Doug Winter Article: "Coin Experts: Overall Rarity Versus Grade Rarity" - RYK will enjoy!!
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From CoinWeek:
Coin Experts: Overall Rarity Versus Grade Rarity
Posted by Doug Winter on February 8, 2011 12:11 AM
Even the most available pre-1933 United States gold coin has some degree of “rarity.” A coin like a 1924 or 1927 St. Gaudens double eagle might have a total population in the 10,000’s and this certainly does not mean it is rare but in comparison to, say, a modern coin, it does have a degree of scarcity. But when we are discussing the sort of coins that DWN buys and sells, we are generally talking about true numismatic rarity.
There are a number of different degrees of rarity. The Sheldon Rarity scale, as an example, attempts to distinguish the rarity of copper coins (specifically early Large Cents) from “common” (R-1 or more than 1500 known) to R-8 (two or three known).
I think there are two interesting and important fundamental concepts of rarity that the gold coin collector needs to understand. These are overall rarity (or what I sometimes refer to as “fundamental” rarity) and grade rarity. Let’s take a look at both concepts with some specific examples that help to explain them.
In my opinion, a coin that is fundamentally rare is superior to a grade rarity. An example of a fundamental rarity is an 1864 quarter eagle. Only 2,824 business strikes were made and probably no more than three dozen pieces are known in all grades. This means that, even in low grades, the 1864 quarter eagle is a rare coin. By the same token, a very high grade example of this date is rare as well. Thus, a fundamentally rare coin in a high grade is especially desirable.
An example of a grade rarity would be an 1854 Three Dollar gold piece in MS67. This is a very common issue in all grades up to an including MS65 and it is rare in MS67 solely as a result of its grade. While I think a coin like this is very interesting (and it is certainly desirable to a type collector specializing in great, high grade coins) as a collector I would rather own a coin that is rare and desirable in all grades; just not in “super-grades.”
A few coins are very unusual in that they combine overall and grade rarity simultaneously. Getting back to the 1864 quarter eagle I mentioned above, a perfect example of this is the Byron Reed 1864 quarter eagle graded MS67 by NGC. Not only is this among the finest pre-1890 business strike quarter eagles of any date that I’ve seen, its also one of the rarest collectible dates. There aren’t many coins that combine these two elements in one neat package but those that do are amongst the creme de la creme of American numismatics.
Is one type of rarity “better” than the other? That’s hard to say and, of course, it depends who you talk to. If you listen to a dealer that specializes in Gem coins, he’ll tell you to steer clear of “lowly” coins like an 1847-C quarter eagle in Extremely Fine. Other dealers will tell you to avoid the same date in a super-grade for that issue (in this case, an MS64).
The correct answer often depends on the state of the market. When coins are doing very well, something like an 1854 Three Dollar gold piece in MS67 may show exceptional performance and may even double in price in a short period of time. But this is also the exact sort of coin that traditionally drops like a stone in water when the market gets cold. Coins that are fundamentally rare, like the 1864 quarter eagle I mentioned above, seem to show more consistent valuation. If the market for rare gold were to crash tomorrow, I’m sure that this issue would drop in value but it would remain far more liquid than something like a 1903 quarter eagle in MS68.
Most 19th century U.S. gold coins show a progression of rarity. Take, for instance, a typical Dahlonega half eagle. Let’s say that the original mintage figure is 50,000 pieces. Given the typical survival rate for this denomination, we can assume that maybe 300-400 exist in all grades. This makes our hypothetical half eagle at least marginally scarce in all grades. Of the 300-400 that exist, at least three quarters of them grade Extremely Fine or lower. There may be as many as 50 or 60 that grade About Uncirculated but most are in the AU50 to AU53 range. So, we can see that this date is relatively scarce in the lower AU grades and probably rare in the upper range; especially with original color and surfaces. In Uncirculated, there are probably around ten or so known. Our D mint half eagle, thus is very rare in Uncirculated. And this progression continues through Mint State with the “cut off” point for extreme rarity tending to be around MS62 to MS63.
