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Pierre_Henri

Proof Coins vs. Uncirculated Coins: Which is the most valuable?

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geejay50

Thanks Ernesto ,

 

Your posting has a wealth of information for collectors. We desperately need this type of input to keep the rare coin market alive and focussed. I have always had an interest in John J Pittman as a shining example of a self made man who pulled himself out of middle class salaried obscurity by sheer insight and passion in his hobby. Unfortunately , I do not have a coin with his name on it and when one did come up (a 1900 MS65 Pond) I did not have the money. One learns to cope with these things and in coins as in life, you cant have everything. That does not diminish the respect for such people.I believe his wife was a teacher.

 

99% of collectors are not wealthy and spend their last disposable cent, often borrowing against home loans and overdrafts to pay for what they can afford. We can all relate to JJ Pittman.

 

If I may relate my own rocky start to coins in the 1980s, my diving friends and I in Cape Town had no money, were self supporting students and put money together to import a waterproof metal detector that we used to find coins on old VOC shipwrecks off Green Point. There was no boat, we had to abseil down a cement wall and swim out to the wreck site without BC jackets. From there the passion to have real history in our hands grew.

 

Louis Eliasberg (1896 - 1976) was a wealthy Banker, who I believe was the only man to have collected every single coin in the history of the USA. Something like our Dr Froellich from the 1960s (Post Elizabeth) who was the only South African to have collected every ZAR coin minted including the Single 9. I have been lucky enough to have a coin with a Pedigree of each person (see pics).

 

There are two MS65 1897 Halfcrowns better but as you mentioned before, these old collectors did not have the benefit of the internet or grading companies to decide what they would keep in their collections. As I understand, there are only one or two of the Red CGH Patterns graded.

 

Geejay

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Edited by geejay50

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jwither

You are correct, Eliasberg did have a complete US collection, but it was a collection of regular issue US coins from 1792 onwards. The distinction is I believe that it excluded some colonial issues (most of which were issued prior to US independence in 1776), possibly some territorial gold and definitely did not include all patterns. The first two categories are not "US Mint" issues but most US collectors still consider them US coins. Some of them are simply not available for sale, such as the likely most expensive coin in the world. According to the PCGS website, US pattern J-117, an 1849 proof $20 double eagle has that distinction with an estimated value of $20MM. It is in the Smithsonian collection and has never come up for sale nor will it, at least in the lifetime of anyone reading this post.

 

Also, I need to correct one thing from the last post. Sotheby's held the Farouk auction, not Spinks. And from what I read, it was not particularly well run though I understand they were handicapped by the Egyptian government.

 

I also find your opening paragraph interesting. I do not believe that collectors should use Pittman's example as inspriration from a financial standpoint. I believe that is a mistake because what he did was a once in a lifetime accomplishment which is not going to be repeated on that scale or anywhere near it.

 

I have seen no agreement on this board with the comment I am about to make but I am going to make it again anyway. I have seen fewer such comments recently, but I have found far too much preoccupation with the financial aspects of collecting here. I have heard some collectors that I know say that prices have softened somewhat recently and maybe that accounts for it.

 

But I will tell you one thing, it's not that people reading my post cannot make money in South Africa coins because many have and still can do so. But I believe that almost none of you have a perspective on what is realistic and what is not. When I started collecting South African coins in 1998 and up to the Remick sale, they were dirt cheap. Those of you who have been collecting longer than I have and are also based in South Africa, if you were knowledgeable and had foresight, undoubtedly you have better collections than I did (since I have been liquidating much of mine recently) and bought them at better prices.

 

But if anyone thinks that the returns which have been made while prices were catching up to their 'real value" are sustainable or are going to be repeated indefinitely, they are only fooling themselves. They are not.

 

People need to be realistic about what coins are likely to sell for given their scarcity, numismatic merits and affordability. South African coins are still reasonably priced versus other markets but not significantly underpriced except versus markets like Australia and the US.

 

The main benefit that South Africa has say, versus like a market like the US, is that it is a pint sized one and it takes little money to move it. The main drawback it has is that it is a pint sized market and has very little liquidity and market depth. In a rising market like recently and maybe still now, small amounts of money can and have moved prices significantly. But in a stagnant market, those who try to sell will find no buyers at prior prices and in a falling market, only at lower or much lower ones.

