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Ni28

Precious metal prices affecting the numismatic market?

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Ni28

How strong is the correlation between the gold/silver prices and activity in the numismatic market? I searched the internet and could not find a satisfactory answer. Some people state there is not a strong link, but I do not necessarily agree.

 

The 70’s was a boom period for SA numismatics and this was the time gold also increased from $35 to $850.

 

From 1980 to 2001, gold was in the doldrums and dropped to $253. Our historic coin catalogues reflect a corresponding slow growth in collectible coin prices during this period.

 

In contrast, from 2001 to 2011 we had a boom in both the gold price and price of collectible coins (again reflected by the catalogue prices).

 

Now unfortunately gold has been in a bear market since August 2011. I am, however, not qualified to make statements about recent coin prices as I am not a dealer.

 

Anyway, does a booming coin market require an equally buoyant gold price?

Edited by Ni28
typo

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jwither

The answer to your question is "yes and no". It depends upon what your definition of numismatic market you are using and what coins you have in mind. Your questions are South Africa centric while it will actually differ depending upon what country's coinage you are talking about and even which coin series within a market because gold and silver are global markets while every single numismatic market is predominantly a local one. Here is what I mean.

 

Five or six years ago, I found a research paper (or a summary) written by someone here in the USA on this topic but from a slightly different angle. Their conclusion was that the price of US coins was most closely correlated to the price of silver bullion. They did not include their supporting data (coin prices since historical silver spot is easy to find), I have no idea if it is actually true (but I will get to that in a minute) and I could not find it the next time time I attempted to do so either.

 

Personally, I don't believe that metal prices really explain the trends you included because it contradicts the experience in the United States which is the leading "investment" market for coins by a long shot. From 1981-2001, US coin prices mostly rose to my knowledge. They mostly fell only right after 1980 (maybe up to 1982), from 1987 to around 1990 and since 2008, have been weak for "collector" coins but I don't believe otherwise. In other words, they mostly rose when metal prices rose and still mostly rose when metal prices fell. This is the root cause of the comments you see on this board and in the US where more than a few seem to believe that coins are a "hedge" against "hard times", as if anyone needs this during a period of mostly rising and general prosperity.

 

I am not aware that there was any "investment" market of any consequence in South Africa prior to the popularity of TPG. Maybe it existed for gold coins but I find it hard to believe that it would apply to any others.

 

If you look at the USA, coins were first bought as "investments" starting in the mid or maybe late 1970's. But even though coins rose strongly across the board, I have never heard (either then or since) that they were bought specifically for that purpose. Maybe collectors did so but it I am not aware that it was widespread.

 

The first coins I heard bought as "investments" were Morgan silver dollars and generic (as in common) US type gold. The obvious reason for this is that it was brokers/bullion dealers who exclusively or predominantly did so. They were mostly selling these coins as a substitute for gold and silver bullion which means that the coins had to be available in large quantity even in high grade (which they were and are) and it had to be something which was liquid and familiar enough to the non-collector that they would actually buy it. At the time, no one would have bought the esoteric (and yes, this is exactly what it is) material that is now also sold as an "investment".

 

The coins that I am sure you also have in mind only became "investments" with the creation of TPG, in the late 1980's or maybe slightly earlier. I recall some dealers by that time even selling other high grade common coins such as the Liberty Walking half dollar and rolls of quarters and dimes. Merrill Lynch and Kidder Peabody also created limited partnerships for sale to the public but then these blew up after the 1987 stock market crash.

 

Fast forward to today and even though metal prices have fallen substantially, the most expensive coins (especially in high grades) have either lost much less value or risen strongly anyway. My explanation for it is that almost 40 years of these practices have made a lot more people used to buying coins as an "alternative" asset.

 

But the reason for the discrepancy between "investor" and "collector" coins is simple enough. Obviously, the original "investment" coins (Morgan dollars and generic type gold) that are bought as direct bullion substitutes for metals have lost as much value or maybe even more since metals peaked in 2011. Second, because of the economy, most collectors have less discretionary income and savings for all things, including coins. There are still plenty of people to buy them and pay more in the aggregate but they choose otherwise and use it for something else. And lastly, since the "1% ers" have been impacted less or not at all, they have plenty of money to buy the best coins and pay more as they have.

 

In South Africa, I suspect that because of TPG, that up to 2011, that this is the primary reason why many more apparently bought coins in South Africa as "investments". I do not see that they would have paid or will pay now the prior or current prices especially for silver or bronze ZAR and Union, whether metal prices were rising or not. The only qualification I make to this statement is that because inflation over the last 40 years has been much higher in SA and the Rand has lost so much value versus its international counterparts, that the prices of practically everything I presume increase a lot anyway.

