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Increasing coin prices driven by speculators?
Sunnywood
Posts: 2,683 ✭
We have all watched prices skyrocket in the last two years for many series, many rarities, and indeed for the market as a whole. Coins that bring six figures at auction brought less than half those amounts only a few years ago. This phenomenon extends everywhere, from high-grade Registry-oriented moderns to Gobrechts and early type, from proof gold to better date MS type. So what is really happening here?
When proof gold, major rarities, or 1794 dollars came up for auction just a few short years ago, the number of bidder cards in the air was sharply less than today, and so were the prices realized. Where were all the experts then? Why are these coins suddenly "worth" twice as much, or many times more??? I find this absurd. This is not an accretion of value over time, but rather an aberrant spike that does not reflect true inherent value.
There are always "true collectors" in any market. True collectors were still collecting during the flat, doldrum years of 1993-1998. True collectors buy and hold coins. True collectors set the baseline of market values. So, has demand from "true collectors" increased? Are there more "true collectors" now? Perhaps, but don't believe for a minute that the state quarters program has created new demand for Gobrechts. Is there lower supply now? No. If anything, the higher prices have actually increased the supply by flushing out more holdings. The current escalation in values is not due to a sudden surge of true collectors, nor a sudden decrease in supply.
What is driving the market is a flock of buyers who are NOT true collectors. These are dealers, speculators, and investors. These folks are flocking into the rare coin market because other investments (stock, bonds, real estate) have nothing to offer right now. They smell a "bull market" in coins, and their resultant demand becomes (temporarily) a self-fulfilling prophecy. Just as every ordinary guy on the street was suddenly a self-proclaimed day-trading expert in the '90's, now everyone buys coins to flip them, or hold them as an investment. Everyone is suddenly a vest-pocket dealer. Many coins get turned over & over, and do NOT stay put in collector hands for any length of time. They get resubmitted endlessly to the services, as evidenced by the extraordinarily high numbers of coins that are now in the new PCGS holders with eight digits.
What will happen when these folks who are acting in search of short-term financial gain suddenly realize that there is no more upside potential? When perhaps other investments find favor again, or the speculative aspect of today's coin market has run its course? Don't think for a minute that 1989 cannot recur.
I am no longer a buyer in most areas, and I am grouchy about the increasing difficulty of being a true collector. Current coin prices no longer represent true value. They are escalating due to increasingly speculative hype. Tulip bulbs !!! Anyway that's my (admittedly not particularly humble) opinion.
Best,
Sunnywood
When proof gold, major rarities, or 1794 dollars came up for auction just a few short years ago, the number of bidder cards in the air was sharply less than today, and so were the prices realized. Where were all the experts then? Why are these coins suddenly "worth" twice as much, or many times more??? I find this absurd. This is not an accretion of value over time, but rather an aberrant spike that does not reflect true inherent value.
There are always "true collectors" in any market. True collectors were still collecting during the flat, doldrum years of 1993-1998. True collectors buy and hold coins. True collectors set the baseline of market values. So, has demand from "true collectors" increased? Are there more "true collectors" now? Perhaps, but don't believe for a minute that the state quarters program has created new demand for Gobrechts. Is there lower supply now? No. If anything, the higher prices have actually increased the supply by flushing out more holdings. The current escalation in values is not due to a sudden surge of true collectors, nor a sudden decrease in supply.
What is driving the market is a flock of buyers who are NOT true collectors. These are dealers, speculators, and investors. These folks are flocking into the rare coin market because other investments (stock, bonds, real estate) have nothing to offer right now. They smell a "bull market" in coins, and their resultant demand becomes (temporarily) a self-fulfilling prophecy. Just as every ordinary guy on the street was suddenly a self-proclaimed day-trading expert in the '90's, now everyone buys coins to flip them, or hold them as an investment. Everyone is suddenly a vest-pocket dealer. Many coins get turned over & over, and do NOT stay put in collector hands for any length of time. They get resubmitted endlessly to the services, as evidenced by the extraordinarily high numbers of coins that are now in the new PCGS holders with eight digits.
What will happen when these folks who are acting in search of short-term financial gain suddenly realize that there is no more upside potential? When perhaps other investments find favor again, or the speculative aspect of today's coin market has run its course? Don't think for a minute that 1989 cannot recur.
I am no longer a buyer in most areas, and I am grouchy about the increasing difficulty of being a true collector. Current coin prices no longer represent true value. They are escalating due to increasingly speculative hype. Tulip bulbs !!! Anyway that's my (admittedly not particularly humble) opinion.