 

In a mature market which South Africa is not yet, most coin buyers LOSE MONEY. That is exaclty the experience in the United States and it still may be in South Africa. I do not know. The reason for this is because the market price for most US coins is known by many, so you cannot arbitrage raw versus graded coins like you can with SA. In economic terms, it is a (relatively) "efficient" market.

 

Nor do prices generally explode higher over short periods of time. This happens with SOME coins but not with most of them where it has made it relatively easy such as it has been (at least until recently) in South Africa. What this means in practice is that either a) The buyer must be a (really) long term holder or b) They must time the cycle which few can do successfully just as they cannot in any market. In South Africa for the time I have been collecting, there essentially have been no cyles because the "dips" never lasted long.

 

Given all the pitfalls in coin buying (overpaying, counterfeits, overgraded coins and a falling market among them), this is what should be EXPECTED. It is not normal for most participants in any market to make money most of the time. To the contrary, the OPPOSITE is true.

 

The SA market is not mature because of infrequent sales and limited price discovery. It's something that exists in many others also. I would say that most SA collectors do not really know what their coins or collection is/are "worth" and depending upon what they paid, they might not want to find out either. Many sales seem to occur by private sale which could differ dramatically in a real auction.

 

The only way that the apparent expectations of many collectors that I have read are going to be realized is if a two tier market comes to exist which is even more exagerated than the one which exists now. The first tier would be composed of expensive or exorbitantly expensive coins which trade like commodities as "investments" among wealthier collectors. Some of that exists in any market and in South Africa also. For some of the price expectations that I have seen either explicitly or inferred, many more coins would have to do so. I estimate up to one-third of Union given that there are many scarce coins in the series and even more when higher grade MS are included. The second tier would be composed of "collector" coins which will sell for prices which the typical buyer can actually afford to pay because in actuality, most South African collectors cannot remotely afford to pay even the current prices for many coins and certainly not for multiple coins to include in their collection.

 

The market I described exists to some extent in places such as the United States but not to the extent where most collectors are priced out of most coins. The "investor" market which many apparently envision would likely require that outcome. I would not count on it.

Edited by jwither

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Pierre_Henri

What about Golf...??

 

Thank you for another VERY informative post – I truly read every word of all your posts.

 

If whoever has the time to go back to one of my very first posts on this coin forum, they will see that I made a comment about the “old time collectors” whose adage were something in the tune of “.... if you are in coin collecting for the money – stay away – BUT if you are collecting coins for the pleasure, the money will come to you ...”

 

The one thing that many people forget is that golf players (for example) get a certain return for / on their money (the simple pleasure of playing on a sunny Saturday morning with friends and then having a beer afterwards – bliss they would call it) whilst coin collectors get their pleasure from completing dates and studying their coins for grades, varieties, mint marks etc (bliss we would call it)

 

BUT when the golf game is over, and the last beer is P’d out, then that day’s “investment” is gone. (Obviously the memories might linger on as long as you had a few birdies, eagles – not the silver ones - etc.)

 

Not sure what a golf game costs over there in the USA but over here it is rather expensive, so for the same money you could not only ad a really nice coin to your collection, but the fun has not even started yet...

 

Your coin (and granted you probably paid too much for it) will give a return (maybe good maybe bad) BUT it WILL give a return in financial terms – UNLIKE the golfing hobby that will give you just short term memory loss if you return after 7 to mom ...

 

So AS A HOBBY – I can think of very few other pastimes that will give you that extreme please AND return on investment as coin collecting does...

 

But then surely only as long as it stays a hobby and pleasurable pastime and long term investment.

 

As soon as it turns into a short term money making endeavour, rather go play golf next Saturday...

 

Pierre

Edited by Pierre_Henri

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jwither

Pierre,

 

I agree with you or at least I think I do. Coins are collectibles first and foremost and "investments" secondly or not at all. They are a LUXURY item, like other forms of art, which no one needs for any purpose whatsoever. They have value but only are useful as a limited store of value.

 

In my opinion, a disproportionate number of South African coin buyers seem to have this backwards. While I believe and stated that coins can be financially profitable, because MOST PEOPLE LOSE MONEY MOST OF THE TIME IN MOST ASSET CLASSES, I do not believe that anyone should approach coin buying or collecting with the intent or expectation that they will do so.

