A Decade of Marketplace Advances

Thursday, July 1, 1999

        The coin market is in the midst of its best run (well into its third year now) in over a decade. Despite the fact that we are in the month of July which has little to show in the way of major auctions or coin shows, trading continues, but at a slightly slower pace. Even this modest lull in the market is so much more active than markets in the first half of the decade. The last significant bull market was mostly fueled by certified rarities. Investors got involved because stock market firms were going to put "big" money into coin funds. In addition, the hype about "rare" low population certified coins created a belief that investors would make money hand over fist. They may have if all certified coins were truly rare. However, as soon as three or four more coins were added to the population reports the following month, dealers were forced to lower their bids or risk having to buy more than the one single rarity they thought was in the marketplace. Prices were doomed to fall. The coin market has survived many cycles in the last one hundred years, discussed in various books and analyzed to the point that while history is very important, it may have little significance on current or future markets. Most of us believe that markets repeat themselves in similar fashion. There are many theories as to the degree of increase or decrease that market cycles swing, but as much as they appear similar, they are different. Each and every cycle since the early 1960s had been fueled by various influences: the BU Roll market, hyperinflation, certified rarities, among others.

        Several circumstances occurred from 1986 to 1996 as market prices initially took-off for a couple of years, but then faltered and began to drift lower. Certifying coins through the major grading services was supposed to be the industry's salvation. And it was. The protection from damage that certification provides to the coin (although many collectors still like to hold a "raw" coin in their hand, properly of course) is as important a breakthrough as we have ever had in the industry. Certification also granted the industry with a greater degree of accepted grading standards. Now, grading by the major certification services may not be perfect, but it is way better than anything we had prior to its inception. Without certification it is doubtful that we would be receiving the type of acceptance in the worldwide collectibles market that we have seen in the last three years.

        Another benefit of certification is the ability to keep track of how many coins have been slabbed in a specific series and grade. While resubmissions and crossovers may point to a lack of exact overall figures, the ability to compare the rarity of one coin to another is of utmost importance in the coin market, especially when speaking of high grade true rarities. Prior to these published reports, all we had was mintage figures and auctions realized for comparisons, but who really knew if it was the same coin traded. Tracking coins and their prices is an important component in analyzing the coin market today and determining overall values relative to one another.

        The one drawback, or baggage, that came with certifying coins was the theory they could trade sight-unseen. You know, if it had a grade on the holder, some dealers might say "hold it up to the phone so I can see it and I will price it." Of course today, "holding it up to the phone" is not as unrealistic as it once was. However, when sight-unseen trading began in conjunction with certification, the first coins graded were all rare. As they hit the marketplace, every kid that wanted to be the first to own one had to pay more than it was realistically worth. Prices became inflated and even moved higher for awhile as the coin market played the sight-unseen game. Eventually, so many coins were slabbed that the premiums fell and they began to trade for what they actually were worth. Dealers realized that they could not support the entire coin market by sight-unseen bidding. In order to balance their heavy inventories, they lowered their bids to the point that sellers would not offer their coins to the so-called high bidders. However, sellers had to move inventory so they eventually sold their worst specimens to the high sight-unseen bidders. Of course, logic dictates a counter measure to protect the buyer from winding up with all low-end coins in his/her inventory, simply by lowering their sight-unseen bids even further.

        Every week, more coins wound their way through the grading services and more coins became less rare. Coin prices started to tumble in late 1989 and continued, almost unabated, until 1996. Since 1986, there have been 10 million+ coins certified and very few dealers buy coins sight-unseen anymore; even the ones that sort of do, don't. They will still reject some coins that do not have the "right" look. This is good for the coin market. Since there will always be collectors who buy according to price and those who buy according to quality, it is important to realize that market prices for sight-seen, accurately graded coins should be markedly higher than those prices for sight-unseen low-end coins. In fact, accurately graded coins should be the main determinant of the value of all coins. These are the coins most collectors endeavor to purchase. Buying low-end coins is usually a product of your own personal cash flow. With low-end coins trading at a discount, the marketplace would have a more precise picture of the true value of their coins.

        Is the coin market better off today than it was prior to 1986? You bet it is. All the necessary components are now in place. Certified coins help to protect the coin and the buyer. Accurate pricing for accurately graded, sight-seen coins help maintain competition among the dealers in the marketplace. This also helps the dealer and the collector, as the information is easier to obtain. In addition, we may be in the best coin market climate in history. It is easier to buy coins today than it ever has been. We are attracting money from non-traditional sources that do not need or require a quick turnover. The collector base is expanding at a rate that was unimaginable twenty years ago. There are so many other positives you can make your own list.

        History does and will repeat itself and prices will continue to climb as they have in the past. Study coins, learn about them and collect them; knowledge is the key to collecting.