What this ultimately means is that this date progresses from being scarce in EF40 to rare in AU55, to very rare in MS62 to excessively rare (or even unknown) in MS64. The only factor that might change this progression, of course, is the discovery of a hoard of high grade pieces that skews the distribution.
Many collectors ask me for advice when it comes to purchasing rare gold coins. One thing that I really stress is avoiding common coins in uncommon grades. Let me give you an example of this. An 1881 eagle is a common coin in grades up to and including MS63. In this grade, PCGS has recorded 235 examples of of 2/11 and we’re looking at $1,600-1,800 for a presentable example. In MS64, this date becomes scarcer with a current PCGS population of fourteen. This coin would cost you around $3,000; probably not a bad value although not a coin that I’d jump on. In MS65, there is but one PCGS MS65. If this coin became available, it would likely sell in excess of $12,500.
Here’s why I think this coin is not great value for most collectors. This coin is readily available in MS63 and there are not enough specialists in this series demanding the highest possible grade. The MS64 might make some sense to these collectors but unless there are two “must have the best graded at PCGS” collectors competing at the same time, this coin seems to me to be the sort of coin that I think “cool piece but what exactly am I going to do with it?” if and when it is offered for sale to me.
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From CoinWeek:
Coin Experts: Overall Rarity Versus Grade Rarity
Posted by Doug Winter on February 8, 2011 12:11 AM
Even the most available pre-1933 United States gold coin has some degree of “rarity.” A coin like a 1924 or 1927 St. Gaudens double eagle might have a total population in the 10,000’s and this certainly does not mean it is rare but in comparison to, say, a modern coin, it does have a degree of scarcity. But when we are discussing the sort of coins that DWN buys and sells, we are generally talking about true numismatic rarity.
There are a number of different degrees of rarity. The Sheldon Rarity scale, as an example, attempts to distinguish the rarity of copper coins (specifically early Large Cents) from “common” (R-1 or more than 1500 known) to R-8 (two or three known).
I think there are two interesting and important fundamental concepts of rarity that the gold coin collector needs to understand. These are overall rarity (or what I sometimes refer to as “fundamental” rarity) and grade rarity. Let’s take a look at both concepts with some specific examples that help to explain them.
In my opinion, a coin that is fundamentally rare is superior to a grade rarity. An example of a fundamental rarity is an 1864 quarter eagle. Only 2,824 business strikes were made and probably no more than three dozen pieces are known in all grades. This means that, even in low grades, the 1864 quarter eagle is a rare coin. By the same token, a very high grade example of this date is rare as well. Thus, a fundamentally rare coin in a high grade is especially desirable.
An example of a grade rarity would be an 1854 Three Dollar gold piece in MS67. This is a very common issue in all grades up to an including MS65 and it is rare in MS67 solely as a result of its grade. While I think a coin like this is very interesting (and it is certainly desirable to a type collector specializing in great, high grade coins) as a collector I would rather own a coin that is rare and desirable in all grades; just not in “super-grades.”
A few coins are very unusual in that they combine overall and grade rarity simultaneously. Getting back to the 1864 quarter eagle I mentioned above, a perfect example of this is the Byron Reed 1864 quarter eagle graded MS67 by NGC. Not only is this among the finest pre-1890 business strike quarter eagles of any date that I’ve seen, its also one of the rarest collectible dates. There aren’t many coins that combine these two elements in one neat package but those that do are amongst the creme de la creme of American numismatics.
Is one type of rarity “better” than the other? That’s hard to say and, of course, it depends who you talk to. If you listen to a dealer that specializes in Gem coins, he’ll tell you to steer clear of “lowly” coins like an 1847-C quarter eagle in Extremely Fine. Other dealers will tell you to avoid the same date in a super-grade for that issue (in this case, an MS64).