Best,
Sunnywood
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Comments
Cameron Kiefer
Sunnywood
Sunnywood's Rainbow-Toned Morgans (Retired)
Sunnywood's Barber Quarters (Retired)
Fabulous insights. Keep them coming.
Russ, NCNE
42/92
I would wager nearly EVERY purchase of a coin takes into account the price (or "value") of whatever is being contemplated for purchase.
Coins are one of the VERY few hobbies where purchases ....usually.... yield a profit when sold (if chosen for scarce attributes....LIKE....toning, perfection, or rarity.)
So, yes, speculators are all thinking at all times: "If I buy this ...item... will it be something someone ELSE would want too?"
"COLLECTULATORS".....???
All of this is from collectors only. I don't think speculators are to blame just yet.
I do agree with your observations. But I also believe you underestimate the degree to which speculative forces are motivating this market, from Registry collectors to vest-pocket dealers, and more importantly, major league well-funded players who are driving the top end of the market in rarities, proof and mint state gold, key dates and early type. We even have "The Fund" now (Rare Coin Alliance, LLC), which is disturbingly reminiscent of the Kidder-Peabody and Merrill, Lynch entities of the late 1980's that contributed to the sharp run-up and consequent crash of 1989. Some areas of the market (mint state Indian $2.50, for example) are being grossly manipulated, while others such as patterns are suddenly in vogue after years of neglect. Everyone is so convinced that prices can only go up !!!
I used to find it very funny that dealers, up until a year or so ago, would often say "The 1989 high for this coin was ....." Of course, the dealers were trying to demonstrate that the coin had the potential to reach "X" dollars in value again. And perhaps they were right. Some of those prices are recurring now .... but only after FIFTEEN YEARS. It was funny to me that dealers thought the 1989 highs were a selling point, while I took them to be a strong warning. When I read those "1989" blurbs, I used to think, "Just remember, prices crashed in 1989, AND THEY STAYED DOWN FOR A VERY LONG TIME." That's right folks: prices can go down too, and they can STAY down. Put THAT in your pipe and smoke it.
I do believe that the overall long-term trend for legitimate rare coins is now, and has always been, UP. But not in the feverish short-term way that we are now seeing.
Best,
Sunnywood
Sunnywood's Rainbow-Toned Morgans (Retired)
Sunnywood's Barber Quarters (Retired)
As I see it , part of the blame(?) has to go to eBay & the www.
If I am looking for a coin I need & I bid on eBay for it I might end up bidding more than buying it locally as the last minute bidding frenzy starts.
The next buyer now see's prices of completed auctions & knows what it's going to take to buy this coin, maybe bidding a bit more more, pushing the price up again!
This, I'm sure, is picked up by the coin dealers on the www. and those creating coin values, raising the price of every coin.
JMHO
I'm still waiting for the state quarter program to create new demand for clad quarters from the year before!
Wondercoin
the prices of many coins is being driven largely by speculation but these speculators are in
many cases true collectors, experienced dealers, and other hobby insiders. A few tears ago
these same folks may have been leery to have any money in coins more than what was needed
for collections, inventory, research, etc. Now they see an expanding hobby base and rising prices
for many coins. This makes them less eager to sell excessive coins and more likely to buy coins
that don't exactly fit their needs.
It is true that the market is vulnerable to correction to the degree that buying is based on spec-
ulation regardless if that speculation is from an outsider or an insider. It's also true that market
corrections can be overdone and take down coins which hadn't even been involved in the run-up.
This being sais though, there is no certainty that the torrid growth in the hobby base can't ease
any excesses caused by "irrational exuberance" to date.
Why do you feel that some areas of the market (such as those you mentioned) are so strong, while others, like mint state and Proof type and classic silver commemoratives, have gone largely ignored over the past few years?
I would love to own a Chain cent but at today's prices I am out of the market. I would rather not own the coin at all than purchase some of the examples offered recently in the $4-5,000 range. Collectors who feel they are priced out of the market may decide to leave the market altogether, thus causing an even greater decline in the retail end of the business.
Just where are we in the coin business cycle?
I know of 4-5 billionaires creating collections. They're not speculating, but truly collecting. It doesn't take many people like that to have a major impact on prices.
And, price increases are not rampant. For instance, MS65 with motto seated dollars are valued right now pretty much the same as they were in 1990. And not much grade inflation has hit that area, so it's still apples to apples.
The above tells me there's a long way to go in this market.
