Why the Rare Coin Market Isn't the Art Market

As much as coin dealers--myself included--try to compare the coin market to the art market, the more you look at coins, the more you realize how insignificant this market (currently) is when compared to art. Will the coin market ever "catch up" to the art market and is it fair to make any coin vs. art comparisons? I'd like to share my thoughts on this with you. If you look at art from an outsider's perspective, the prices that great objects bring seem baffling. $50 million dollar Warhols? $100 million Giacometti sculptures? And what seems all the more baffling are that prices like this are for items that not everybody agrees is a masterpiece.

But examine the art market with a little bit more perspective and the prices that make coin dealers exclaim that MS64 Indian Head half eagles at $3,500 are a smoking value seem less relevant.

The market for seven, eight and even nine figure art objects is extensive and it is world-wide. If a Vermeer painting was discovered and authenticated, there would be a deep pool of buyers waiting to purchase it; even if the final price realized at auction was in excess of $200 million. Compare this to a famous rare coin like a 1913 Nickel or an 1804 Dollar. Sure, these are famous and desirable coins and an example of either would bring $5 to $10 million in the right market conditions. But the number of buyers who would be competing for these classic rarities is probably less than ten; maybe even as few as five.

The lack of depth in the coin market is even more apparent in thinly traded areas like Territorial gold or Patterns. A coin can be extremely rare and there might only be three examples known. But if there are only two strong buyers for that issue and both already have the coin, the thinness of the market is detrimental. This tends not to be the case in the art market which is deeper and which has institutional buyers as well.

There are hundreds of art museums in the Western world and a small but significant number of these have the money available at most times to buy great art that fits into their collection. Sadly, the Mint Museum in Charlotte has no budget (or desire) to purchase a great Charlotte quarter eagle if it becomes available. The Getty Museum, on the other hand, has been a major buyer of antiquities and photography for years and has helped to push values upwards in those areas.

The art world does a wonderful job of cultivating new buyers. In addition to museums there are active art scenes in cities like New York, London, Berlin and Los Angeles that have beautiful, high-end galleries where collectors (or potential collectors) can go to learn about new art, view exhibits and socialize with other collectors. The number of high-end coin stores in the United States is next to none, and I somehow can't imagine hedge-fund directors in New York or trust-fund kids in London spending Saturday mornings chatting with the proprietor of the local coin shop.

While I personally love rare coins and I do think the market has come a long way in the past decade or two, it still has a long, long way to go as far as self-promotion goes. Art shows are much more upscale than coin shows, and gallery exhibits introduce new works to collectors or reinforce the greatness of existing masters. When's the last time you went to your local museum to see a coin exhibit?

The rare coin market has become increasingly internet-driven and I think that's a great thing; I know that it has certainly helped my business immeasurably. But the personal interaction between dealers and collectors in the art world remains more sophisticated and "better" than in the coin world and I think the art world is healthier for this.

Another thing to remember about the art market is that it is far more international and cosmopolitan the the coin market. When a great French Impressionist painting is offered at auction, it is possible that the winning bidder might be American, British, French, German, Swiss, Russian, or even Chinese. When a great Liberty Head half eagle is made available, the chances remain very strong that it is going to sell to an American buyer.

Buying art serves an important social function that doesn't yet (and may never) apply to coins. When a billionaire Russian oligarch wants to makes a splash in the West, he does three things: buys an English Premier League soccer team, purchases a great apartment in New York, and makes a splash at the season's Christie's and Sotheby's Contemporary and Modern Art sale.

Coins are not on the radar of many big money buyers because they are too small to display and you can't impress your friends by laying out a PCGS box full of Gem rare date Saints.

But I think that the transportability and compactness of coins may ultimately appeal to big money buyers. Its a lot easier to move your coins from New York to London to Dubai than it is your art collection. As the world becomes a more complex, dangerous place the ability to quickly transport significant amounts of personal wealth gains in importance.

Would the rare coin market have a sudden transformation if coins, as a category, were suddenly included in Sotheby's and Christie's roster of sales? Probably not. There are not enough expensive coins around to keep these two firms interested in maintaining departments and both firms don't appear to want to fool with art objects that are worth much less than $25,000-50,000 and up. And even when Sotheby's and Christie's had coin departments, their sales were primarily attended by American dealers.