 

The problem I was trying to point out in the last part of my post is that the financialization of the numismatic market in South Africa which appears to be happening is going to price out most collectors if it keeps up this way and especially, if some of the price expectations which have been expressed here or to me privately are remotely achieved.

 

If that happens, then South Africa coins are going to become essentially unffordable to most local coins buyers. Or they are going to be at least for any collection that I would rate having though my standards are much higher than others.

 

Yes, South African coins are much scarcer than the alternatives elsewhere (generally when considering the same time period) and yes, they are not that expensive versus what I would describe as exorbitantly expensive US and Australian coins. But based upon what I know, when considering current prices and current incomes, I believe that the typical South Africa collector has ALREADY been priced out of a substantial number of at least the better coins. Since I started collecting, these prices have increased so substantially versus the incomes and asset bases which are required and available to buy them.

 

If coins are going to remain as collectibles as opposed to "investments", that is not sustainable long term. And contrary to what anyone here may think to the contrary, it is not healthy either. I consider this as true for South Africa as the United States except that there are a few major differences between these two markets.

 

In the US, there are a substantial number of coins which are out of reach to the typical and even many affluent buyers. But PROPORTIONATELY, it is still low. It is still low because there are far more US collectors with the financial capacity to pay more than in South Africa. That is just a fact and this is true despite the concurrent fact that I consider SA coins better values and prefer them to US coins. This still leaves a substantial number of choices for the US collector to choose from that are affordable that enables the hobby to remain exactly that, A HOBBY. Longer term, without the collector, there can be no hobby and therefore, "investment" market if most coins are not available to the hobbyist.

 

Given what I see here, what exactly is the "average" hobbyist able to afford in SA material? The answer as I see it, is not much really at least in better material. Most better grade ZAR is out of reach and so are even many of the scarcer dates in average circulated grades. With Union, they can buy KGV AU, more common KGV MS and lower grade KGVI MS.

 

But I would not consider many coins which are not remotely scarce such as the 1923 proof set to be particularly affordable. I mean, even the eight piece set seems to cost $2,500 USD or more and this for a pretty mediocre set..While I assume that the typical income of the 'typical" SA collector to be higher than average even for the European population in SA generally, even buying a set like that is not an insignificant outlay given current incomes in SA. It's not insignificant for the 'typical' US coin buyer either given that most US collectors are far from "rich". I do not believe that a lot of collectors in SA seem to grasp that.

 

But if prices continue to outstrip incomes as many apparently believe they will, the "typical" collector is going to be left with the option of buying what I would describe primarily unappealing material that I do not consider worth buying for any substantial cumulative outlay.

 

Contrary to the apparent sentiments of many I read here, the fact that SA coin prices have increased substantially is not something I particularly celebrate. The reason for this is that, out of economic common sense, it has been the main factor that led me to 'cash in" a substantial proportion of my SA collection because to not do so would have been financially imprudent.

 

I enjoyed collecting these coins a lot more when I was able to buy them much more cheaply. Granted, buying a coin cheaply and being able to sell it for a lot more if also very satisfying, but I find nothing satisfying in paying what I consider to be in many cases the excessive prices I see today. That is one of the reasons I'm not buying them anymore. I expect to be able to buy them for less or much less later and if I cannot do so, I will move on to something else. I have no intention of "chasing" these coins because since they do not offer the compelling value they did in the past, I can find better alternatives for my money elsewhere. I believe my sentiments are the norm for most foreign buyers, though not of locals.

Edited by jwither

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geejay50

Excellent analysis Ernesto,

 

I really appreciate your insights and contributions. I am glad you brought a comparison with other asset classes for those of us who have tasted losses in the Stock Market and Term Annuity Industry where you dont have even a pretty coin to look at after you have incurred your loss

 

Geejay

Edited by geejay50

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jwither

Geejay,

 

Thanks for your compliments.

 

Since you brought this up, let me make another point here. I'm not sure what you mean by term annuities, but I can address the stock market. i know what an annuity is but i'm not sure how South Africans might have lost money on them.