The correct answer often depends on the state of the market. When coins are doing very well, something like an 1854 Three Dollar gold piece in MS67 may show exceptional performance and may even double in price in a short period of time. But this is also the exact sort of coin that traditionally drops like a stone in water when the market gets cold. Coins that are fundamentally rare, like the 1864 quarter eagle I mentioned above, seem to show more consistent valuation. If the market for rare gold were to crash tomorrow, I’m sure that this issue would drop in value but it would remain far more liquid than something like a 1903 quarter eagle in MS68.
Most 19th century U.S. gold coins show a progression of rarity. Take, for instance, a typical Dahlonega half eagle. Let’s say that the original mintage figure is 50,000 pieces. Given the typical survival rate for this denomination, we can assume that maybe 300-400 exist in all grades. This makes our hypothetical half eagle at least marginally scarce in all grades. Of the 300-400 that exist, at least three quarters of them grade Extremely Fine or lower. There may be as many as 50 or 60 that grade About Uncirculated but most are in the AU50 to AU53 range. So, we can see that this date is relatively scarce in the lower AU grades and probably rare in the upper range; especially with original color and surfaces. In Uncirculated, there are probably around ten or so known. Our D mint half eagle, thus is very rare in Uncirculated. And this progression continues through Mint State with the “cut off” point for extreme rarity tending to be around MS62 to MS63.
What this ultimately means is that this date progresses from being scarce in EF40 to rare in AU55, to very rare in MS62 to excessively rare (or even unknown) in MS64. The only factor that might change this progression, of course, is the discovery of a hoard of high grade pieces that skews the distribution.
Many collectors ask me for advice when it comes to purchasing rare gold coins. One thing that I really stress is avoiding common coins in uncommon grades. Let me give you an example of this. An 1881 eagle is a common coin in grades up to and including MS63. In this grade, PCGS has recorded 235 examples of of 2/11 and we’re looking at $1,600-1,800 for a presentable example. In MS64, this date becomes scarcer with a current PCGS population of fourteen. This coin would cost you around $3,000; probably not a bad value although not a coin that I’d jump on. In MS65, there is but one PCGS MS65. If this coin became available, it would likely sell in excess of $12,500.
Here’s why I think this coin is not great value for most collectors. This coin is readily available in MS63 and there are not enough specialists in this series demanding the highest possible grade. The MS64 might make some sense to these collectors but unless there are two “must have the best graded at PCGS” collectors competing at the same time, this coin seems to me to be the sort of coin that I think “cool piece but what exactly am I going to do with it?” if and when it is offered for sale to me.
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Comments
I completely agree the message of your blog. and probably even take it too far. I have always been far more interested in rarity than grade, from the time I first opened a Redbook in my youth.
For me, owning two mid-grade examples of a scarce coin (say two XF-45 Charlotte quarter eagles, Dahlonega $5’s or Philly No Motto $10’s) is far more appealing than one AU-55/8. I also believe that one’s downside is limited by the former strategy, and the coins seem more liquid when you try to sell them.
RYK
<< <i>RYK already posted a comment to the article on his website.
I completely agree the message of your blog. and probably even take it too far. I have always been far more interested in rarity than grade, from the time I first opened a Redbook in my youth.
For me, owning two mid-grade examples of a scarce coin (say two XF-45 Charlotte quarter eagles, Dahlonega $5’s or Philly No Motto $10’s) is far more appealing than one AU-55/8. I also believe that one’s downside is limited by the former strategy, and the coins seem more liquid when you try to sell them.
RYK >>
Who omitted the "with" after "agree"?
What Doug Winter refers to as "grade rarity", I have previously heard phrased as "condition rarity".
RMR: 'Wer, wenn ich schriee, hörte mich denn aus der Engel Ordnungen?'
CJ: 'No one!' [Ain't no angels in the coin biz]
One thing that I really stress is avoiding common coins in uncommon grades.