If anyone is going to take the coin market to an international audience, it's Heritage and I would assume that selling coins to Chinese industrialists is on their radar. And let's not forget that both PCGS and NGC have overseas offices and are focusing considerable time, energy and marketing dollars on appealing to foreign collectors and dealers.

For the United States coin market to become more like the art market, I think a few things need to happen. Some of these are possible, some are already happening, and others seem more like a pipe-dream.

1. There needs to be more and better high-quality general numismatic reference books. We are in a golden age of numismatic research but most of the books published appeal to a narrow range of specialists. We need more books like "The 100 Greatest U.S. Coins." A superb quality coffee table book on United States gold coins, for example, would be a great way to get more high net worth individuals interested in coins.

2. There needs to be a few upscale coin stores in New York. Manhattan remains the financial and social capital of the world and it is filled with superb art galleries. But there is no place a hedge fund manager can go and look at great coins for sale in comfort and privacy. Heritage has launched a New York office and Stack's-Bowers will become more retail friendly (I assume), but there is still a huge void in New York.

3. The Smithsonian collection needs to reopen and there need to be touring exhibits of great American coins at locations more accessible than coin shows. There are hundreds of places in the United States to view great American art. There are only a handful of institutional collections available to view in this country.

4. There needs to be at least one or two upmarket coin shows in New York every year. Captains of Industry aren't going to fly to Rosemont or Long Beach to go to shows. I doubt if an Armory-style show for coins would work but I'd be curious to see what happened if a coin dealer were allowed to exhibit at a fancy east coast art and antiques show.

5. The coin market needs to think with a long-term perspective. Dealers need to be thinking about the market in 2021 and 2031, not just in 2011. Coin doctoring is bad for the long-term health of the rare coin market just like scandals in the art market can hurt that industry in the long run. In a good market, coin dealers are too busy to promote numismatics and in a down market, they are too poor. There are times I wish there was a Benevolent Dictator in the coin business who told us dealers what to do and how to do it.

6. The professional side of the coin business desperately needs an infusion of fresh young faces. The art market has the advantage of hundreds--if not thousands--of smart, enthusiastic Art History majors who enter the market each year from college. The coin market has a lot of the same faces who have been around for two, three, and even four decades.

That said, I still like the future of the rare coin market. I think there is real value in selected areas of American numismatics. The relative affordability of Classic American Rarities is a compelling factor for wealthy collectors used to seeing average quality artwork priced in the millions of dollars. And the fact that the $5 Indian in MS64 that I mentioned above is within the price range of most upper middle-class Americans means that coins have the potential for much more widespread appeal than great (or even good) art.

What are your thoughts about the coin market versus the art market? Leave your comments about this below.

How to Become a Good Coin Collector

One of the oldest jokes in the book goes, "How do I get to Carnegie Hall? Practice, practice, practice." Hoary? Yes. Old when your grandpa was a kid? Sure. But oh so true and applicable to the subject of this blog which is, as you no doubt already know, "how to become a good numismatist." Because to become a good collector, you do need to practice. But what exactly do you need to practice most? I think the most important piece of advice I could give a new collector is to look at as many coins as possible. There are self-proclaimed numismatic experts who gain their knowledge from research but the truly savvy collectors that I have met have acquired their knowledge the same way that I have: they've looked at countless coins.

How do you get to look at coins? There are really only two ways that the average collector is going to be able to view significant numbers of important coins: at shows and at auctions. If you specialize in a specific sort of coin, make certain that you spend the limited amount of time you have at shows or at auctions looking at the coins you really need to be viewing; save the numismatic tourism for later.

One trick I suggest that collectors try at auction viewing is to cover the grade of the coin that they are looking at and guess what the grade actually is. Or, establish grade parameters and write if you think the coin is an "A" "B" or "C" quality example. After the sale is over and you analyze prices realized, you can get an idea of how accurate your precision grading really is.

I can't think of a better way to become a good collector than to buy, sell and trade coins. I'm not saying that you have to become a fledgling numismatic empire. But I think one of the best ways to become comfortable with any hobby is to be an active participant in both the buying and selling side.

One of the things that you learn from being a buyer and a seller is how to calculate your "upside/downside rate" with each purchase. It might be easy to justify paying $3,500 for a certain Dahlonega half eagle for your collection but what would it sell for if you placed it in the open market? $2,750? $3,000? $3,500? As they say, you can't play if you don't pay...