 

You are right that even if someone is a coin "investor" and loses money, they still have the coin. But with the sentiments I have read here in the past, I think it is likely that a substantial proportion of "investors" in SA coins are still going to losing money, despite or perhaps because of the fact that prices have risen substantially. The reason for this is because like most people, they will have bought toward the peak or after it as most people invariably do in any market or asset class. That is a recipe for losing money in any area. The approach to take in any area to maximize your chances of making money is to NOT "chase" anything, to buy it BEFORE others want it and to properly manage risk by not over exposing yourself financially.

 

Those who got in early or those who can still succeed at the "arbitrage game" by buying coins ungraded for so much less than an NGC or PCGS coin are much less likely to do so. But for every collector or "investor" who is able to do this, there multitudes more who are on the buying end of this "arbitrage". It is these buyers who have bought at more recent prices who in my opinion are the most likely to get caught holding the proverbial bag when the tide recdes from the beach, so to speak.

 

Why does this happen? The answer is human psychology. Most people are unaware of this even in themselves, it is very hard to manage and invariably most people cannot resist "jumping in" until many or most others are doing or have already done so. It does not matter whether the asset in question is stocks, real estate, coins or more recently, silver and other commodities.

 

So what I would say is, if you can afford to buy coins at current prices and do not mind losing money on them if the market turns against you, then go ahead and do it. It is your money and if you lose it and do not mind it, it is the equivalent of another form of consumption like the round of golf Pierre used as an example. No one cares about "losing" money in that example because they never intended to make any to start.

 

But if losing money is a consideration, then you might want to at least reconsider your current strategy. Some I know I think have too much of their wealth in coins. I consider that extremely imprudent and no matter how much I might like my collection or any particular coin, I'm not going to do that.

 

Another reason why i am not going to do that is because ultimately, the resources you spend (or waste) this way are not free. Unless you are "filthy rich", you have to give up your time from your life to make this money to buy them and if you are wrong and lose money, you cannot get it back. I do not know about anyone else, but there are either few or no coins that I like enough to do that on any large scale.

Edited by jwither

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geejay50

Hi Ernesto,

 

What we have in South Africa with a Fixed Term Annuity is that one puts down say a lump sum with an Insurance Company and they invest that money over a term not less than 10 years. The man who sells it to you takes his commision and then you get hopefully some growth at maturation. In my case R50,000 was invested after 10 years, R44,000 was paid to me a year ago a net negative return. The man who sold it is now in Australia. Bygones are bygones but the same money if invested in say a graded Veldpond should have sold for at least 5 times the initial price after those same ten years.That does not mean however that in the next say ten years, the same Veldpond will go up ten times in value , almost definitely not but it does illustrate the sharp downside there is in other asset classes.

 

The USA has a strong opposition and the assurance that the government in power will hand over power if they lose the election. We do not have that assurance and our government has yet to step down from power if an election loss would happen. We are very susceptible to tangible assets as investments because there is a deep distrust for what will happen to money in the Bank when the have nots or greedy make demands in the future.

 

Our coin market has seen too much speculation and too little collection. That is its problem and is what is behind the sag in some prices.I say some because in this week I was surprised at the interest and price a raw uncitculated 1930 Halfcrown went for in a UK auction , with buyers premium it went to well over R20,000 and that for a coin that is not very scarce in unc - I paid R7070 for a graded MS61 coin last year in May and that coin stood unheeded on Bob for a few weeks.

 

The solution is to do this game because one loves it and encourage the collector side with objective facts. Our market can only then start to recover but it will take time and above all effort. No magic fix in the shape of a Silver price surge will get our market back. It is numismatics , not the metal exchange.

By the same token, the price of stamps will not go up because the price of paper has doubled.

 

Geejay

Edited by geejay50

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Pierre_Henri

Hi Ho Silver .......

 

No magic fix in the shape of a Silver price surge will get our market back. It is numismatics , not the metal exchange.

By the same token, the price of stamps will not go up because the price of paper has doubled.

 

Geejay

 

Yep, its all in the numismatics - going for bullion ONLY will probably not be the best option, although I must state that those that have bought silver from me or whoever else over the last 12 to 18 months might have doubled their money ?

 

Is that a 100% or 200% return on investment in 12 months?

 

Kind regards

 

Pierre

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jwither

The answer to your question is 100%.

 

Historically, the highest correlation between US coin prices and anything has been with the price of silver. I say this based upon an internet article I read which purported quantified it going back "many" years. I cannot remember how long or who wrote it but it used US coin prices (naturally) going back to the 1970's if I recall correctly. It was for someone's university master's thesis.