 

Finally, while I do not have access to much data, I suspect that the performance of coins in practically any other country doesn't really have anything to do with metal prices, except to the extent that these coins are bought by foreigners and especially Americans such as myself.

Edited by jwither

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jwither
Now unfortunately gold has been in a bear market since August 2011.

 

I have a question for you or anyone else that will answer. Why is this unfortunate? I already know the answer but I am interested to hear from anyone who cares to reply which I expect to be no one.

 

For someone who is a real collector and is actually interested in completing or at least adding to their collection, I don't see how buying future coins for less can be considered unfortunate. This notion contradicts basic common sense.

 

For the "investor", given the minimal positions most of you certainly have, I don't see that it is a negative either. Wouldn't it make more sense to use the decline since 2011 to add to your position to sell for a greater profit later?

 

The only reason I can see for this mindset is one of the following two reasons:

 

First, the lopsided majority who have this sentiment either don't care at all about real collecting or are far more interested in making money off of their collection. This even though the amount of their "investment" is disproportionately financially irrelevant.

 

Second, a small minority have an outsized position relative to their net worth. So even though they are real collectors, the financial aspects are either still more important or at least disproportionately important. My response to this person is what I have said before. It is poor financial planning to make such a large commitment to what is actually usually an illiquid and thinly traded asset.

 

I call it illiquid because the prospects of selling these coins (SA) and most others at their supposed current values (in other words, what the collector believes them to be worth) are hardly a given. I call coins a thinly traded asset because in actuality, there are almost always from maybe a handful to maybe a few dozen potential buyers at the (supposed) current market price. They aren't really an alternative to gold and silver (the original question posed by your post) because their are millions of potetntial buyers for both of the latter at their published price or very close to it.

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Cold Sea

Hi jwither, I don’t think there is a strong link between the metal price and the “common” collectors coin market. The obvious link is the base metal amount, but the premium paid is in line with disposable incomes of the collectors. I read about the debt levels of ordinary South Africans again today, and if that is any indication then cash is bit on the short side to put it mildly.

 

As a hobby collector I still see reasonable prices for the more popular items, and as you rightly point out, the expensive coins will hold their price, because the owner just won’t sell at a loss. I always like to believe that, like before, this type of market can turn you into an “accidental investor” when buying some of the more common types.

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Pierre_Henri
Hi jwither, I don’t think there is a strong link between the metal price and the “common” collectors coin market. The obvious link is the base metal amount, but the premium paid is in line with disposable incomes of the collectors. I read about the debt levels of ordinary South Africans again today, and if that is any indication then cash is bit on the short side to put it mildly.

 

As a hobby collector I still see reasonable prices for the more popular items, and as you rightly point out, the expensive coins will hold their price, because the owner just won’t sell at a loss. I always like to believe that, like before, this type of market can turn you into an “accidental investor” when buying some of the more common types.

 

Strangely enough, many internet buyers of coins are neither collectors nor investors. They buy coins (and other items) purely on impulse for the strangest of reasons. E.g. their child’s date of birth coinciding with the coins minting date.

I have sold many a coin on BidorBuy to persons who have never bought a coin before and who probably never bought a coin afterwards. “It just happened” they would say.

 

Some of my most expensive sales happened like that.

 

About 10 years ago, I sold a 1965 cent for an incredible amount – totally over its estimated value.

 

The buyer was a guy from Johannesburg who told me that his father had urged him since he was a boy to get a 1965 cent as it will bring him luck and good fortune.

 

But it takes two to Tango, and I always wondered who the under-bidder was...

 

Pierre

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Ni28
I have a question for you or anyone else that will answer. Why is this unfortunate?

 

Because I work for the mining industry... :grin:

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jwither
Because I work for the mining industry... :grin:

 

That makes sense.

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jwither

Pierre,

 

Gifting of numismatic has traditionally been relatively common in the United States, though I suspect less so today than in the past because the hobby is less popular and coins cost so much more.

 

If you look at mintages for proof sets, modern commemoratives and the proof ASE, I don't believe there are anywhere near enough collectors to buy these US Mint products. It is to a great extent non-collectors and speculators given that the mintages for commemoratives range on the "low" end from just over 5,000 to hundreds of thousands, in the hundreds of thousands for the proof ASE and from around half a million to several million for annual proof sets.

 

In South Africa, I suspect that these patterns are equally true, only that the numbers are lower.

 

For already issued coins, I suspect that non-collector purchases at local dealers have also been significant in the past in the US. However, the number of dealers has declined because of the internet and I suspect that it has declined. On a source like eBay, i do not know.