You've probably read a hundred times how important it is for a collector to learn how to grade. I haven't met that many collectors who know how to grade; at least outside of their realm of expertise. But the most successful collectors I've met all share at least one trait: they understand the aesthetics of numismatics. In other words, they may not be able to tell the difference between an MS62 and MS63 Charlotte quarter eagle but they know the difference between a below-average coin, an average coin and a high end coin.

The "aesthetics" of coins is probably the most important point I'm making in this blog. To be a good collector you really need to understand what constitutes a "good" coin in your series. If you collect St. Gaudens double eagles, the parameters will be much different than if you collect Type One double eagles.

And this is where having a good relationship with a dealer enters the picture. Behind every great collector there is a great dealer who acts as a conduit, providing information, guidance and coins. In this day of information overload it is tempting to think that the collector can go it alone and build a meaningful collection bidding in on-line auctions. If you are incredibly lucky, you'll only make an occasional mistake going the I-can-do-it-myself route. If you have average luck, you'll make a number of errors and some may prove costly.

One last thing: study and read all that you can about the coins that interest you and the market itself. It never ceases to amaze me when I hear stories about very successful businessmen who spend $1 million on generic gold and overpay by 40%. You would think they would spend thirty minutes on the web to compare prices and get a feel for the absolute basics of the market.

I've said this before and I'll say it again: the time that you put into numismatics will be doubly or triply rewarded as you wade further and further into the coin pool. This can be an infuriatingly complex hobby but there are ways to simplify it and this will only serve to give you more and more enjoyment.

The Numismatic Double Play

Say the words "double play" and most people think of Jeter to Cano to Texeira. But in the world of gold coins, the concept of the double play has another meaning altogether. Back in the 1980's and the 1990's it was common to see large-sized U.S. gold coins marketed with the "double play" strategy. What this meant was that these coins had two inherent factors that contributed to their price structure: their intrinsic gold value and their numismatic value.

The double play concept became stale over the course of time and marketers moved on to find other way to peddle their product. But I believe that this is an idea with merit and one that should be revisited in today's value-conscious market.

People who buy U.S. gold coins typically fall into two camps: those who are investors and those who are collectors. What if a third category became a factor in the market; an investor-collector hybrid who focused on semi-scarce to scarce issues that sold for relatively small premiums above their basal value(s)?

There are basically two denominations that are perfect for the investor-collector hybrid: the ten dollar gold piece (or "eagle") and the twenty dollar gold piece (or "double eagle"). If you're with me so far, I'm going to suggest that we narrow our focus to two specific issues: the With Motto Liberty Head eagle (produced from 1866 through 1907) and the Type Two Liberty Head double eagle (produced from 1866 through 1876).

Here are some basic facts about these issues. The With Motto Liberty Head eagle weighs 16.718 grams and it contains 90% gold. As I write this article (in mid-April 2010) gold is trading for a touch above $1156 per ounce. The trading levels for eagles are as follows:

MS60: $700 MS62: $740 MS63: $1,210

It doesn't take a numismatic genius to immediately note that MS62 appears to be the best value grade for this type. At just a $40 premium above MS60 coins, you are talking around a 5% increase for what is generally going to be a much nicer coin. So for the sake of convenience, let's stick with the MS62 grade for this denomination.

The "base line" date for Liberty Head with motto eagles is the 1894 as it has the highest PCGS population in Uncirculated and in MS62. There have been 18,116 examples graded by PCGS or which 6,013 are in MS62. These numbers are, of course, swollen by resubmissions but the ratio of around one-third of all 1894's graded being in MS62 seems correct based on my experience.

There are a host of dates that we can compare with the 1894 but, again for the sake of brevity, let's focus on three of them. The first is the 1883. This issue has an original mintage figure of 208,700 (compared to 2,470,735 for the 1894). It isn't a remarkably interesting date but it is extremely rare in higher grades (PCGS has never graded an MS65 and only four have been graded MS64 by this service; in MS62 they have graded 261) and there is a big price jump between MS62 (current Trends is $865) and MS63 (current Trends is $2,500). Given the fact that the 1883 is, in theory, around twenty to thirty times rarer than the base line 1894 in MS62, it seems that its current $100-150 premium in this grade is pretty reasonable.

