If there are ten examples known of a certain coin but only three people care, it has an oversupply and its value is probably not very high despite its rarity. But if the same coin has thirty avid collectors than it will probably have a strong level of value.

This supply vs. demand situation is why some truly rare coins remain undervalued. As an example, look at a coin like the 1867 quarter eagle. Only 3,200 were struck and the most recent PCGS population figures show that just twenty-four have been graded. Despite this fact, the current value in AU55 is a whopping $1,500 or so. Shouldn’t this be a $3,000 or even a $5,000 coin? In theory, yes it should. But practical experience dictates that the level of demand for 1867 quarter eagles, which is virtually non-existent, keeps the price low. Advocates of the 1867 quarter eagle will counter with the argument “well, if this were an Indian quarter eagle with a population of twenty-four in all grades, it would be worth 10x in AU55.” In theory, this argument has merit. My counter-argument would be that the Indian Quarter Eagle series is many times more popular with collectors and that this is essentially an apples to oranges comparison.

The coin market is clearly becoming more and more researched-based as time goes by but I think the entire pricing system we have is antiquated. Let’s get back to the point I made in the second paragraph, about the market having thinly traded areas. These infrequently traded series are often compounded by a lack of good pricing information. I am always impressed by collector-dominated series like early Large Cents or Bust half dollars that have databases of pricing information available to collectors. The rare gold coin market doesn’t have this (yet) and I think it would be a real shot in the arm if someone were able to produce a price guide that helped dealers and collectors accurately determine values.

What I’d like to see even more is for an appearance-specific price guide to exist for these coins. Collectors of early Large Cents classify coins by three categories: choice, average and “scudzy.” Let’s say collectors are offered a certain die variety of 1796 Large Cent. A choice coin may be worth $5,000, an average coin $3,500 and a very low-end coin might only be worth $2,000. I’m not certain that these variations would be as extreme for, say, an 1854-C quarter eagle in slabbed AU55 but I do personally think a nice coin for the grade is already worth considerably more than an ugly one.

Getting back to my original point: why are certain coins undervalued? As I stated earlier, the major reason for this is that they are just not that popular. Another reason--one that is harder to give an explanation to--is that in any long series, it is inevitable that a percentage of the coins are “sleepers.” I previously mentioned that the lack of accurate pricing information in the market means that it is always going to be inevitable that a number of coins fall through the cracks. The value of being a specialist is that you will learn what coins are the sleepers before they become more widely known.

U.S. Coin Pricing Guides

When someone really, truly figures out how to properly compile and market an accurate, real-time pricing guide for United States coins, they are going to become very wealthy and very popular. Because, at this point in time, the pricing mechanisms for most rare United States coins are a mess. Let me explain what I mean. Let’s say you want to buy an 1858-C half eagle graded AU55 by PCGS or NGC. You do not have the coin in hand but you have seen an image of it on a dealer’s website or in an on-line auction. What’s your next step?

You’ll probably do one of two things. If you are a specialized collector you’ll look up its valuation in Coin World Trends or in the CDN Quarterly Summary. The former shows its value to be $5,000. The latter, unfortunately, does not list values for AU55 coins—only AU50 and AU58, so in this particular case it is essentially useless.

What, you ask yourself, does this value of $5,000 actually mean? If you read the fine print in a copy of “Coin Values” you will see that Coin World considers its publication to be a retail price guide. It also states “values are listed for coins that are strictly graded in each grade category according to current market standards.” So does this mean that the collector should expect to pay $5,000 for an 1858-C half eagle in AU55? Unfortunately, Trends is not really clear in explaining this.

The next step for most collectors is to search an on-line database of prices realized at auction. The Heritage Auction Prices Archives, as I have pointed out many times before, is an incredible resource with over 1,125,000 auction lots listed.

