As the 2009 Coin Market Comes to a Close, Where Are We and Where Are We Headed?

With the year nearly over, we are heading towards a slow few weeks in the coin business followed by what is certain to be an interesting FUN Show in January 2010. As we close the year out, I thought it would be interesting to look at a few points and ask where we are and where we’re headed. I have been through some odd coin markets (1982-84 and 1992-1994 come to mind) but what we are currently experiencing is pretty much unique. We are seeing a market where coins that were considered unfavorable a few months ago (bullion and semi-numismatic) are now what everyone wants and “real” coins are as hard to find as at any time I can remember.

The demand for generic U.S. gold, especially double eagles, remains as strong as I have ever seen. The premiums are as high as I can remember. As I write this, gold spot is at $1,140 per ounce (after having broken the seemingly unreachable $1,200 barrier last week) and an average quality MS60 to MS62 Saint is trading for $1,600-1,700. This 40%+ premium over melt for a low-end Saint is easily the highest I can recall and I think it’s pretty remarkable considering that you had to beg people to buy the exact sort of coins a few months ago at a 10% premium.

I am beginning to see some profit taking in the generic market and I think this will continue for a short period, possibly evaporating the premiums. That said, with the current sad state of the American dollar and the worldwide demand for gold, I wouldn’t be stunned to see gold break $1,500 in the next few months and a lower quality Saint to be worth close to $2,000 (!)

What about the rare coin market? It is, in its own way, experiencing topsy-turvy conditions not dissimilar to generics. The big difference is that there is good supply in the generic market but very limited supply in the rare coin market.

As I stated above, it is hard to buy interesting coins right now. Let me explain what I mean before this comment is misconstrued. If you collect Very Fine to Extremely Fine type coins or common date Walkers or Indian quarter eagles, locating coins is probably not a big challenge. But if you collect New Orleans gold or early quarter eagles or superb gem gold dollars you are probably finding it very, very hard right now to buy much. Sure, there are a few pieces around that are either terrifically overpriced or ridiculously overgraded (or a combination of both) but I’m guessing most serious collectors haven’t had an easy time adding to their collections in the last year.

The reasons for this appear pretty simple. There was a good deal of profit taking in 2005 and 2006, which brought quite a bit of material on the market but at very high price levels. The people who then bought in at the high levels either had to sell quickly (and at a significant loss) in late 2007/early 2008 or they have just decided to hold what they have and not sell their good coins at a loss. Another thing to consider is that many of the faux-collectors of the mid-decade have come and gone and most of the buyers for coins these days are serious collectors. They like the coins they own and they just aren’t interested in selling the cream of their holdings.

When I am able to buy interesting coins, they are selling well. I have noticed an uptick in demand for virtually all collector-oriented gold issues in the $1,000-5,000 range. Bigger coins seem to be selling better than smaller coins and nothing appears to be selling better than nice $2,000-5,000 Liberty Head double eagles. Yes, I am nostalgic for the days when I was regularly selling a $25,000+ rarities but I am happy to see many new collectors coming into the market and most of them heading towards the gold aisle in the numismatic mall.

Another issue we are seeing right now in the gold coin market is a real problem with price reporting. With bullion prices rising rapidly, price reporting is naturally lagging. This is compounded by the fact that certain rare date gold prices were unceremoniously devalued after one or two low-end examples sold cheaply at auction. Until we see some accuracy in this area, it will keep down the supply of interesting coins re-entering the market.

Speaking of auctions, it is interesting to note that the upcoming pre-FUN, FUN and post-FUN sales appear to be having a harder time attracting consignments than in years past. A few years ago, specialist dealers like me could use the excuse that auction companies were offering very strong competition when we moaned that we were having a hard time buying coins from collectors. Today, even the most formidable auction firms are extending their consignment deadlines in an attempt to gather more high-powered collections and individual coins.

I’ve heard fewer complaints from collectors and dealers about third-party grading in the last few months. Part of this probably has to do with the fact that most dealers are sending in Saints, Saints and more Saints to PCGS and NGC and the services tend to grade these pretty favorably. But I also think that the creation of CAC has helped to check some of the grading issues that existed in the past and I think the services are, frankly, being more careful with what they grade.

So what’s coming in the near future? As I mentioned above, I think the 2010 FUN will be strong but I am anticipating that I will come home with fewer coins than I’d like to. The name of the game in the early part of 2010 is clearly going to be gold and I wouldn’t be surprised if there is some spillover from the generics market into some slightly more exotic areas.

Opportunities for Collectors in a Generic-Oriented Market

After I left what was, for me, a very productive Baltimore coin show, I was sitting in a restaurant at BWI airport, eating a crab cake. As I was finishing up, a dealer who I don’t know that well but who I respect for his knowledge and his connections came up and asked if he could join me before our respective flights left. As you can no doubt guess, our conversation almost immediately turned to the market. As this dealer was quick to point out, as far as gold coins go, we are currently in one of the more confusing market segments that either of us could remember. He made a comment that I thought was really profound. He said something along the lines of “the market is so strange right now, that if I had a fresh deal of Saints or $20 Libs it would probably get other dealers more excited than if I had a group of fresh Proof gold coins.”