I totally agree with your points ... except that I believe that the "torrid growth" is limited to lower-cost modern issues, and it is very unclear how much of that will ever translate into increased collector demand for classic coins, older coins, higher-priced coins, etc. Of course, one thing that classical numismatics has going for it is finite supply in the more mature series (as opposed to moderns wherein millions of coins exist that have yet to be submitted to PCGS !!). So any increase in demand for the older series and types may translate directly into higher prices, as the supply cannot increase to meet the demand.
That having been said, I am amazed at the ongoing growth of population numbers in some series. For example, when I completed my first sets of MS shield nickels, I had practically cornered the market in the MS66 and MS67 examples, particularly in the better dates (excepting 1880). Now, however, those pop figures have grown substantially. In effect, the supply is increasing. More coins are getting conserved, resubmitted, and reholdered in higher-graded plastic. I guess supply can increase after all.
Best,
Sunnywood
Sunnywood's Rainbow-Toned Morgans (Retired)
Sunnywood's Barber Quarters (Retired)
It is hard for me to say that silver commems have been ignored, when at the high end, prices have been pushed to ever-increasing astronomical numbers. Although of course we know who those players are ... but their motivations are more speculative than anything else, at least in my opinion. The fact that this market doesn't have enough of a collector base to filter down into more moderately graded coins only adds fuel to the argument that the publicized high prices are nothing more than the result of speculation, not true collector demand. When (if ever) the "torrid growth" that Cladking refers to begins to filter into areas like MS64/MS65 silver commems, then we have a real long-term market.
As for MS and proof type, I think that the Registry programs encourage collectors and dealers to pursue series by date and mintmark, rather than type collections. And dealers will prefer to deal in those series wherein enough supply exists to have coins to sell. Thus we have the strange phenomenon that series that are LESS RARE by numbers can carry vastly higher prices at the high-end than older series that are much more rare. One needs only to look at the recent prices realized for pop-top Lincoln cents, Walkers, and Buffalo nickels, and then compare those with prices realized for pop-top MS seated coinage, or shield nickels. Part of this is that there is a collector base that favors the 20th century coinage of their youth or their parents' youth, while seated coinage is an artifact of the distant past. And part may be related to the designs themselves. But a bigger part, I think, is that dealers push those series that they can readily get their hands on. I have pointed out before that you can't makes sales if there is no supply.
I do hope that the Registry program encourages more collectors to collect OLDER series by date & mintmark or variety. Why not put together a complete set of Classic Head large cents, or bust quarters !!! That is much harder to do, requires more patience, and can be very rewarding. Those coins tend to be very individual, and are generally not white-dipped widgets. And the die varieties tend to encourage the collector to evolve into a numismatist. And it is NOT more expensive than spending six figures on full head SLQ's or pop-top rare Walkers.
An interesting example of dealers pushing what they can get is white Morgans. I collect rainbow-toned Morgans, but many dealers only carry the white coins. In other series of silver type, some of these same dealers will tout beautifully and colorfully toned examples; but in Morgans, they only carry white coins. Why? Because white coins are much easier to find, and it is easier for a collector to create a matched set of white widgets. Finding beautifully toned gem-quality better date Morgans is too muich of a challenge !! Anyway, I digress ...
Best,
Sunnywood
Sunnywood's Rainbow-Toned Morgans (Retired)
Sunnywood's Barber Quarters (Retired)
but don't believe for a minute that the state quarters program has created new demand for Gobrechts
I have always hated this flawed logic. I know about 6 people who collect state quarters and when I have shown them nicely toned coins they say they prefer "clean" coins. They also shun PCGS & NGC slabs as they are "too expensive".
The coin market rise is tied directly to speculators, promoters and people who are looking for an alternative to traditional investments. Most will be selling at fractions of what they put into the coin market.
Can a top be far off when some of the major purveyors of "product" are also engaging in questionable activity? Such as "ship wreck effect" slabs, Coin Vault selling essential coin trinkets as investments to hold for the long term, HSN doing likewise, and even some major dealers getting into the action.
You mentioned MS shield nickels and how their pops have risen. A simpler analysis are the Flying Eagle cents, one year's pop in 64 increased 38% in 11 months. Alot of money being made in the crackout game and more and more marginal coins getting into more expensive plastic. I say "Tulip Bulbs, no thank you"!
We will look back and wonder how did we miss all the obvious signs!
are people who quit in 1964 because they got burned by the collapsing roll market or quit
because there was no longer anything of "value" in circulation. There are even greater
numbers who are filling folders for states quarters and other circulating coins. It will take
both these groups some time to discover a need to go to shows.