In looking up the 1858-C half eagle in AU55, a few things become apparent. The first is the frequency with which this date appears at auction. There were a total of nine different auction appearances in 2006 plus another five in 2005. Even if we assume that some were the same coin(s) sold more than once, fourteen appearances in two years is a high degree of frequency. Thus, we can make the assumption that this coin isn’t really that rare from the standpoint of total number known and it should, therefore, sell at a discount relative to Trends. The fact that it is not a terribly popular or “important” issue (like the 1838-C or 1839-C half eagles) probably would increase this discount relative to Trends.

The next thing I would look at is the most recent auction records for AU55’s. They are as follows: $3,220, $2,990, $5,750 and $5,175. Clearly, this is a huge range and this is where I think using auction price data without proper interpretation can be very misleading for the collector.

Looking back at my catalogs for each of these four AU55 coins, my notes stated the following. For the coin that brought $3,220 I felt it was decent for the grade and I think the buyer got a pretty good deal on this. The coin that sold for $2,990 was “very ugly” in my opinion and even though this was very cheap, it is a case of getting what you pay for. The coin that sold for $5,750 was in an old green label PCGS holder and I graded it “58+,” meaning I thought it had a good shot to grade Uncirculated if resubmitted. And the coin that realized $5,175 was, I felt, “very choice and original” and would upgrade to AU58.

Four coins, same date, same grade...but prices that range from a low of $2,990 to a high of $5,750.

What pricing sheets do not help the collector with is the diversity of quality within a specific grade. These prices tell me that a really lousy 1858-C half eagle in AU55 is probably worth around $3,000; or 60% of Trends. A coin that is decent for the grade (not spectacular but not something that you look at and go “yuck”) is worth around $3,250. A coin that is very nice for the grade (not an upgrade candidate but a piece that has attractive natural color and surfaces) is worth $3,750 or so. And a really high end coin (one that is a seeming candidate to upgrade to AU58) is worth anywhere from $4,500 to $5,500.

Confused yet?

No commercial pricing sheet is going to be able to give you four different quality levels for each grade. We’d be talking about a massive undertaking and a project that few people are qualified to undertake. But it can be done. Collectors of Large Cents rely on a pricing guide called CQR which gives three price ranges for a host of grades for every die variety from 1793 to 1814. This is clearly a labor of love (I can’t imagine that the publishers are getting rich publishing CQR!) but it provides advanced collectors with a set of pricing applications that, within a highly specialized series, makes sense.

What if this specialized pricing were to be applied to various other series? What if some clever entrepreneur got together a group of leading experts and had them be in charge of detailed pricing for a highly specialized market segment? As an example, you could have Stewart Blay, David Schweitz and Andy Skrabalak collectively create and maintain a database for Mint State and Proof Lincoln Cents. If I were a collector of these coins, I think I would pay $100 per year to have access to this pricing that might not be available anywhere else. By charging this amount, the owner of the pricing service could at least defray some of his expenses.

I would expect that as the coin market evolves in the future, we will start seeing some experiments with specialized pricing. I could see this idea working very well for popular series like Bust half dollars and Indian Head cents and I don’t think it would be hard to create categories of quality for popular series such as Morgan dollars (by this I mean an “A” level for extremely nice coins, a “B” level for average to above average coins and a “C” level for below average coins). Most experts, myself included, already grade coins by category and quantifying this information would be relatively simple.

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.

Gold Coin Market's Strength

Part of me wants to think that the gold coin market’s currently high values represent a peak and that a correction is due. But the more I look at the market, the more I think that it truly has legs and that prices are not going to go down any time soon. Here are a few reasons why I think the gold coin market is not going to drop any time soon:

    There are a lot more people looking to buy coins than there are people selling. As long as demand outstrips supply, prices are not going to go down. In some areas, like early gold, prices have doubled or even tripled in the past three to five years, yet the current supply of early gold is the smallest I can ever remember. When you see auction sales with a large number of interesting early gold coins for sale, this might be a sign that this area is correcting. But as long as people are more interested in buying than selling, look for prices to continue to rise.

