Numismatic gold v. bullion

ranshdow

Since late 2008 I've deliberately focused on what I call "numismatic gold"- relatively scarce pieces that sell for upwards of 2x melt- instead of bullion. I've done this partially because I buy the argument that the scarcity of many of these is substantially undervalued in this marketplace, and that the gold content will act as a floor to the price. Plus, the variety and history one gets with numismatic gold stimulates me to "keep stacking" more so than adding another generic round to a pile would. However, I haven't seen much evidence in the last couple years that scarcity acts like leverage on the POG, which has been suggested here and elsewhere. What I have seen in the last couple years are select price divergences that I would not have anticipated.

I collect the following, in rough order of # of examples:

Philly and SF Half eagles from the 1850's (XF-AU)
Philly Eagles from the 1840's (XF typically)
New Orleans Eagles from the late 1880's-early 1900's (MS grades)
SF Eagles from the 1870's (VF-XF)
SF gold dollars in high AU

(Those of you at home may have some guesses as to who mixes my Kool-aid)

Prices have risen most noticeably in the past two years for Philly Eagles from the 1840's, something I tend to associate with the rise in melt value. Lately prices have risen quite substantially for NO with motto Eagles in MS grades. The latter seem plentiful, with MS populations often in the hundreds, whereas a number of Eagles from the 1840's often have total slabbed populations in collector grades of less than 100 (1840, 1845 for example). SF gold dollars in high AU, a notoriously scarce group, haven't moved a bit, though I know the ratio of melt to value is quite small. Regardless, I'm not seeing a strict correlation in rising prices to scarcity and I'm not really understanding the rise in prices in NO with motto eagles in particular.

So what I'm looking for here is arguments to the contrary- Why would numismatic gold be less desireable in this market than bullion? Why would scarcity not work as a good lever on basal value, or on prices in general? Why are NO with motto eagles rising, while other more scarce issues of equal gold content aren't rising as much? I'm asking these questions because I've allocated what for me is a lot of money to this and I want to be sure I'm not making some questionable assumptions. Thanks in advance for any feedback.

jmski52

I see this with Modern Bullion in many instances. As gold rises, numismatic premiums become a smaller factor in the total price. Scarcity also becomes a smaller factor as the economy craters, which relates directly to the premium that someone is willing to pay.

I am guessing that with the exception of true rarities, the older issues react much the same way although maybe not to the same degree.

derryb

In a real or perceived inflationary enviornment commodities (especially gold and oil) will rise as investors scramble for an alternative to the dollar while assets (real estate, equities and yes, collectables) will not. It will all depend on what is driving gold up. Gold collectables will enjoy the ride up, but historically not at the same rate. Up until now the deflationary enviornment has driven a lot of people to cash since cash is king. Once the mood changes, I'd rather be in bullion.

OPA

Simple ... price is always dictated by: supply & DEMAND. If the demand is not available, even limited supply will not help out.

roadrunner

However, I haven't seen much evidence in the last couple years that scarcity acts like leverage on the POG, which has been suggested here and elsewhere. What I have seen in the last couple years are select price divergences that I would not have anticipated.

You're not alone in those thoughts. Up until around 2006-2008 the leverage in numismatic gold coins operated as you would have expected. But it actually peaked in 2006 along with a number of other asset classes. And each successive move up in gold has shown less leverage to these coins. The same effect can be seen in gold mining stocks from 2006-2010 as they have not performed with the same leverage they did from 2001-2006. 2006 is also when the leverage in rarer gold coins like MS64-65 $3's and MS65 $5/$10 Indians peaked. The fact that investment and speculative dollars have retreated from rare coins (and moved into bullion) gives you the reasons why rarer coins haven't done as well as bullion and bullion-like gold coins. The best generic gold performers over the last 2 years have been generic MS61-64 $20 Saints and $20 Libs. Until the numismatic market picks up again you'll have to rely on gold bullion to help drag all these other coins along. As to why NM $10's in mint state have been rising is probably related to their type coin scarcity. Since PCGS first came out in 1986 mint state no motto $10's seem to be perenially undervalued. They are quite scarce compared to most other generic gold such as MS $3's and MS65 $5 Indians yet bring considerably less than one would think. A couple of hundred MS specimens across all NM dates is a rather low number for a type coin. Only 3 or 4 dates have pops of >10 in MS62 and 2 of them are in the 1840's. The mint state NM $10 market can be expanded to include investors and speculators as well as type collectors. Even with a hefty premium to melt, a $10 gold piece feels heavy enough to most people to give off that gold aura.....try that with a $1 gold. And with only a few hundred coins slabbed, a simple promotion can easily use up the available supply. Circ 1840's $10's at any significant premium would appeal mainly to the date collectors who currently have pulled in their horns due the recession. And at 100 pcs per date that's a lot of coins available considering there's probably not 100 date collectors in the country. When it comes to speculation, it's usually mint state gold pieces that get the nod. Maurice Rosen for one has often recommended NM MS$10's in MS63 and MS64 as good value plays. Still, if NM MS $10's have been bucking the downward generic gold trend the past year and moving up, that surprises me a little too. Then again, they aren't really generic and survive in small quantities. Collectors may see those as a safe blue chip gold coin. A couple of "dirty" gold dealers recommending them to their customers is all that it would take to push them up. I'm sure the value gold dealers out there are working overtime to find coins to recommend in older dirty gold.

