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Marketwatch: "Not chump change: rare coins could outperform as investments this year"

GoldbullyGoldbully Posts: 16,823 ✭✭✭✭✭

Not chump change: rare coins could outperform as investments this year

Published: Jan 31, 2017 4:05 p.m. ET
By
Ryan
Vlastelica

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Coins typically have a higher correlation with inflation than other asset classes

The Brasher Doubloon minted in 1787 is seen in its secure display at a 2005 coin show in New York

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Coin collecting isn’t just for nerds anymore.

With inflation expected to rise this year, and a concurrently strengthening U.S. dollar seen eating into any gains that might be made by pure gold, investors may want to consider a niche asset class as a protection against market turbulence: rare coins.

While such a strategy may seem akin to putting your money in baseball cards, coins have long been used as an investment, and one that could be particularly beneficial in the current economic climate.

“Rare coins deliver a higher annual return than gold, and they provide an excellent hedge against inflation,” said David Beahm, chief executive officer of Blanchard and Company, a rare coin and precious metal investment firm. “We believe that with President Trump and some of the policies he’s set forth, that we should see inflation, possibly double-digit inflation, in the very near future.”

Trump has proposed massive corporate tax cuts and fiscal stimulus, both of which are expected to stoke inflation this year. That could increase the appeal of gold, which has traditionally been viewed as an inflation hedge.

Investable coins are defined as ones minted between the late 1700s and 1933, when gold ceased to be an ingredient in their construction. Prices are determined both by their scarcity and their condition, and they’re scored on a scale of zero to 70, with Blanchard focusing on the ones graded above 50.

Between 1979 and 2014, the most recent year for which data is available, coins with a minimum score of 65 posted an average annual return of 11.9%, according to a study by Penn State University. That’s near the average annual return of 13% posted by equities SPX, -0.09% and more than twice the 5.5% average annual gain of gold bullion GCZ7, +1.40% Coins with a lower score, between 63 and 65, had an average annual return of 10.1%.

Coins posted a higher correlation with inflation than other asset classes, according to the study, with the relationship about twice as strong as for gold. The correlation between coins and inflation is 0.58 (perfect correlation would be 1.0). It’s 0.27 for gold bullion and 0.15 for stocks. The higher the correlation, the better it works as a hedge.

“The rarity factor builds on the actual value of the gold, increasing its value,” Beahm said.

He added that the more common rare coins, such as Morgan dollars, could be had for as little as $20, while the scarcest ones, including Brasher Doubloons, the first gold coin minted for the U.S., have sold for more than $7 million.

“There’s a wide range, so this is really for everyone,” he said.

http://www.marketwatch.com/story/not-chump-change-rare-coins-could-outperform-as-investments-this-year-2017-01-31

Comments

  • 1630Boston1630Boston Posts: 13,772 ✭✭✭✭✭

    Interesting information to contemplate, thanks for sharing. :smile:

    Successful transactions with : MICHAELDIXON, Manorcourtman, Bochiman, bolivarshagnasty, AUandAG, onlyroosies, chumley, Weiss, jdimmick, BAJJERFAN, gene1978, TJM965, Smittys, GRANDAM, JTHawaii, mainejoe, softparade, derryb

    Bad transactions with : nobody to date

  • rickoricko Posts: 98,724 ✭✭✭✭✭

    Obviously, as all predictive articles, this is something to be read and considered, however, do not run out and convert all assets to coins... Let's bookmark this and look at it in 8 months.... Cheers, RickO

  • messydeskmessydesk Posts: 19,642 ✭✭✭✭✭

    Summary of article:

    "Coins may outperform other investments," says CEO of firm that wants to sell you coins.

  • roadrunnerroadrunner Posts: 28,303 ✭✭✭✭✭
    edited February 1, 2017 10:18AM

    @Goldbully said:
    Not chump change: rare coins could outperform as investments this year

    “Rare coins deliver a higher annual return than gold, and they provide an excellent hedge against inflation,” said David Beahm, chief executive officer of Blanchard and Company, a rare coin and precious metal investment firm. “We believe that with President Trump and some of the policies he’s set forth, that we should see inflation, possibly double-digit inflation, in the very near future.”