 

I never saw the actual document and to my knowledge, the best correlation was and still is with "investor" dominated series such as the Morgan dollar and "generic" type gold. The Morgan dollar is a crown sized coin which is almost exclusively common. The "generic" US gold includes common date $10 and $20 denominations.

 

These are the coins most often sold to "investors" in the US by coin dealers, telemarketers and bullion firms. They are sold primarily because they are a lot of them available (even if claims are made that they are "rare") and they can also be sold to unsophisticated buyers at excessive and sometimes ridiculous premiums.

 

The correlation between silver (or gold prices) to other coins, I do not believe it is particularly significant. I have seen no data one way or the other but I would not be a buyer using this reason. This applies to both US coins other than those I specifically listed and any others, including those from South Africa.

 

To my knowledge, even in the recent metals boom, most US coin prices have either been stagnant or lost value. Those whose bullion content accounts for most of the value obviously have gained value. The "headline" coins you read about have also gained value or maybe a lot. But the reason for this is that there is likely a two tier market in the United States.

 

The more expensive coins are bought by a relatively small number of collectors and "investors" because they have not been adversely impacted by the economy or at least not as much. They still have the financial capacity and apparently, the willingness to both buy and pay more.

 

The majority of the coins though are both bought and owned by the collector and many of these people have been badly impacted by the economy. These are middle or lower income people who either no longer have the means to buy or less than before. And even if not, many of them are in no mood to spend much if anything adding to what they have. To my knowldege, collector US coins have either gained little or lost value in the last few years.

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geejay50
The answer to your question is 100%.

 

The majority of the coins though are both bought and owned by the collector and many of these people have been badly impacted by the economy. These are middle or lower income people who either no longer have the means to buy or less than before. And even if not, many of them are in no mood to spend much if anything adding to what they have. To my knowldege, collector US coins have either gained little or lost value in the last few years.

 

Hello collectors,

 

One can agree with what Ernesto has said about unaffordability of top end coins by the majority of you. That is perfectly true and in a way sad that these are not within reach except for perhaps a few.

 

That does not mean you cannot own a piece that is perhaps cheap now but within 10 years may go up in value as the market grows and appreciates its quality and perfection.

 

I think the market is starting to realise that what is perceived as a bit too modern to collect like say 1947 or after, is actually not that easy to find and the markets have very little of. An example is say a 1947 Penny . Serious collectors know that in this year there was a crash in the mintage of these coins down from over 2 million in 1946 down to just 135 279 in 1947. With time, there just cannot be too many of these coins coming up for sale. They are going to do very well.You must collect to-day with a eye on what will happen in two years from now.

 

What I am going to say now has less to do with value in currency of a coin so much but more the aesthetic aspect. Some proof coins may not have the highest grade but have a variation in colour and attraction that makes one stop for a while thinking about how stagnant you think a coin market may be and what an unbelievable coin you have in your collection !!! I show pics of the 1950 Crown Pf66 I have in my collection - second finest known and shared - I bought it in a group of 10 Crowns at Heritage in 2009 for $81 per coin already graded. That is affordable for most collectors and what a beauty too !! you name the colour, its there ! Mint State has fantastic lustre as a dominant feature and Proof has its mirror fields and a show of colours often.

 

A vicious undercurrent of envy can easily creep into this hobby which spoils everything that is special to it. Lets celebrate what is good and pure about it. We cannot own everything all the time and are really only custodians of these coins until someone else takes them over!!

 

Geejay

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Edited by geejay50

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jwither

Yes, the examples you use make sense, but mainly in isolation.

 

I'm not sure what your price expectations are but they still to me imply that prices for coins such as these are going to far outrun the collector capacity to buy them. And if this is correct, then collectors will only be able to afford to buy much less in the future than what they can buy now, not just of the "better" coins but even many 'average" ones.

 

In assessing collecting practices within South Africa, this is how I would do so using those in the United States. In the US, there are "type" collectors and set collectors. For sets, first there is ZAR, Union and RSA. Then within Union, there is KGV, KGVI, QEII and for each, proofs and circulation strikes. Within each of these, someone could then collect by date or denomination also such as for pennies or shillings. To my knowledge, few to no collectors focus on just one or two denominations. I'm not really sure what most collectors do. When I was actively buying, I was trying to acquire every coin below a specific price range in AU or MS, which excluded most of the KGV proofs and other coins such as the 1923 Sovereign.