At $2000 or $3000 gold (should it ever occur) you may see those rarer early Philly $10's in XF see their premiums shrink to <5-10% vs. common dates like 1901-s.

"Numismatic" gold is not less desireable than common classic gold coins. But over time their premiums are shrinking, and will probably continue to do so. Personally, I too would rather have the more "speculative" MS MS61/62 NM $10 than a value play in a rarer date but only XF grade.

roadrunner

ranshdow

When it comes to speculation, it's usually mint state gold pieces that get the nod.

Yes, and this makes sense from the perspective of adequate supply for a "well managed promotion". I hadn't appreciated this fully.

Someone in a previous thread suggested that eagles were the "final frontier", though I don't recall if that was in reference to relatively common MS with motto $10's or other tranches. Given the downturn in the generic $20's of late, the upturn in New Orleans with motto $10s still puzzles me a bit as they are certainly scarcer than unc double eagles. Is it a promotion, or sectors of the mkt moving up the value curve?

roadrunner

Someone in a previous thread suggested that eagles were the "final frontier", though I don't recall if that was in reference to relatively common MS with motto $10's or other tranches. Given the downturn in the generic $20's of late, the upturn in New Orleans with motto $10s still puzzles me a bit as they are certainly scarcer than unc double eagles. Is it a promotion, or sectors of the mkt moving up the value curve?

Eagles are probably the final frontier much like seated quarters were for the seated series. Both being long and difficult series to complete with many sleeper dates that needed decades to sort out. Eagles just may take a lot longer to get there, esp. now that at a min. price of around $600 bullion in each coin, you have to have some bucks to complete a set. And if the gold price goes higher, you will see better dates one by one having their premiums wiped out. That kind of stuff is probably never going to happen to seated material no matter how high the price of silver goes...at least not in XF or higher grades. It was quite interesting during gold's 2009 run up to see the premiums in so many better dated MS63-65 Saints being wiped out. Before this gold run is over we could see MS65 saints selling at bullion levels.

roadrunner

OnlyGoldIsMoney

<< <i> So what I'm looking for here is arguments to the contrary- Why would numismatic gold be less desireable in this market than bullion? Why would scarcity not work as a good lever on basal value, or on prices in general? Why are NO with motto eagles rising, while other more scarce issues of equal gold content aren't rising as much? I'm asking these questions because I've allocated what for me is a lot of money to this and I want to be sure I'm not making some questionable assumptions. Thanks in advance for any feedback. >>



Scarcity may not work as a good lever on basal value since many (most?) gold buyers simply don't care. Many buyers are looking for shiny gold that specify weight and fineness. Moreover they want well recognized names like Eagle, Maple Leaf, Krug, Panda, etc. and easily comprehended weights like 1/10, 1/4, 1/2, 1 oz.

Except for classic rarities and popular C, CC and D mintmarks, many scarce gold issues go unheralded. That situation IMO will continue until unpopular gold series attract a critical mass of collectors.

Few collectors attempt to assemble full sets of eagles. A more practical approach is to collect a subset like NO with motto eagles. That might explain why some eagles don't increase equally in value while NO issues do.

This year I purchased a well worn raw 1842 $2.50 on ebay that came back F12 from PCGS. I paid about 3X melt. Mintage was 2,800, remaining population is around 60 and PCGS has graded 28 coins in all grades since 1986. It is scarces but the average gold buyer simply does not care.

For me numismatic and bullion purchases are two distinctly separate pursuits. I purchase Lib $2.50's for my set based on scarcity and condition with no regard for melt value. My gold bullion purchases are driven by melt value without regard to scarcity and condition.

Overdate

Scarce gold coins advance less than bullion coins when the price of gold rises, and decline less when the price of gold falls.

Buying numismatic gold usually means giving up percentage gains for downside protection. It's kind of like buying insurance.

HalfStrike

As the price of gold rises it prices out more collectors so there is less leverage, as the price of gold falls it allows more collectors to participate.

Take an extreme example, if gold fell to one dollar an ounce how would that affect these coins. If gold hit 1 million an ounce how would it affect them?

Over the long haul rare coins have outperformed bullion by many multiples, but short -term that is not always the case.