    A mostly bogus analysis of our market not taking into account key cycles, gradeflation, huge market peaks in 1980, 1989, and 2008 that for many coins have never been equaled again. Every year, the bar for what is considered an "investible" coin goes higher....as more coins show up in slabs.

    And to say rare coins out perform gold and silver bullion is totally incorrect when not considering a specific time period. From 1999-2011 gold went up 7.6X, silver up 13.88X. Show me what (if any) of the PCGS 3000 sub indexes showed those kinds of returns, even from 1995-2011. The best performers in "rare" coins during the 2001-2009 period were generally the $20 gold pieces...common Saints and Libs in MS63 to MS64 grade. You'd have been hard pressed to find any gem type coins (65-68) grades that did better. While it's sad to say, the best "rare coin" deal in 1999-2003 was probably to buy a bag of 90% silver coins and sit on it until 2011. The bottom line is how much you can keep. Bullion spreads are typically 2-1/2 to 65% on each end. With rare coins it's more like 10-20% on each end IF you find a "good" dealer. A bad dealer can cost you 25-30% on each end. Liquidity is far better for bullion than rare coins.

    Even if we track gold back from 1970 to 2011 ($35 to $1920) that's a 55X increase. Having tracked a number of monster gem rare coins out of auctions from that period (like James Stack March 1975), you'd be hard pressed to find coins that increased 50X in value. They're there, but not many of them (gem MS67 1901-s 25c, gem 1867-s quarter MS67, gem 1855 half MS66 to name some). The bulk of the better coins have increased 10X to 40X. Silver could have been bought for $1.30-$1.75/oz in the early 1970's.....up to a 38x return into both 1980 and 2011. 38x in only 10 yrs? Not many coins did that from 1970-1980. Silver's return from 1993 to 2011 was approx 14X.

    Barbarous Relic No More, LSCC -GoldSeek--shadow stats--SafeHaven--321gold
  • SonorandesertratSonorandesertrat Posts: 5,695 ✭✭✭✭✭

    Unfortunately, the vast majority of the collector coins in collections and the marketplace are simply not rare and therefore of limited investment potential.

    Member: EAC, NBS, C4, CWTS, ANA

    RMR: 'Wer, wenn ich schriee, hörte mich denn aus der Engel Ordnungen?'

    CJ: 'No one!' [Ain't no angels in the coin biz]
  • roadrunnerroadrunner Posts: 28,303 ✭✭✭✭✭
    edited February 1, 2017 10:18AM

    Typical coins graded MS63 to MS65 increased 10-12% per year from 1979 to 2014? Not likely as that spans a range of returns of approx 18-53X over 35 years. Only the very best coins did that. Probably the top 1-5% of all rare coins. Most gem type coins haven't even surpassed their 1989 levels. You can toss most Morgans, commems, gem type gold, and others into that mix. Don't expect your typical on-line dealer or B&M to get you into the types of coins that increase 10-12%/yr over long periods. Bareford and Pittman generated those types of returns. But, look at when they bought coins, the rarity/quality, and how cheap they were. It's not the 1930's to 1950's any more.

    The author certainly doesn't state the fortitude needed to hold during steep down turns, such as the 60-75% haircut the coin market took from April 1980 to summer 1982. Buying "investible" coins at coin market peaks will make you old before your time. Many big time collectors these days only have a holding horizon of 10-20 yrs. You see a lot of big registry sets unloaded in as little as 5-10 years, often coinciding with intermediate market peaks. The author doesn't factor in that baby boomers have been a key player in rare coin prices from 1975-2015. What happens when most leave the market? Iwould agree that a good dose of inflation and rising bullion prices would give a nice lift to the rare coin market. Having lived through the 1990-1996 decline (the longest of my collecting life up to that point), the current general "blah" market has been around from 2008-2016....8-1/2 yrs....and longer than the last one. The 1980-1982 crash was just a blip in time in comparison.

    I'm not promoting bullion, rare coins, or anything else. Just replying to the author's statements. They all have considerable risks, of which cycle timing is probably the biggest. Though if you buy a "dud" of a rare coin that is say over-graded by 1-2 pts you start 30-90% in the hole on day 1....something the author doesn't even mention. That doesn't happen with bullion where grading is not a factor....though authenticity matters too. Buying fake bullion (or a fake coin) starts you off at 100% in the hole. Interesting article from Blanchard who is both a coin and bullion dealer. And that 1979-2014 "Penn State rare coin study? I'd bet you could drive a truck through all the holes in their assumptions/analysis.