Let's look at another date, the 1900-S. I have always liked this date and think its a real "sleeper" in higher grades. PCGS has a current population of 31 in MS62 with just 16 better than this including a single coin above MS64. Given this coin's relative scarcity in Uncirculated, you'd figure it would have a pretty decent premium above the 1894, right? In MS62, current Trends is $1,100 (it jumps to a comparatively high $5,650 in MS63) and I have purchased examples in the last year for around $1,000. Now I understand that an MS62 1900-S eagle isn't going to be the Poster Child for U.S. gold coins anytime soon but it seems like awfully good value to me, given that a common, boring old 1894 in MS62 is worth around $750.

How about a date that actually has a degree of collector demand? Let's take a quick look at the 1901-O. It is one of the more available New Orleans eagles in higher grades but it has the appeal of being from a popular southern branch mint. The current PCGS population is 103 in MS62 with 61 better including just a single coin above MS64. I doubt if more than 125-150 properly graded MS62 examples exist yet current Trends is just $865 in MS62 (it jumps to $2,750 in MS63). Given the fact that a 1901-O eagle in MS62 is popular, reasonably scarce in this grade and is probably not a bad looking coin at this grade level, its very small premium above the common 1894 is fairly baffling to me.

What if someone were to promote the 1901-O in MS62? Given the fact that a year's worth of quiet, under-the-radar buying would probably only produce 40-50 coins, it hardly seems worth the effort. That said, it seems like an easy coin to promote up to the $1,250-1,500 level in MS62.

What are some of the MS62 Liberty Head eagles that I would recommend as good double-play issues? Some of the dates I like include the 1879, 1882-S, 1884, 1884-S, 1886, 1890, 1893-O, 1894-O, 1895-O, 1897-O, 1899-O, 1900-S, 1906-O, 1906-S and 1907-S.

The second type of U.S. gold coin that offers double play potential is the Type Two double eagle. But this series is different than the With Motto eagles that we discussed above. Type Two double eagles are more popular with collectors and they tend to be be rare to very rare in Uncirculated grades.

The base line issue for this type is the 1873 Open 3. It has an original mintage figure of over 1,000,000 and a high survival rate with probably more than 10,000 coins known in all grades. PCGS shows a current overall population of 4,027 of which 1,356 have been graded from AU50 to AU58.

The trading levels for AU55 to MS60 1873 Open 3 double eagles are as follows:

AU55: 1400-1500 AU58: 1500-1600 MS60: 1650-1750+

Let's look at two slightly better dates and see if the double play concept makes sense. The first is the 1867. This is a relatively popular issue with collectors that has an original mintage of just over 250,000. PCGS has graded 304 in all grades of which 131 are in the various AU grades and another 24 are in MS60. In grades above MS61 to MS62, the 1867 is extremely scarce, so nice AU's tend to be popular with specialists in the series.

The current Trends levels for the 1867 are $2,000 in AU55, $2,500 in AU58 and $4,000 in MS60. The premium in MS60 is high enough that it is not a good double-play issue. But in AU55, the premium is fairly low over the base line 1873 Open 3. My conclusion is that a nice AU55 to AU58 1867 double eagle in the $2,000-2,250 range is a great value for the double play investor-collector.

The second date is the 1872-S. This is a date that is regarded as semi-common; not quite at the level of the base line of the 1873 Open 3 but certainly nowhere as scarce as such earlier San Francisco issues as the 1866-S, 1867-S, 1869-S or 1870-S.

The mintage figure for the 1872-S is 720,000. The survival rate is quite low as most were melted over the years and I doubt if more than 2,500 pieces exist. PCGS has graded 551 in all grades including 343 in About Uncirculated. To give you an idea of this coin's rarity in higher grades, of the 52 that PCGS has graded in Uncirculated, only four are better than MS61 and none are higher than MS62.

You can buy a nice 1872-S in AU58 for around $2,000-2,250. As I mentioned above the base line for an AU58 Type Two double eagle is in the $1,500-1,600 range.

The Type Two double eagles in AU grades that I feel are good double play issues include the 1867, 1868-S, 1869, 1869-S, 1870-S, 1871, 1871-S, 1872, 1872-S and 1873-S Open 3.

The double play strategy may or may not prove to be fruitful for the hyrbrid investor-collector. But with the premiums for genuinely scarce issues like the ones mentioned above at very low levels (some of the lowest premiums that I can remeber, in fact) I think it is a strategy with minimal downside.