    With gold (and silver) at twenty-five year highs, coin prices aren’t going down any time soon. If both of these markets show a major short-term correction, it is likely that certain areas of the market will weaken. But I don’t think that gold dropping from $600 to $500 is going to affect the value of a rare date St. Gaudens double eagle or a rare Liberty Head eagle.

    There is a lot of money in the world right now. I recently went shopping for a new house in Portland, Oregon and was pretty shocked to see how little $1 million bought you in this once-sleepy market. Not that long ago, one million dollars was a staggering amount of money to pay for a house. Today, it’s what many people pay for their second—or even third—residence. Gone on vacation lately? Taken the wife or significant other out for a fancy meal? Filled up the car? It’s an expensive world we live in these days, and the gold coin market merely reflects this fact.

The most interesting thing about this market is that it is still mostly self-generated. People really want gold coins; unlike in 1979-80 and 1989-90 when they were told they really wanted them. If you remember those two markets, you can remember insane price manipulations and wacky hype that, viewed today, seems like…well, insane hype.

One has to wonder, what will happen to gold coin prices if the Chinese decide they want to play. Or if someone really clever decides to corner the market in MS65 Indian Head gold (it’s SO easy to do!) and then expertly market the coins. Then today’s seemingly “insane” gold coin prices could actually look cheap.

Five Beginner's Mistakes and How To Correct Them

Almost every new collector makes mistakes, no matter what hobby he participates in. After many years of working with collectors, there are a number of common errors that I often see. Assuming that a collector is truly interested in correcting them (some people continue to make these basic mistakes, believing that they are "too smart" to receive constructive criticism), most can be rectified with a combination of time, money, patience, and the desire to learn to collect the "right" way. Mistake #1: A new collector pays too much for coins.

"Paying too much" is a relative term. There is a big difference between paying 5-10% too much for very nice, genuinely desirable coins and paying 50% too much for poor quality, unpopular coins. In the first instance, the passing of time will overcome a slight overpayment as will the fact that truly nice coins always sell for a bit too much money. In the second instance, the collector needs to learn how much nice coins really sell for and where to buy them.

Determining the true market value for coins is not easy. Many collectors (and even some dealers) feel that Greysheet bid or Coin World Trends is the ultimate guide for coin pricing. These guides do not take a number of factors into consideration. As an example, nice quality early type coins generally sell for numbers well in excess of CDN "bid." Conversely, certain gold issues, like high-priced San Francisco half eagles, sell for large discounts relative to Trends.

Correction:

Learn what the true market value for coins is. This can be done by studying auction prices realized, looking at what dealers are offering to sell (and buy) coins for and what other collectors you know have paid for their coins. You should also learn which coins sell for levels over published price guides and which sell for levels under these prices.

Do not be afraid to stretch for truly rare and/or desirable coins. As an example, if you pay 20% over Greysheet bid for a truly choice early gold coin, the chances are good that this "stretch" will be repaid when you go to sell your collection.

Mistake #2: A new collector buys his coins second (or even third) hand.

Many (if not most) new collectors buy coins from brokers. In numismatics, a broker is defined as someone offering a coin for sale which is not from his inventory. There is nothing wrong with coin brokers. But often times buying coins from the dealer who owns them will save a collector from 10 to 30%.

Correction:

The solution for this problem is relatively easy. Buy coins from the people who actually own them. Ask your dealer if he owns the coin(s) he is offering you or if it is from other sources. As you become more involved in numismatics, you'll learn how to see if the dealer you ask this question to is telling you the truth. If, for example, he cannot accurately describe a coin, the chances are good that he has not seen it (and does not own it).

There are circumstances when it is acceptable to buy coins from a dealer who does not own them. A dealer may act as your agent at an auction and bid on coins that are not his. Or, a dealer might call you from a show to let you know he's found a piece on your want list that is from another dealer. In this case, there is nothing wrong in using the dealer as a broker, provided his markup is reasonable. In such a transaction, a dealer generally makes a small (5-10%) profit. Since he does not own the coin and will have no downside risk in sending it to you on approval, he does not merit as large a profit as if he owned the coin and had downside risk.