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jwither
Hi jwither, I don’t think there is a strong link between the metal price and the “common” collectors coin market. The obvious link is the base metal amount, but the premium paid is in line with disposable incomes of the collectors. I read about the debt levels of ordinary South Africans again today, and if that is any indication then cash is bit on the short side to put it mildly.

 

As a hobby collector I still see reasonable prices for the more popular items, and as you rightly point out, the expensive coins will hold their price, because the owner just won’t sell at a loss. I always like to believe that, like before, this type of market can turn you into an “accidental investor” when buying some of the more common types.

 

I accept your claim on the financial stress in the South Africa economy and it is something that has been mentioned on this forum many times. However, I do not believe that it is the factor so many claim because there isn't a mass numismatic market in South Africa which exists in the United States or even in the UK. I believe that it appears this way because the affluent apparently (per the website of the South African Coin Co) never collected as much as their American counterparts did in the past and still do not now. If this is correct, then this means that it is disproportionately the middle class who was and is the real collector while a disproportionate percentage of those who were paying the prior prices were speculators.

 

In the late 1980's, David Bowers (now at Stacks Bowers) estimated that maybe as many as 50,000 spent $100 USD or more on a single coin in the United States. If this was a reasonable estimate, then given the price level and census counts, I believe at least 250,000 do so now and likely $250 or more. Additionally, I believe it is possible that somewhere between 5,000 to 10,000 spend $10,000 or more and some multiple $1,000 or more.

 

Now how many spend these amounts for SA coins? I do not know but even accounting for differences in population plus income and wealth levels, I suspect that it is a relatively low number. In a prior NGC post, I estimated 100 for Union and 300 to 500 for ZAR who spend one of the two lower amounts. Given the census counts, I suspect that it is probably the higher number for ZAR or maybe somewhat more including those who live elsewhere. If my estimate is too pessimistic, maybe somewhat more for Union and at most 1000 for ZAR. For $1000 or more, maybe a few dozen (if that) for Union and around 100 for ZAR. Above $10,000, a handful for Union and maybe a dozen or so for ZAR.

 

The reason I bring this data up is that since the actual number is going to be trivial, I don't see that the economy has that much to do with it other than pure random chance. I see it as more of a function of the personal financial circumstances of who the individual collectors happen to be at any time than aggregate economic statistics.

 

Second, I have stated many times which coins I believe to represent good values and which I believe do not. Numismatically, I believe that higher circulated "key" dates such as the 1946 1/- AU-55 I bought from Geejay plus scarcer KGV 1/-, 2/- and 2/6 in AU-58 and sometimes AU-55 represent the best value. Economically, probably a coin like the 1929 2/- NGC MS-63 which Jonathan Kern has up for sale on eBay right now if it ultimately sells for the $1500 to $2000 I believe it will fetch.

 

As for "conditional rarities", I am not convinced they will hold their value simply because the buyer in theory can afford to hold it indefinitely. It will depend upon the coin and what someone paid for it. For example, I certainly do not see the 1943 NGC MS-65 RB 1D which sold on eBay recently for slightly over $2000 holding its value. The price was absurd and no one can remotely demonstrate that it represented even reasonable much less compelling value. The reason I make this distinction is because there isn't anything compelling or distinctive about this coin whatsoever. I acknowledge that it is theoretically possible for some greater fool to provide the current owner with a profit, but whether it happens or not, no one can make the case that the risk-reward trade-off made any sense.

Edited by jwither

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Cold Sea

The price of gold has increased by 37% over the past five years in USD terms, and 86% in Rand terms. The point is that would the collection of a top 100 South African coin collector have increased nearer 37% or nearer 86% in USD terms. I know my minors collection, which means very little in the scheme of things, have certainly outperformed both these but I have a feeling that the top 100 collector is also satisfied. However illiquidity is the Achilles heel here.

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jwither

You are certainly right about liquidity being a consideration, though I'm not sure many others have really considered it. The comporative data I provided above for the potential number of buyers at different price points are a guess, but I believe a reasonable "ballpark" estimate given the current price level and apparent availability.

 

It should also be evident given the limited supply of South African coins that there isn't ever going to be much greater liquidity in the future either. It is partly why I have mentioned on numerous occassions why the prices of your coins would likely be higher (in the future) if the supply was somewhat greater..

 

Personally, I am now in a loss position on what I retain of my SA collection but that is only because I dumped practically all of my better coins four years ago. If I had to do it over again, I would have sold most of what I have now and probably kept a few of the better coins instead, like the 1932 NGC MS63 BN 1D or 1892 NGC MS-64 RB PL 1D I used to own. It was mistake to sell these coins instead of those I have now from a financial aspect.