    Barbarous Relic No More, LSCC -GoldSeek--shadow stats--SafeHaven--321gold
  • 2ndCharter2ndCharter Posts: 1,640 ✭✭✭✭✭

    If rare coins could outperform other investments, would Blanchard & Co. please explain why they would want to sell their coins they have now rather than sit on them until the price goes up?

    I know - they want to let a whole bunch of perfect strangers in on the "good deal".

    Member ANA, SPMC, SCNA, FUN, CONECA

  • roadrunnerroadrunner Posts: 28,303 ✭✭✭✭✭
    edited February 1, 2017 10:28AM

    @2ndCharter said:
    If rare coins could outperform other investments, would Blanchard & Co. please explain why they would want to sell their coins they have now rather than sit on them until the price goes up?

    I know - they want to let a whole bunch of perfect strangers in on the "good deal".

    In any collectibles field, dealer's make a living turning stuff over. They can't just sit there holding inventory hoping to make 10-12% per year. They have to sell or go out of business. Their operating costs are far higher than 10-12% per year. So making 5-10% on every transaction, and doing that 5X to 10X per year is a better option. This is why some top level dealers can sell their customers great coins that they will do well on over the years. The dealer can't sit on every gem....though many do try to do that....until bills need to be paid. Now Warren Buffet sitting on 130 MILL oz of silver ($1 BILL) from 1996-2006 is a different story. He's no dealer. And 10-12% per year might be just fine. Had he held that bullion for just another 5 years - he'd have made 6X to 8X his original investment - less storage costs/insurance.

    Now if you're confident a coin is going to be worth 2X to 3X what you paid for it in only 3-5 yrs, then maybe you sit on it. I had a coin once where I was initially offered a 25% profit after holding it a year. Not a bad deal, really. I passed on that because I was confident it would be up another 100% within 3-5 years. That offer got raised to over 50% which I did accept. But, my expectations did come true as that coin was worth 3X what I paid for it only 5 years after I bought it. Sometimes you just know.

    Barbarous Relic No More, LSCC -GoldSeek--shadow stats--SafeHaven--321gold
  • mrearlygoldmrearlygold Posts: 17,858 ✭✭✭

    I sold this coin years ago via Heritage Auctions ( march 1998, too early for images ) .It was an upgrade in my opinion based on todays grading. What's it worth now and has it been a good investment? Will be it be a good investment and why if you think it will be? If you don't think so, why do you not think so?
    1795 $10 9 Leaves MS-61
    LOT #6460 |
    Sold for: $184,000.00
    1795 $10 9 LEAVES
    You were the consignor on this lot. View My Consignments
    (Sign-In to see your reserve)
    Sold for:
    $184,000.00
    ncludes Buyer's Premium (BP)
    Offers to date:
    $300,000 on June 26, 2016
    $250,000 on April 23, 2016
    $250,000 on November 26, 2015
    $221,000 on October 1, 2015
    $220,800 on August 8, 2014

  • mrearlygoldmrearlygold Posts: 17,858 ✭✭✭

    The description:
    Extremely Rare Uncirculated 1795 9 Leaves Eagle
    1795 9 Leaves MS 61 PCGS. B. 4-C. One of the best preserved examples of this classic issue among early tens, being appreciably finer than all three pieces from the Diocese of Buffalo consignment sold by us last year. Only 116 pieces are believed to have been struck of this rare variety, all in March of 1796. The extreme rarity of the 1795 Nine Leaves can best be understood when one views the reverse of this coin. A ragged V-shaped die crack is seen below the leaves and another irregular break is seen through the first T in STATES. These are apparently common to most, if not all Nine Leaves coins, and their presence indicates early failure of this reverse die.
    The surfaces on this elusive mint state example are a bit softly defined in the center of each side with stronger definition at the margins. The color is a rich yellow-gold and the better protected areas glimmer with semi-reflective luster. A few stray marks are found on Liberty's curls and cap, while a small unfinished area and a short linear depression, possibly from foreign matter on the dies, can be seen to the left of the final A in AMERICA. One of only a few uncirculated pieces known of this important U.S. gold issue. Population: 2 in 61, none finer (1/98). (NGC ID# BFYL, PCGS# 8552)

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