Key Date Price Performance

At the end of my last blog, I mentioned that the price gains in the coin market that many collectors and investors have been seeing are somewhat misleading. My guess is that if you took a random sample of 100 miscellaneous coins and calculated their price appreciation since 2003, fewer than 20% would show plusses. Some would even show minuses. If you had asked me in 2003 which coins would have shown the greatest gains, I would have split my answer(s) in two: traditional “trophy” coins and popular key dates in the most avidly collected series. My answers have turned out to be partially right as key dates have performed exceptionally well. What has really surprised me, though, is that the traditional trophy coins that have inevitably led the way in past bull markets have not necessarily been the best performers this time around.

I consider traditional trophy coins to be things like Stellas, High Reliefs, Pan-Pac Round and Octagonal $50’s, Proof gold (especially high denominations), etc. In the past, rich guys who didn’t know much about coins tended to gravitate towards these categories because they were big and sexy.

But things have been different this time around and I attribute this mainly to a coin market that is far, far more information-driven than in the past. In 1998, the rich guy who wanted to buy a few neat coins for his portfolio had no easy way to figure out how rare something was. Additionally, he was likely to be dealing with a salesman (as opposed to a numismatist) at a large marketing-oriented firm who had little knowledge about coins. Since both parties tended to be dealing from ignorance, it made sense that the unsophisticated seller would focus on a big, shiny High Relief or a Stella as the unsophisticated buyer was most likely to relate to such a coin.

Fast forward to 2008 and the market has changed. Information about coins has spread virally on the Internet and now, with an investment of a few hours, people can read a lot of good information about a wide variety of topics. In addition, the person selling coins to the big money buyers is likely to be more sophisticated as well. He needs a more interesting product to set himself apart from his competitors and the Old School Trophy Coins of the 1990’s suddenly seem passé. Just as importantly, the new breed of buyers can go on-line and see the population figures for coins like Stellas and High Reliefs. Due to significant resubmissions, these former rarities now seem common. The new buyers want exceedingly rare coins that no one else can have.

And this is where the New Right Coins come into play. If you follow auctions, you’ll note that in the last year or so, the types of coins that have been bringing jaw-dropping money are things like 1804 Dimes in AU55 and 1850 Quarters in PR68 and 1920-S Eagles in MS67. All three of these are truly great coins but they are not coins that, five years ago, I would have expected collectors or investors to have paid record-shattering prices for. In the old coin market these coins were “really neat but really exotic.” Today, they are the Right Coins.

Not everyone, of course, can afford to spend $632,500 on an 1804 Dime or $480,000 on a Proof 1850 Quarter. And, interestingly enough, lower grade examples of these same issues are not necessarily going to drive big money new collectors into a feeding frenzy (my guess is that the collector who paid $480,000 for his PR68 1850 quarter would have been A LOT less interested in a PR64 example of this date).

So what are the right coins for those of us who don’t have an extra $480,000 lying around to buy a Proof 1850 quarter? (and, by the way, I don’t mean to “pick” on Mr. 1850 Quarter as I think this is a great coin...just not one I expected to see sell for nearly half a million bucks...)

In this market, I would look to be a value-oriented collector or investor and would stick with coins that are very scarce to very rare, “interesting” from the standpoint of history, aesthetically appealing and old.

In the realm of rare date gold, some of the coins that I think will continue to perform well in spite of the vicissitudes of the market include the following:

-Virtually any 18th century issue

-Virtually any Liberty Head coin that is either the finest known or solidly in the Condition Census

-Any very low mintage coin (for business strikes, this is generally 2,500 or lower; for Proofs this is generally 50 or lower)

-Any coin pedigreed to a great collection (Bass, Garrett, Norweb, Eliasberg and a few others are great collections. The Rainy Day collection of CC Double Eagles IS NOT a great collection...)

-Virtually any coin that is historically significant (1861-D gold dollar, 1838-C and 1838-D half eagles, 1854-D three dollar gold, 1879-O double eagle, etc.)

-Coins that have original skin and a great, original appearance

-Any coin in a popular series that is rare and in demand. This is a huge range; from Rarity-7 Bust Half Dollar die varieties to key date Morgans in perfect, original AU55 to important one-year type coins like the 1808 quarter eagle to rare date Saints in MS63 and better with CAC stickers.

