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The Coin Market Phenomenon of 2009 is the Widening Gap between the Prices of High End and Low End Certified Coins
Posted By Greg Reynolds On August 28, 2009 @ 8:11 am In Commentary and Opinion, Market Reports & Prices | 1 Comment
By Greg Reynolds
The key to understanding current U.S. coin markets, and bourse activity at the ANA Convention, stems from the widening gap in prices between mid range to high end coins and low end or problematic coins. This growing gap reflects underlying currents in the marketplace, the recent trend of collectors becoming better educated and more sophisticated, and reasons to be optimistic about the future of U.S. coin collecting. Markets are logically adjusting to imperfections in grading practices, and collectors, on average, are showing a greater understanding of and greater appreciation for the aesthetic and technical characteristics of coins.
Partly because of this gap, price guides have less meaning than they did in previous eras, and it is now harder for buyers and sellers to hone in on the current price levels. U.S. coin dealers must use their experience, current observations, and intelligence to set prices, as world coin dealers have been doing for decades. Coin prices are becoming a little more mysterious and trading has become more interesting.
Two coins graded X by the same grading service may be very different, whether X is Good-04, VF-30, AU-55, Proof-64 or MS-66, or any other number on the accepted grading scale.
Herein, I am also employing the notion, though, that the tastes and preferences of sophisticated buyers is more in line with traditions of coin collecting in the U.S., rather than the criteria of the PCGS, the NGC, or the CAC.
Matt Kleinsteuber, a grading expert with NFC coins, remarks that “quality for the grade means everything.” Of course, he knows that collectors have other considerations as well. Kleinsteuber emphasizes the differences in desirability and price among coins of the same type, date (or equivalent date) and certified grade.
Matt finds that “there are a few collectors that know nice, mid range to high end coins and those coins bring all the money. But, in every market, there are people who just buy [PCGS and NGC] holders.” In 2009, he has been seeing “marginal coins and junky coins in PCGS and NGC holders bring big losses.”
Wayne Herndon points out that, given two coins of the same date, type and certified grade, one could be worth more than double the price of the other if “it knocks your socks off.” If one coin has “nice but less than truly astounding color,” it is probably worth “20% more” than a low end coin of the same type, date and certified grade. Matt Kleinsteuber agrees that “nice, cool and natural color” is very valuable in this regard. For a bust or Liberty Seated silver dollar, such color “is bringing as much as 40% more than the same coin would bring if [it had been dipped] white”!
In regard to his dealings and observations at the ANA Convention, Jeff Garrett states that “the biggest shift in the rare coin market is the demand for [fairly graded] coins with good eye-appeal. There is a near total lack of demand for unattractive or overgraded coins. The appearance and quality for the grade are now more important than ever.”
The contributors to this discussion are the same as those who contributed to my August Market report. (Please see part 1 and part 2.) This essay was borne in my mind when I discovered that most of the market participants that I interviewed at length were substantially in agreement with me regarding the widening of these price gaps. John Feigenbaum, however, does not agree that collectors are more focused on high end coins this year.
I was pleasantly surprised that Curt Mease right away voiced conclusions that are very similar to mine without any prompting from me. Mease is someone I have somewhat known for years and never before interviewed. He is involved in the buying and selling of more than $10 million worth of rare coins every year.
Rich Uhrich is a leading specialist in circulated, Bust and Liberty Seated silver coins. Wayne Herndon has a good deal of experience selling all kinds of U.S. coins from the 1790s to recent U.S. Mint products. Andy Lustig has extensive knowledge and experience regarding most all types of rare U.S. coins and patterns, plus considerable knowledge of Latin American and European coins.
As I pointed out in my August market report, Dave Schweitz is a leading expert in gem quality Indian cents, Lincolns, and silver coins minted from 1892 to 1964. Plus, Dave may be the nation’s top expert in Buffalo nickels.
Kris Oyster is managing director of numismatics for Dallas Gold & Silver Exchange, the parent of Superior Galleries among other entities. “Twelve months ago,” Oyster notes, “a high end better date Saint [$20 gold coin] may have been worth a 10% to 20% premium, and, now, the same coin is worth a 25% to 40% premium over a low end coin of the same date. The price gap has gone up a lot over the last year.”
Andy Lustig concludes, that, from August 2008, when the coin market in general peaked, to August 2009, these gaps between prices for the same issue in the same certified grade “have definitely widened”! Rich Uhrich says that a high end coin, in his fields of specialty, is now often worth “three to five times” the value of a corresponding low end coin, “more typically 50% more”!
Wayne Herndon’s selling experiences suggest that prices for mid range to high end Bust and Liberty Seated silver coins, “with nice natural color,” have not gone down in value over the past twelve months. “While the volume may have slowed slightly … the prices for the cream” in 19th century silver coins “have remained steady.”
Schweitz declares that “high-end Standing Liberty Quarters and Mercury Dimes, for the most part, are worth the same now as they were twelve months ago.” Schweitz further comments that buyers “are more quality conscious now and they are looking for mid range to high end coins. Low end and questionably graded coins have gone down a lot. Coins like that have yet to hit bottom, especially coins that are ugly or very low end for their respective grades.”
In general, Uhrich observes that “many of the buyers of low end coins have left the marketplace, or are temporarily on the sidelines.” Mease also notes that “many buyers of low end coins have left.” It is relevant that Lustig finds that “many investors who know next to nothing have exited the market,” as most of them were probably buying low end coins.
Mease is certain that “prices for certified coins that have been tampered with, cleaned, or [otherwise] mishandled have gone down the most, without a doubt. Coins that are nice and original, mid range to high end for their grades are the most in demand now. The disparity in price between mid range to high end coins and low end or mishandled coins has gotten much bigger over the last twelve months.”