 

Today, given how expensive many of these coins are even now, MS is out of the question. I could still acquire most of the better coins in AU (if I could find them and chose to do so), but many other collectors cannot. And if collectors in SA create a similar price structure to what exists in the US in the future, then even scarcer XF (or lower) are going to be out of the reach of most collectors when building a complete set because "key" dates in these grades for US coins can still be very expensive and there are many such coins in practically every Union denomination.

 

Let's take the 1/ circulation strikes as an example. By my definition, the "key" dates are as follows: 1926, 1927, 1928, 1930, 1931, 1944,1946 and 1947. I rate these as "key" in grades below MS and for some, in any grade. In MS, we can also add most other KGV dates except for the 1932, 1924 and maybe the 1936 and for KGVI, also the 1945 and 1948. It just depends upon what grades someone wants for their collection, what is available and what they can afford.

 

Now let's take the pricing of a US "key" date for ILLUSTRATIVE PURPOSES ONLY. I am going to use the 1877 Indian Head Cent. This coin is not "rare" by any means but is one of the "key" dates for this series. The prices below are from the PCGS Price Guide (somewhat inflated but still sufficient to provide an example):

 

G-4 $800

F-12 $1350

XF-40 $2600

AU-55 $3650

MS-60 $4500

MS-63 $5500

MS-65 $7500

 

The pricing on other "key" dates differs with some lower and other higher or much higher. But this price distribution is typical and it is essentially the OPPOSITE of what we see today with SA coins and especially Union. Union coin prices are heavily skewed where the higher grades sell at much larger spreads to US coins. With US coins, the price spreads are wider for more common coins in relative terms but only absolutely large or very large for the higher MS grades, say MS-65 and above.

 

Do I see South Africa "key" dates moving to these types of prices? No, not really and certainly not in circulated grades. But I certainly do not see an even greater exageration of the price spreads we see today either because they make no sense at all. Low grade MS selling for something like six times an AU-58 makes zero sense simply because of a number on a piece of plastic which is mainly what buyers are paying this premium for today. Mid grade MS such as that 1929 6D ms-64 which sold for (I believe) 20 or 30 TIMES a concurrent sale of an AU-58 ($3000 versus $100 or $150). That makes zero sense either.

 

Going by the sentiments I read in venues like this one, apparently as relatively overpriced as many MS are today, they are going to become even more overpriced in the future. I just do not see that happening. Is it posisble? Yes, but I am not aware of a single numismatic market in the world where that type of pricing exists. So why should it exist for South Africa either?

 

It would be one thing if prices for MS were to rise substantially and for the lower or slightly lower grades to rise with it more or less proportionately. But for the reason I explained in prior posts and just now, that does not look possible either. Take a look at the pricing I just showed for this 1877 IHC. If the "key" date 1/ were to remotely replicate it, what exactly would the typical Union collector be left with to buy?

 

The answer is clearly, not a lot with current collecting practices if I understand them correctly. The only option that I really see as an alternative is that many more SA collectors could be "type" collectors. This collecting would include one denomination each for KGV, KGVI and QEII or a total of 27 coins for circulation strikes and 32 for proofs. To this could be added the sets which are still likely to remain affordable such as crowns and maybe farthings. Aside from this, most Union sets would not even be close to complete - for anything - because almost no one would be able to afford it even for circulated grades which many or maybe even most collectors have as an option today.

 

In another write-up which I sent to a few of my South Africa collector colleagues, I described a principle that I term "demand concentration". My definition of this is a market which has limited choices which enables collectors to pay more (in theory) because they have less to choose from. This is true in comparing South Africa versus the United States. But at the same time, I do not see the "market depth" in the SA market today (as opposed to the USor even Australia) which would enable most SA coins to realize the prices that many here seem to believe they deserve. Some yes, but most no. To do that I believe is going to require more collectors who are both able and willing to pay more or a lot more. The willingness to pay more seems to be here given the sentiments I read (at least for now), but I'm absolutely not convinced that current SA collectors can do so in actuality at this time. And it is going to take more time (maybe a lot more than many believe) to bring in a sufficient number of collectors to make this happen, if it happens at all.

Edited by jwither

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