One thing I notice around here is when a forum member posts a really high grade
US gold coin. MS65+ or better. I think to myself what an amazing coin! Often they
are the more common dates as they tend to be more affordable then a rare date
in GEM condition.
But what a pleasure it is to find a US gold coin in such a high state of preservation
that actually has a price tag that a "normal budgeted" collector could save up for.
It is that one situation where you can go for a finest known in a PCGS slab that
would look so much better then a MS63 which has dozens to choose from. And I
like to think that most everyone here can tell a 63 from a 65 with very little effort.
Now I am not saying one could not find a 64 that might look just as nice as a 65
if that situation presented itself to allow a collector to save some money but often
that 65 graded coin is a real eye catcher. I am assuming it is all there for the grade.
So DW is looking at it from the dealer perspective... a finest known PCGS coin that
might be hard to market.. while I am seeing it from the collector perspective of
owning a common coin in a really high grade that just happens to be the finest
PCGS graded.. neat! And it does not cost 40K!
Anyway... i had to find something to debate in his post... ;-) Otherwise he is basically
explaining coin collecting 101.
Absolute rarity only changes when a hoard is discovered, which is a pretty rare event, and not one that can be manipulated like grading (except in the short term, where the existence of a hoard is hidden to prop up the price - that's temporary and eventually resolves).
Condition rarity nowadays also requires overpaying for plastic. Give me absolute rarity every time.
http://www.shieldnickels.net
<< <i>There is a lesson somewhere in Doug's commentary that all collectors should note, particularly those that chase coins in sky-high grades. >>
Maybe its that way in gold since not many persons collect gold anyway but how do you account for sky high prices for say common walkers and barber halves in sky high grade?
I give away money. I collect money.
I don’t love money . I do love the Lord God.
<< <i>
<< <i>There is a lesson somewhere in Doug's commentary that all collectors should note, particularly those that chase coins in sky-high grades. >>
Maybe its that way in gold since not many persons collect gold anyway but how do you account for sky high prices for say common walkers and barber halves in sky high grade? >>
Clever marketing counts for a great deal in the business end of numismatics. When investors were induced to jump into the rare coin market, coins (many were generics) touted as 'investment grade' were usually MS65 and up, and that is still the case. Collectors didn't really bite until the registry set concept was unleashed. I don't think that many collectors who buy generics in conditionally rare grades think about the financial implications of what they are doing. Conditionally rare generics stand to lose unusually large percentages of their current values should the coin market take a hard fall.
RMR: 'Wer, wenn ich schriee, hörte mich denn aus der Engel Ordnungen?'
CJ: 'No one!' [Ain't no angels in the coin biz]
Interesting example. My take would have been that a 64 is only good value if it high end for the grade. Otherwise, it would look too much like hundreds of other 1881 $10's. As for the 65, it could also be good value if the coin is nice enough.
Doggedly collecting coins of the Central American Republic.
Visit the Society of US Pattern Collectors at USPatterns.com.
I give away money. I collect money.
I don’t love money . I do love the Lord God.
<< <i>What I don't like about condition rarity is that it is fluid. Grading standards change over time. Yesterday's MS65s might be today's MS66s or even 67s, but it's still the same darn coin.
Absolute rarity only changes when a hoard is discovered, which is a pretty rare event, and not one that can be manipulated like grading (except in the short term, where the existence of a hoard is hidden to prop up the price - that's temporary and eventually resolves).
Condition rarity nowadays also requires overpaying for plastic. Give me absolute rarity every time. >>
Well said. Perfect.
Lance.
It would be easier if the coin had a mintmark.
Doggedly collecting coins of the Central American Republic.
Visit the Society of US Pattern Collectors at USPatterns.com.
That's not true. If you actually look at the coins, there are many solid values to be had in "condition rarities".
Doggedly collecting coins of the Central American Republic.
Visit the Society of US Pattern Collectors at USPatterns.com.
I give away money. I collect money.
I don’t love money . I do love the Lord God.