Uhrich finds that “buyers are now more cognizant of quality and tend toward higher end coins” for their respective grades. Schweitz asserts that, “in 2007 and early 2008, the very low end coins were bringing zero to twenty percent less than high end coins. People were going after the plastic. Now, these might bring anywhere from 25% to 60% less.” Similarly, Mease finds that mid range to high end coins, with original surfaces will “often sell for 30% to 100% more than low end coins.” Mease concludes that mid range to high end coins, with original surfaces, of all denominations, “were the hottest” on the bourse floor of the ANA Convention.
The term low end refers to several categories of coins. (1) Some coins hover around the border between two grades and thus may just barely qualify for their respective assigned grades. (2) The grades of many coins are in the lower one-third or their respective grade ranges, and are literally ‘low end’ with no other connotations. (3) A coin that is thought, by most experts, to be definitely or just probably overgraded is also ‘low end’ in this context. (4) Coins that very apparently have serious problems are usually said to be ‘low end’ in order to avoid much more negative descriptions. (5) The category of low end coins also includes coins that are subject to question for other reasons.
I am not here criticizing the PCGS or the NGC, and I am not endorsing the CAC. Suppose a collector blindly, and without advice, purchased, by mail, one hundred PCGS and NGC certified rare U.S. coins, without CAC stickers, and another hundred of the same types and similar rarity, with CAC stickers of approval. It is likely that the CAC approved group will be of significantly higher quality on average, certainly not every coin will be, than the other group. Even so, in my view, and in that of several of my expert contributors, the CAC has approved some very questionable coins. Plus, there are excellent, high end coins that have been CAC rejected to the amazement of many experts. I am emphasizing that education and honest expert advice are of tremendous value to coin buyers.
Grading coins is very difficult. PCGS, NGC, and CAC graders will sometimes miss imperfections, especially when these are deliberately hidden. Some dealers aim to trick the graders. Moreover, thousands of coins, which have never been modified, are submitted multiple times to the PCGS and the NGC. There are a large number of instances of the same coin receiving a different grade from the same grading service. There is a consensus among dealers, though, that the PCGS and the NGC have both become “tighter” and more consistent over the past twenty-four months.
In 2005, Steve Contursi announced that he had returned more than 13,500 holder inserts to the PCGS relating to coins that he had ‘cracked out’ and re-submitted. Contursi points out that his “returns of PCGS inserts are probably just the tip of the iceberg regarding crackouts.” Contursi asserts that “a dozen dealerships have cracked more coins out of PCGS and NGC holders than” he has. “Most major dealerships are involved as this practice has been part of the rare coin business for a long time,” Steve adds.
Obviously, it was not helpful to Contursi’s business for him to publicly reveal all these crackouts and re-submissions. The primary reason why he did so publicly was to educate coin buyers about the inconsistencies of grading and related matters. In my view, his disclosure is a valuable educational service to the coin collecting community. Now, Contursi believes, “the lesson about seeking the help of an expert rings true when it comes to analyzing the job that NGC, PCGS or CAC has done” regarding “each” scarce or rare coin.
Certainly, all expensive coins should be certified by the PCGS or the NGC, as buying certified coins involves much less risk than buying uncertified coins. Expensive uncertified U.S. coins are usually coins that the PCGS and the NGC have refused to numerically grade and/or identified as being severely problematic. In most major coin auctions, at least 95% of the U.S. coins valued at more than $500 are PCGS or NGC certified.
In my view, the trend towards higher end coins is primarily a function of coin buyers becoming better educated, mostly because of the increase in pertinent educational material on the Internet. Collectors who read the print coin publications might not know that the PCGS and the NGC make mistakes, or that there are extremely important issues regarding grade-inflation.
Since some point in the first part of 2007, the PCGS and the NGC have, in my view, tightened and improved their grading practices. I wonder if this was in response to criticism published on the Internet and demand by coin buyers who had become better educated. Contursi suggests that “crackouts are now rare as most coins on the market today are in their ultimate grade holder.” While Contursi may be understating the current extent of the crackout practice, as I know dealers who continue to crackout a significant number of coins, the practice probably occurred to a much lesser extent over the last twenty-four months than it did during any other twenty-four month period since the PCGS and the NGC were founded in 1986 and 1987, respectively. Certainly, the PCGS and the NGC should be commended for acknowledging problems and improving grading services.
While I do not agree with many of the points stated in Scott Travers‘ books, his discussions of coin grading are exceptionally informative and, years ago, laid the groundwork for further education in this regard. More importantly, since early 2007, commentary by Laura Sperber, articles by Doug Winter, and hopefully my analyses, plus some very sophisticated points on the PCGS message boards, have greatly contributed to the education of coin buyers regarding original surfaces, natural toning, dipping, coin doctoring, the meaning of premium quality, and other grading issues.
Dave Schweitz emphasizes that most serious buyers “now have some idea about coin grading. They are trying hard to avoid questionably graded coins.”
Collectors should not try too hard to become expert graders, as this could be painfully frustrating. The happiest collectors are not top grading experts. Instead, collectors should learn some about the factors involved in grading, should learn which sellers to trust, and should find experts who gladly share knowledge.
Over the last two years, buyers of scarce or rare U.S. coins, on average, have become better educated and/or are receiving better advice. Dealers and collectors can contribute to the long term health of the coin collecting community by carefully analyzing coins, talking about them, and emphasizing the positive characteristics of coins. Why not do so? Viewing, discussing and collecting coins is fun.
©2009 Greg Reynolds
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