At first, I thought this comment was sort of odd. But the more I thought about, the more it made sense. The market is so oriented right now towards generics and “stuff” that many dealers have all but overlooked rare coins. And I think this presents a few really interesting opportunities for buyers who have some extra cash.

Generic gold is on fire for a number of reasons. The “guns and gold” crowd is buying gold because they have a fundamental distrust of the dollar and don’t like the direction that the U.S. economy is headed. Investors are buying American Eagles and other issues to put into their IRA’s in the hope that this year’s contribution outperforms last year’s stock purchase. And large-scale telemarketers are selling the heck out of double eagles to new buyers who have left more traditional investments and like the idea of owning some physical gold.

As is always the case when an area of the coin market gets hot, other areas are forgotten. When you go to a coin show now, it is very interesting to observe what some of the very savvy major buyers are doing. I know of at least two very smart, A-level dealers who have virtually stopped buying anything numismatic and are focusing almost exclusively on ten dollar and twenty dollar gold pieces. As I mentioned above, I think this has created some great opportunities for more numismatically-oriented dealers like me and for serious collectors.

One opportunity for rare coin buyers right now is for PQ coins. With so many traditional buyers of PQ rare gold coins focused on generics I have noticed that many really nice coins are bringing almost no premium over many really schlocky coins. This is especially the case with Charlotte and Dahlonega gold. At the Baltimore show I was able to purchase a few exceptional PQ coins for literally no more than a 5% premium over the usual crappy dipped-n-stripped stuff that I saw all over the bourse floor and in the auctions.

Another opportunity right now for a more select group of buyers is expensive coins. Most dealers (myself included...) are having a hard time selling coins priced at $10,000 and up. If you follow my website you will probably note that while, as recently as last year, I might have had ten or even twenty coins priced at $10,000 or more, right now I have very few.

If you have the money and you are a collector of five and six figure coins, I think you call the shots. Unlike in 2006 or 2007 when dealers had an easy time selling big coins, dealers are far more aware today of the difficulty inherent in selling these coins. My guess is that if your favorite dealer has a $15,000 coin in stock that you’ve had your eye on since December he’s probably more willing to sell it for $13,000 now than he was a few months ago. (And if he’s not, this is a good sign that your favorite dealer may be doing something else besides selling coins in the near future).

As I mentioned before “real coins” are currently out-of-favor with many dealers and some collectors as well. What does this mean for the serious collector? It may not translate to saving money on the coins you want (although it is likely that this is true). More likely, it means that you will actually get a chance to buy some of those hard-to-find issues that might have been causing you grief in years past. Let me give you an example. At the Baltimore show, I was able to get second shot at a group of interesting double eagles. The dealer who got first shot would have ordinarily bought every coin as they were interesting, not unreasonably priced and pretty choice. Instead, he passed on about half the coins and I bought everything that was left over. Why did he pass? My guess is that some of the coins were above the price level that he is currently selling well and that much of his focus is on generics as opposed to rare coins.

There is one other opportunity for collectors right now that I think deserves a quick discussion and that is selling some of the generics that everyone seems so focused on right now. If you bought Saints or Libs more than a year ago you are probably in a good profit position right now. Let’s say you have a bunch of MS65 Saints that your average cost is $1,200 and you can sell them today for around $2,000. It seems like a smart move to me to sell your position at an $800 per coin profit (not a shabby rate of return for a one-year investment during an economic meltdown...) and use the profits to buy a rare coin or two that you have your eye on.

The 2009 Portland Spring ANA Show

I’m guessing it’s been close to twenty years since there was a major coin show in a city in which I lived. That’s why I was really excited about this year’s Mid-Winter ANA being held in my home town of Portland, Oregon. Even if the show was crummy, I’d be able to sleep in my own bed. Plus, I could show off my Portland Expert status to friends and acquaintances and rattle off a list of obscure restaurants (Peruvian? Check. Malaysian? Do you want Northern or Southern?) without having to pull out a Zagat’s. Portland doesn’t have a reputation as a Great Coin Town and to be honest I had very little in the way of expectations for this show, other than it being well run. That’s why I was so pleasantly surprised that it turned out to be quite good.

I have to give some kudos to the ANA. There were articles in the paper about the show, ads on TV; even my neighbors knew there was a coin show in town. This excellent publicity meant that the attendance would probably be good and it was. More on this in a second.

The first day of the show was devoted to wholesale trading and, for me, the action was a little less than my last few shows. The main reason for this was that I didn’t have much generic gold and generic gold remains incredibly hot.

This is a good time to go off on a mini-tangent. With the almost total focus of the gold market on generics right now, this seems like a good time for people who care about legitimately scarce and rare coins to be buying. I had a few dealers comment to me at the show that they are so focused on generics that they are slowing down their “real coin” business. That means less competition for me when I buy and I can focus on coins like New Orleans half eagles and Dahlonega quarter eagles when many of my usual competitors are busy making MS63 Liberty Head double eagles.

