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8.07.2010

Eagle Coin Collector Base Should Grow

By Eric Jordan, Numismatic News
August 05, 2010

This article was originally printed in Numismatic News.


Even those of us who collect strictly for the fun of it have the tendency to be concerned about the price performance of our collections not only because its fun to beat the market, but also many of us have a significant portion of our savings in our collections.

As we are all fully aware, the value attributed to any coin we chose to buy or collect is dependent primarily on two components. The first is the face or melt value of the coin that serves as its unquestioned long-term value floor and the second is its numismatic premium.
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It is this premium that frequently carries a better date coin price to 10-100 times its base worth by the time it matures and sometimes even more.

Over the last 15 years most major classes of classic coinage covered by the PCGS 3000 coin value index have done poorly when indexed to constant dollars or any of the precious metals they have a history of being struck on. There are a few exceptions to this, but they tend to be ultra rare headline coins that come to market infrequently. Why is this the case?

By and large the values we see in the price guides are a direct reflection of the disposable income of U.S. citizens and their interest in any given series. If anything were to happen to change how the typical collector puts together sets or reduce real disposable income, the current real term drift in high multiple of melt valuations could accelerate.

Richard Nachbar, a very respected high dollar numismatics dealer, has been running ads in coinage periodicals for several years suggesting that his clients exit high valuation numismatics and buy precious metals to replace them specifically because he is concerned about real disposable income in the United States going forward. The record over the last 10 years proves that he has been giving his clients sound advice.

Numismatic authors have correctly told us over the years that the rare issues in any series have a tendency to appreciate much faster than the common dates do until the series matures, but they don’t bother to tell us that most of the time series are mature in real terms within 30-50 years after they are no long available from the government.

Sky-high markups over intrinsic value for series keys and semi-keys discourage new collectors from starting the series in question. It’s probably the combination of high cost, falling real disposable income and attrition that’s showing up in Professional Coin Grading Service’s valuation composites indexed to inflation.

The flip side of this scenario is the modern American Eagles. Series collectors of these coins typically have about 70 percent of their sets purchase price backed by precious metal content and their very young keys and semi-keys are still trading for 2-4 times melt value in most cases. This combination of attractive high- grade sets with high money content (yes, the precious metals are a form of cash), multi-million total series populations and building a collector base for the sets and key dates that produce amazingly tight bottlenecks is driving their keys’ price behavior.

These low-risk, high material content series with relatively inexpensive keys whose mintages run in the 2,200-10,000 coin range are absorbing new collectors at a rapid rate and it is showing up in the number of moderns being encapsulated by the grading services and key issue bid prices. Ultimately it is collector base expansion in a price range they can afford or feel comfortable paying that drives numismatic premium growth. Silver, gold and platinum American Eagles are a land of opportunity and their keys have a long way to go before they top out over the next 30 years.

Just as wise collectors 80 years ago took an early interest in the wonderful modern coins in production from 1906 to 1936 we need open minds to see the opportunities present in our own lifetimes, for they are many.