 

As for how other collectors with the better collections have performed, those who bought at favorable prices a long time ago or even bought more cheaply recently presumably have done well. But I doubt that includes all or even most of those with the top 100 collections because many of them must have paid stupid prices for some or even many of their coins. After all, SOMEBODY still has to own these coins at the high prices which existed at the 2011 peak and it certainly isn't the average collector.

Edited by jwither

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Ni28
The price of gold has increased by 37% over the past five years in USD terms, and 86% in Rand terms. The point is that would the collection of a top 100 South African coin collector have increased nearer 37% or nearer 86% in USD terms. I know my minors collection, which means very little in the scheme of things, have certainly outperformed both these but I have a feeling that the top 100 collector is also satisfied. However illiquidity is the Achilles heel here.

 

Thanks, very valuable comment. The reason I asked the question in the first place was my curiosity about the psychology in the market place. In a rising gold/silver price market, this bullish message is typically being reinforced by the media, other people, etc. Is it then easier for us to pay the (sometimes large) premiums on collector’s coins and therefore we inadvertently also lift the numismatic market?

 

I nevertheless need to add that I simply adore the hobby and will continue to buy South African coins because of their historic value and beauty, regardless of the investor market sentiment and whether prices are perceived to be high of low.

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Cold Sea

Hi Ni28, I certainly did not mean to venture into that dark art of investment advisor. I am sure that there are other portfolios that have fared better with the same or even less risk.

Edited by Cold Sea

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jwither
The reason I asked the question in the first place was my curiosity about the psychology in the market place. In a rising gold/silver price market, this bullish message is typically being reinforced by the media, other people, etc. Is it then easier for us to pay the (sometimes large) premiums on collector’s coins and therefore we inadvertently also lift the numismatic market?

 

Yes but it once again depends upon what coins you are talking about and where. In South Africa, I suspect:

 

First, the most direct link is with modern NCLT first (proof KR and commemoratives such as the Natura series) and probably gold ZAR second. These are direct bullion substitutes.

 

Second, I agree there is an also somewhat of an indirect link for any number of other high grade TPG coins in the ZAR and Union series (as in MS) which some "investors" buy instead of bullion. I still believe this is primarily non-collector buying because I do not see that rising metal prices will or should matter to the collector, except to the extent that they see the prices of the coins they buy rise because of speculator buying.

 

I suspect (but do not actually know) that this non-collector buying is driven by marketing. In other words, the buyer is sold (in both senses of the word) coins that they are not actually looking to buy on their own, at least initially. For example, I suspect that the South African Coin Co was one of the earliest and largest sellers pushing ZAR when prices started rising significantly about a decade ago. But maybe its just because my perception is distorted by the fact they I became aware of them early because they came up first on my Google search of South Africa coin dealers.

 

Lastly, I don't believe there is any impact of consequence for the remaining coins.

Edited by jwither

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jwither
As a hobby collector I still see reasonable prices for the more popular items, and as you rightly point out, the expensive coins will hold their price, because the owner just won’t sell at a loss. I always like to believe that, like before, this type of market can turn you into an “accidental investor” when buying some of the more common types.

 

Take a look at the four links below. Both are of the EXACT SAME COIN which sold on four separate occasions and for LESS each time. And this isn't a "run of the mill" coin either but one which has an estimated surviving population of 25 to 30 out of an estimated mintage of 100. It is an 1856 USA NGC PR-67 CAM 25C.

 

 

Sale #1 in 2007 for $69000

1856 25C PR67 Cameo Quarter NGC.... Proof Seated Quarters | Lot #1795 | Heritage Auctions

 

Sale #2 in 2009 for $29900

1856 25C PR67 Cameo NGC.... Proof Seated Quarters | Lot #3769 | Heritage Auctions

 

Sale #3 in 2013 for $24675

1856 25C PR67 Cameo NGC. Briggs 10-H.... Proof Seated Quarters | Lot #4227 | Heritage Auctions

 

Sale #4 in 2014 for $22000

1856 25C PR67 Cameo NGC.... Proof Seated Quarters | Lot #5220 | Heritage Auctions

 

As to why the last three sales occurred, I do not know. The point of this example is to illustrate that while yes, it is unusual for the more expensive coins to sell at a loss because the buyers do tend to hold on to them, anyone who thinks that they have downside protection simply because they bought a "rare" "conditional rarity" or any coin with other irrelevant attributes is not necessarily going to be bailed if they paid a stupid money price. I suspect there are going to be LOT of these people in your country who bought these coins up to the 2011 peak and who have bought many of the coins I have profiled on this forum since.

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