While Wondercoin is right that there is little interest so far from newbies in the obsolete clad
and silver eagle reverse quarters, there is some increased interest in other coins. This is es-
pecially pronounced among returning collectors for their interest in older coins like buffalos and
indians. Low grade examples of almost all the 19th and 20th century popular coins have been
increasing for some time. Most of these markets and raw moderns are taking a little breather
right now apparently caused by the hoardes of such coins coming out of back rooms at the coin
shops. There isn't great depth to the supply of some of these so expect this market to come
roaring back later in the year.
Some of these returning and new collectors have significant resources and some are going to
advance very quickly. While most of us spent years before we actually bought any coins, there
are some people who go through the stages very quickly. Give it time.
Reading your thoughts and hopes regarding the buying habits of Registry set collectors got me to thinking, or more accurately, wondering - to what extent does the "completeability" AND guesstimated/conceivable time frame for completion affect/dictate what coins/sets will be pursued? For example, how many "collectors" will try to complete a set that might take 3 years? 5 years? 10 years? I'd love to get an accurate survey and plot the numbers on a graph....
As a collector in the 1973-1980 market, I totally left for 2 years from 1980-1882 until prices retreated. From 1982-1988 I was back in full gear again. My buying was curtailed in the 1992-1999 market. Whether collector or speculator or both, there are times to retreat.
If the area you collect never experiences rapid growth, you can stay for the entire show and not get hurt.
I have to agree with Sunnywood that the % of speculation at this point is significant. Maybe not half of what occurred in 1989 but still enough to create a self-fullfilling prophecy. Look out, because the real speculation is just beginning.
I for one am still happy that 19th and early 20th century type coins has yet to get boosted....thus giving more time to find keepers. In another 12 months it will be different. Speculators have always gravititated to rare gold, proof gold, major rarities, and major type coins.
roadrunner
TDN, you are right about the billionaires ... a few of them have had quite an effect on that segment of the market. There are actually two different guys working on COMPLETE pattern collections by Judd number. Wow. Funny how some of these guys are relative newcomers though. I would like to ask them what got them into coins at this time .... I marvel at how just 4-5 years ago there was an auction with two proof bust dollars side by side, that only hammered at about $100K each. And I remember an 1839 Gobrecht NGC PF65 hammering at $19K in a Heritage sale, back in 1999-2000 I think, because nobody in the room cared. Those days are gone for now. Instead of "dot coms" the smart money is buying rare coins. But, soon enough, the smart money will find some other venture to be more worthwhile, and the hypesters will run for the hills.
Best,
Sunnywood
P.S. Mark, Thanks for respecting my privacy !!! I appreciate it.
Sunnywood's Rainbow-Toned Morgans (Retired)
Sunnywood's Barber Quarters (Retired)
But isn't that the stuff market cycles are made of? Stocks, gold, art, real estate, etc. all play by those same rules. Specualitve excesses eventually ruin the party for one and all.
roadrunner
great summation line for probably half of the increase in prices.
al h.
One of the 1913 5C Liberty's was just sold to an investor for 3 mil.
Go BIG or GO HOME. ©Bill
There are a lot more people out there buying, some for a hobby and some for speculation - but with the advent of the internet, yes EBay and others, this is a good thing for the coin market, not a bad thing.
To assume that just because less people are willing to travel to a trade show means the top has hit the market is to not understand the power of the internet. (I live in Hawaii -- why would I travel 3000 miles or more just to see the sames coins that I can buy on Heritage or E-Bay?) -
The high end of the market is being driven by a combination of collectors wanting to increase their value and speculators needed a place to park some money - but it doesn't matter right now.
The prices will rise at least through the end of the year and into the first half of next year - longer if Bush is reelected and shorter if Kerry gets elected - it's all going to be based on how long the interest rates stay down - As soon as they hit 4 - 5% for a savings acct. a lot of money will retire from the speculative market and go back to the bank. If Kerry gets elected, expecpt a fast 1 pt rise in bonds almost overnight -
For right now, buy all you can at the best price available. The market still has lots of room to go up!
Finally, because of the internet, I don't believe the coin market will ever go down the way it crashed before. It may go down a little in some markets - and it may stabilize at that point, but the crashes were caused by the greed of a few people and market makers. The upswing in this market is that there are thousands of new collectors - big difference guys! - We're all not going to go away!
<< <i>Please allow me to play devils advocate here for a minute and make a few points on the other side of this issue. First although coins, real estate, art, stocks and other investments have many things in common they are very different in many respects. Wealthy people that buy coins, and art, do NOT sell these items when the markets start to drop.
Yes, VERY different in many respects, I agree.