The second day of the show was when the public was let in and I was amazed at the stampede of collectors that came through the door around 10AM. Yes, there were sixteen hundred Boy Scouts and Brownies playing the Numismatic Trivia game but there were also real collectors with real want lists looking for real coins. Unlike the recent Long Beach show where I don’t think I could have sold a collector a Saint Gaudens double eagle for $16, I was able to sell a number of coins in Portland. More importantly, I met a lot of collectors from the Northwest who I either didn’t know or who I knew only through emailing.

The weekend was a bit less active but there were still collectors at the show on Saturday. For the first time since I had a fade haircut and wore a jacket with big shoulders, I stayed until closing on Sunday and was able to do some business until the bitter end.

I’d like to thank everyone who stopped by and chatted and everyone who bought coins. And, no, I will not recommend any more places to eat in Portland.

So, how does the market look now that we are in mid-March?

In my opinion, things continue to be better than I would have expected. No, the market isn’t “hot” (with the exception of generic gold). But nice coins are definitely selling, albeit at new levels. I would expect that with all the money dealers are making right now with their generic gold business, some of this will spill into rare coins. I also think that some of the new people buying MS62 and MS63 Saints and $20 Libs could possibly start buying rare coins in the coming weeks or months. I’m not extremely optimistic right now but I am less pessimistic than I was as recently as mid-January.

The end of March will see an interesting test of the market with the Baltimore show and a number of auctions all occurring. My guess is that Baltimore should be pretty active. I will be very curious to see how the auctions do.

I’ve mentioned generic gold a few times and before I close, I’d like to strongly suggest that if you own any, you might take some profits and sell out of a part of your position now; especially if you own double eagles. The premiums for these right now are as high as I can ever recall seeing. As an example, MS64 Liberty Head double eagles are now selling for $2,700-2,800 (or more, in some cases). Last year you had to beg people to buy them for $1,500. If I had a bunch of these put away right now (and I wish I had been smart enough to do so...) I would take some of my profits and move onto more undervalued areas.

If you do want to sell any generic gold, I would be happy to assist you. Please email me at DWN@ONT.COM and I can make offers on your coins and suggest a strategy for the coming months.

How Does the Increase in the Price of Gold Affect the U.S. Rare Coin Market?

As I write this, gold has hit a high not seen since 1979-1980 and it is flirting with the $750 mark. How is this run-up in prices affecting the United States rare gold coin market? If you have a position in generic issues (such as St. Gaudens double eagles) you’ve made yourself a nice chunk of change these last few weeks. MS64’s have risen from the mid to high $700’s up to the mid $900’s and MS65’s have seen an increase of around $250 per coin as well.

But if you are a reader of my blogs chances are good that you do not play the generics market. You own “real” coins; issues like New Orleans double eagles or Charlotte gold dollars or Carson City half eagles. How are these rarer issues being affected by the new record levels in the gold market?

In a word (or three) they really haven’t. One of the fallacies of a rising gold market is that anything that is yellow rises in prices when the market shoots up. This simply is not the case. An EF45 1853-D half eagle will rise in price as the result of increased demand, not because its intrinsic worth is now an additional $25-50. Most of the brand new buyers of physical gold (as least for now) are strictly investors and they do not even know what an 1853-D half eagle is.

New gold buyers generally follow a predictable progression. They begin by purchasing gold stocks or, perhaps, modern bullion coins like American Eagles or Krugerrands. For every 1,000 buyers, perhaps 5% graduate to generic issues such as Saints or Indian Head eagles. And of these buyers, a small number may, after some time, become aware of a coin such as the aforementioned 1853-D half eagle. But this is a lengthy process and today’s new buyers of gold may not get involved in numismatics for years, if ever.

So this is, in my opinion, why the current run-up in gold prices impact on the typical coin in my inventory is wishful thinking. I’d love to report that the phone is ringing off the hook with new investors screaming for Dahlonega half eagles but this is just not the case (not to mention that if anyone does call me regarding coins as an investment, my blunt answers tend to send them running for the hills…)

One thing that is a real positive about the run up in gold prices is that this clearly does focus a lot of fresh attention on gold and on gold coins. And any good publicity about gold coins can’t be bad, right?

I’ve had many people in the last few days ask me what my take is on gold in the short and long term. I don’t claim to have any profound insights in this area. I’m probably the world’s leading expert on branch mint gold coins but when it comes to geo-political thought and macroeconomics I’m just another Hack with a Keyboard. My opinion (for what’s its worth) is that as long as we have cheapened the dollar to its currently absurdly low levels, gold will become more and more of a hedge. I could easily see it go to $800-900 in the coming months. I’ll personally be selling into the market once it reaches these levels but I think the days of sub-$500 to $600 gold are long gone; probably for good. I would suggest that everyone own some gold as it seems like a safe place to put your paper dollars right now, especially given the alternatives.