Key Date Coins

I had an interesting conversation with another coin dealer the other day. We were discussing what we are buying (and not buying) right now and he mentioned to me that, for the last few years, he has been primarily focused on buying only the key date coins in all series, even in such esoteric areas as Charlotte and Dahlonega gold. Focusing on keys has been a great strategy in mainstream series such as Barber coins or Morgan dollars. Issues like the 1901-S quarter and the 1893-S dollar have clearly outperformed the rest of the market during the last six to nine years. This got me to thinking: is this performance also the same in the market areas in which I specialize? To determine this I decided to select a small group of key dates from each series and to then compare them with a “generic” date as a baseline. The results are interesting.

The first item I chose was the ever-popular 1861-D gold dollar. As a generic comparison, I selected an 1859-D gold dollar. The former is the key Type Three issue from this mint while the latter is one of the more common dates.

In June 2000 Heritage auctioned a PCGS AU55 example of the 1861-D gold dollar for $12,075. Today, a similarly graded 1861-D would probably fetch over $30,000. I think it’s a safe bet to say that this issue has at least doubled—if not tripled—in value since the beginning of the decade.

In comparison, an AU55 example of the 1859-D gold dollar in AU55 would bring around $3,750-4,000 at auction today. In looking back at auction records from the 2000-2002 era, I noted at least three AU55 coins selling for $3,000-3,300. The price growth of the 1859-D gold dollar has been marginal at best. This does not totally surprise me, given that the Dahlonega market is very collector-oriented and that this sort of market is generally skewed towards rare dates or “neat” specific coins.

(NOTE: An important factor that I am not going to delve deeply into here is gradeflation. Even though the 1859-D gold dollar in AU55 appears to have experienced little price growth in the last decade, it is likely that coins sold as AU55 in 2002 are, by today’s standards, at least AU58; if not better. Gradeflation is, for many more common coins, what has caused the greatest amount of price increases).

The second item I chose was the 1842-C Small Date half eagle. This is the rarest collectible gold coin from Charlotte. As a generic comparison I selected an 1849-C half eagle. It is one of the more common issues from this mint.

Heritage sold a pair of comparatively high grade 1842-C Small Date half eagles in their June 2008 auction. A PCGS AU58 brought $43,125 while an NGC AU55 realized $31,050. Looking back, I noted that Heritage sold a PCGS AU58 in April 2002 for $55,200 and a PCGS AU55 in January 2003 for $35,650. The price performance of this key issue has been poor in the last five years and the 1842-C Small Date in AU is clearly worth less today than it was in the past.

In AU55, an 1849-C half eagle is currently worth $3,500-4,000. Looking back at auction records from around 2002, the same coin was worth basically the same.

What I think this shows is that in an area like Charlotte gold that hasn’t been very popular during recent years, even though a coin is a key issue (like the 1842-C Small Date half eagle) this doesn’t mean it will rise in value. It seems obvious to say this but, no matter how rare a coin is, if it isn’t part of a popular series then it is unlikely to increase in price.

How about Carson City double eagles; an area of the market that was popular in 2002 and is even more popular today? I chose the 1871-CC as my key date and the 1892-CC as its generic counterpart.

Current values for About Uncirculated 1871-CC double eagles are as follows: AU50= $32,500-35,000; AU53= $40,000-45,000 and AU55= $50,000-55,000+. Looking back to early 2003, Heritage sold a PCGS AU50 example for $14,950 in their January 2003 auction and an NGC AU55 in the same auction for $17,250. Clearly, levels for this date in AU have almost tripled in the last five years.

How about the common 1892-CC in AU grades? Heritage recently sold an NGC AU55 in their June 2008 auction for $3,450. Going back to June 2004, they sold a PCGS AU55 in the same grade for $1,840. A more detailed examination of auction records from this era shows that the typical AU 1892-CC double eagle in AU has doubled in value in the last five years.

This is a fairly interesting case study. CC double eagles have performed really well in the last few years due to their popularity and just about every coin has doubled in value. But the key issues in the series (1870-CC, 1871-CC, 1873-CC, 1878-CC, 1879-CC, 1885-CC and 1891-CC) have outperformed their more common counterparts. The one exception to this rule tends to be in the area of high grade coins. Even the common CC double eagles in high grades (in this case MS62 and better) have performed exceptionally well in the last few years due to strong demand.

The one problem with the strategy of buying only key dates is that in most gold series, these issues are very expensive. With entry level undamaged 1861-D gold dollars now exceeding $20,000, only elite collectors can realistically look to purchase such coins. And maybe this amount would be more rewarding if spent on three or four nice common date Dahlonega coins in AU instead of one very-rare-but-not-so-aesthetically appealing 1861-D.