People with deep pockets on the other hand definitely sell and move on to more easily tracked investments when they've been taken for a ride in the coin business. I can site case after case but then again I'm not talking billionaires. Only millionaires. Don't know how you are defining wealthy. To me, people who can take shots for a couple million dollars in buying rare coins are pretty well off.
Tom
Coin's for sale/trade.
Tom Pilitowski
US Rare Coin Investments
800-624-1870
My belief here is that many high end collectors just do not go “ALL IN” when it comes to Coins, or Art, or a few other things they like to accumulate, as they will with stocks, real-estate, bonds etc. What seems to get many millionaires in financial troubles is lack of diversification in their investments. My belief here is that a multi- millionaire may buy a coin from $10,000 up, but if the market drops in half he will not be a seller, because first he still likes the coin, and second he has staying power. Unlike many other “investments” he may own he knows there is no interest payments to lose, or maintenance to perform, and he also knows what percent of the market he owns in that coin, and there will not be any more made. Again a financial crises changes the entire game, if we have government acknowledgement of our inflation woes the coin market is likely to take another bump up.
Rgrds
Tom
Coin's for sale/trade.
Tom Pilitowski
US Rare Coin Investments
800-624-1870
Sorry, I did not mean I doubt your examples!
Rgrds
Tom
Coin's for sale/trade.
Tom Pilitowski
US Rare Coin Investments
800-624-1870
Very high demand coins and a drop in the bucket for anyone with some capital.
AND....not enough of em to hold from the gradual release such as the (I think) Robinson Arkansas commem corner of years ago.
(May be wrong on that commem info and my commem book is packed in one of the boxes.)
I am a manager of multi-millions as a financial planner. Some very large accounts, businesses. I know of ONE purchaser of gold in the Bloomfield Hills, MI area that is probably worth about $150 million, and is buying the High Grade Double Eagles like it is going out of style. He is cautious, but his main reason? LOVED COINS WHEN HE BROKE OPEN HIS GRANDMA'S PIGGY BANK AT AGE 7, AND HIDING MONEY FROM HIS FAMILY IN CASE ANYTHING GOES SOUR!!!.
Sunnywood, I think you may be right. Stocks went through the roof (unjustifiable) in the late 90's. What happened? Selling, and then panick. Sunnywood, BE PATIENT ON TRYING TO COMPLETE YOUR SET. DON'T FOLLOW THE HERD. MAYBE think of SELLING EVERYTHING NOW AT THE PEAK! JUST LIKE THE STOCK HOLDERS OF THE LATE 90'S WHO WISH THEY WOULD HAVE SOLD, DON'T BE TELLING YOURSELF THAT IN A YEAR OR TWO. BECAUSE OF SO MANY POSTS TALKING ABOUT THE HUGE RISE IN PRISES AND SO QUICK, FOR THE FIRST TIME...
....I AM SERIOUSLY THINKING OF PLACING A LOT OF MY STUFF IN AUCTION AND SELLING. As an example on shocking prices, I had a 1916 double die nickel EF45 with ugly dirt on it I bought for $10062.50 in 2002. I had later purchased a nice AU55, and didnt want the EF45 anymore. Sent the EF45 to Heritage, and I forgot to reserve it, but I didnt like it no matter what, so I just wanted to sell it. Figured I would sell it for $10000. It sold for $17,250. GIVE ME A BREAK. IN LESS THAN A YEAR AND A HALF, IT WENT UP 70%????
SELL, MORTIMER, SELL, SELL, SELL...........
READ ABOUT THE PATIENCE OF I think it was Pittman, whose collection ended up selling for over $25 million, when he was patient during his collecting years....His overall investment was $100,000!! (Source, 100 Greatest U.S. Coins. Great book, just forgot the two author's names at this time).
Buy the way, my millionaire friend strictly buys through auctions, so he says.
I am a collector, but I cant buy much now. Too pricey. At the fun show of 2003, the nicest MS66 Flying Eagle Cent sold for what I thought was a whopping - $103,250. Was offered a year later at Heritage AGAIN, and I thought, this guy is gonna take a bath!!! Sold for $172,000. A year later. Come on...
be in touch with. If an area of the market gets hot it becomes a less good area in which
to buy. Sure if you only collect one thing and it gets hot it might be difficult to set it a-
side until it cools but it should probably be done. In fact, it would be nice to sell. There
are always and will always be sectors which are underappreciated and some of these
will be similar to whatever you're working on. Everything cools eventually. Even if you
have to buy back in at higher levels when it cools, you'll still have come out ahead if you
stay ahead of the crowds.