Mistake #3: A new collector decides he doesn't need a seasoned professional to help him.

Every week I speak with a new collector who tells me how he has spent thousands (or even tens of thousands) of dollars with no professional guidance. Unless he is remarkably lucky, the chances are good that such a person has lost at least 50 cents on the dollar.

Buying rare coins is not easy. If you do not have someone to help you pick the right coins at the right prices, you are likely to be taken advantage of. The solution is easy: choose a reputable, knowledgeable dealer and establish a good rapport with him.

Correction:

Other than the small handful of truly expert collectors who can compete with dealers, it is important to admit that you need sound professional guidance. Few collectors have the time or ability to become experts. It is not a sign of weakness to admit this.

How do you select the "right" dealer? The most important factors to consider are the dealer's professional qualifications and reputation. Choose someone who deals in the area you specialize in. Ask for the names of some of his satisfied customers and speak with them about the dealer. Once you have found the right dealer, reward him with your loyalty. Speaking as a dealer, I can tell you it is hard for me to be loyal to a client who has his want list out with six other dealers and who mostly wants to pick my brain for free information.

Another qualification that, in my opinion, demonstrates the character and level of professionalism that you should be looking for in a dealer includes membership in the Professional Numismatists Guild (PNG). The 300+ members are the PNG represent the upper echelon of coin dealers and I would suggest you stay away from any dealer who is not in this organization.

Mistake #4: A new collector buys unencapsulated coins or third-party graded coins from less-than-reputable services.

With very few exceptions, coins that have not been graded by PCGS or NGC are graded on a standard that is too liberal. Many new collectors do not learn about the pitfalls of buying non-PCGS or NGC coins until after they buy "inferior" third-party graded coins. Not all second-tier encapsulated coins are second rate. There are some that might only be a point off. In such a case, I would suggest that these coins be removed from their current holders and sent to NGC or PCGS.

Another mistake new collectors make is to buy expensive unencapsulated coins. At this point in time, the market for encapsulated coins is so pervasive that any item that is worth more than $500 but not in a PCGS or NGC holder must be viewed with suspicion. Coin World is full of ads offering seemingly remarkable values on "raw" coins. In my experience, nearly all of these are either overgraded or, even worse, cleaned, retoned or damaged.

Correction:

Again, the solution to this problem is relatively easy. Buy coins that have been graded by PCGS and/or NGC and avoid coins graded by other "second tier" services. Purchasing unencapsulated coins, whether through advertisements or auction sales, is best left to experts. If you see raw coins listed in auction catalogs that are of interest, have a reputable dealer view them for you. If this dealer likes the coin, hire him as your agent.

Mistake #5: A new collector does not take time to learn about coins and the coin market.

I have long believed that in numismatics, education is a collector's number one ally. It never ceases to amaze me how many collectors will spend tens of thousands of dollars on coins but not one cent on coin books. At this point in time, there is more good information available to collectors than at any other time in numismatic history. There are well-written guidebooks on almost every major series of American coin and there are dozens of excellent educational websites on the Internet that provide unbiased information. If you have already spent a considerable sum of money on coins but do not own any coin books, spend $500 on a basic library of general and specialized books.

Correction:

Buy a core group of coins books and, more importantly, read them. If you collect gold coins, you should buy my series of books on branch mint issues. If you collect other types of coins, there are many good books available and I would be happy to suggest them to you. For pricing information, I would suggest you refer to Coin World Trends Online (www.coinworld.com). For rarity information, the PCGS Online Population Report is an excellent source (www.collectorsuniverse.com). For excellent photos and information on all United States issues, try www.coinfacts.com.

All beginning collectors make mistakes. Some of these mistakes are costly, some are not. Hopefully, reading this article will make new collectors step back and analyze their numismatic behavior. If you are making one (or more) of these mistakes, do not despair. Instead, think what you can do to correct them and move forward.