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Coin Rarities & Related Topics: Collections of Claude Davis and Brandon Smith, Coin Pricing and Government Regulation

News and Analysis regarding scarce coins, coin markets, and the coin collecting community #10

A Weekly Column by Greg Reynolds

After writing about two collections in the Boston ANA auction to be held in August, I will address the topic of ‘overpricing.’ A vocal U.S. Congressman has called for government regulation of rare coin and bullion businesses. He has attacked one prominent seller of bullion and modern coins as having overpriced some of their coins and he seems to imply that the Federal Government should combat overpricing, presumably with price controls. In my view, while such overpricing of bullion coins and of other common coins occurs, his approach is flawed and counter-productive. Moreover, government regulation of prices would make trading less efficient and would not substantially lessen the extent to which careless, or mentally incompetent, coin buyers are harmed. Please see my discussion below.

I. The Collection of Dr. Davis

Please read last week’s column for general remarks regarding upcoming events in Boston and prior columns for discussions of very rare coins that will be auctioned. Furthermore, I will soon write about Dr. Duckor‘s collection of Barber Halves, which is, indisputably, the all-time best collection of this series. Duckor’s halves will be auctioned during Heritage’s Platinum Night event on Wed. August 11, as will many coins from the collection of Dr. and Mrs. Claude Davis. In my column of July 7th, I discussed a few of the coins in the Davis collection. There are many more in the ANA auction.

Todd Imhof, Executive Vice President of Heritage, relates that Dr. Davis “started collecting coins in the 1930’s!” Further, Imhof remarks that Dr. Davis “is perhaps best known for putting together the famous Foxfire Type Collection that sold intact a number of years ago.” My (this writer’s) impression is that the Foxfire type set consisted mainly of coins that were (and mostly still are) NGC graded from MS-65 to MS-67. Indeed, some or all of these were placed by the NGC in holders with the name ‘Foxfire’ on the respective inserts. I have seen only copper and silver coins that are pedigreed to the ‘Foxfire’ collection. I remember the “Foxfire” NGC graded MS-66 1818 quarter, for example, that Heritage auctioned in Feb. 2008 and, again, in May 2009.

Dr. Davis has consigned a much more extensive type set and other coins to the upcoming Boston ANA auction. Imhof reveals that “Dr. Davis, after completing and selling the Foxfire collection, went back into collecting Type coins in a more moderate grade range. He loves high-end AU specimens and felt that grade often represented super value.”

There are many coins in the Davis collection that are graded AU-55 or -58 by the PCGS or the NGC. One example that imaged well is an 1829 half dime that is PCGS graded AU-58 and has a sticker of approval from the CAC. Likewise, the Davis 1815 quarter is PCGS graded AU-58 and CAC approved. The online images of this quarter look marvelous. It is necessary, though, to view a coin in actuality, or have an expert do so for you, to draw firm conclusions about its physical characteristics.

One of the most important coins in the Davis collection and in this ANA auction overall is the Atwater-Hawn 1797 half dollar. The Draped Bust obverse (front), Small Eagle (reverse) halves of 1796 and 1797 are the rarest silver type coins. The William Atwater collection, which B. Max Mehl sold in the mid 1940s, is one of the twenty greatest U.S. coin collections of all time.

The eminent collector Reed Hawn assembled landmark collections of several series, especially quarters and halves. The 1913 Liberty Nickel that was auctioned in January was previously owned by Reed Hawn. (Please click here to read my article about it.) Hawn’s halves were auctioned by Stack’s in 1973. Like the two Davis collection coins just mentioned above, this 1797 half is PCGS graded AU-58 and has a CAC sticker.

Another Davis type coin that may be noteworthy is an 1839 Half Eagle ($5 gold coin) that is NGC graded AU-58 with CAC approval. Breen argued that the Half Eagles of 1839 are of a subtype that is different from those minted from 1840 to 1865 (plus the 1866-S ‘No Motto’ issue). According to Breen, the heads are significantly different. Veteran gold coin dealer Paul Nugget agrees. I do not, however, find this difference to be especially important, though it is curious. In their gold coin encyclopedia (2006), Jeff Garrett and Ron Guth comment that the “style of the design for the 1839 Half Eagle is quite different from that seen in subsequent years.” I encourage collectors to study 1839 and later ‘No Motto’ Liberty Head Half Eagles and contemplate this matter.

II. Unusual Consignment from Dr. Smith

Another doctor who consigned coins to the upcoming Summer ANA auction is Brandon Smith. His 1931 Saint is the only one that the PCGS has graded MS-67. It was earlier in the epic collection of Thaine Price, which the firm of David Akers auctioned in May 1998. Dr. Steven Duckor regards the sale of the Thaine Price collection as “the greatest auction of 20th century gold, ever”!

According to Imhof, Smith is a connoisseur of classic, key-date issues,” two of which are his “amazing 1916 quarter and the finest known 1931 $20” gold coin. Smith’s 1931 Saint “is the finest specimen of this date” that Imhof has “ever seen, easily finer than the MS66’s that have hit the market over the past few years, in [Todd’s] humble opinion.” Imhof is a recognized expert in early 20th century gold coins.

Imhof reveals that “Brandon Smith loves $20 Saints.” Dr. Smith’s “1931-D and 1929 are only graded MS64 but are superb examples,” Todd says. Smith’s “1932 is delightful and [Imhof is] almost certain he acquired it in the Akers’ Price sale and has had it ever since.” The Price-Smith 1932 Saint is PCGS graded MS-66.

Dr. Duckor attended the Price sale and he viewed this 1932 Saint. Duckor then graded it as “MS-66.” Duckor’s second collection of Saints is one of the top sets of Saints in the PCGS registry. His first set, which was retired in Jan. 2005, is the “All-Time Finest” set of Saints in this registry. Duckor has the only 1932 Saint that is PCGS graded “MS-66+”! In 2010, his Saints were re-submitted, under the new PCGS SecurePlus program. His Barber Halves were as well, and these will be a main attraction at the ANA auction.

III. Overpricing & Regulation

A U.S. Congressman, who probably knows little about coins, is continually calling for more government involvement in markets for coins and bullion, which are items that are primarily demanded for their precious metal content. Most one-ounce gold coins minted since the 1970s, for example, are really bullion products and only to a secondary extent, if at all, are collected.

For the most part, precious metals are gold, silver, platinum and palladium. People often buy common gold, silver or platinum ‘coins’ or bars for investment purposes. Rare gold or silver coins are different, though I will address the notion of regulating markets for rare coins below, as it is conceivable that future regulations will affect these as well.

On the Internet, prospective buyers of rare coins, common coins or bullion can easily find large numbers of sellers, along with a good deal of educational information, and can very easily compare prices, especially for the kinds of coins and bullion products to which this Congressman is referring. Indeed, in a matter of seconds, a buyer could find many listings for American Eagle gold coins, Proof American Eagle gold coins, Canadian Maple Leafs, generic (common) pre-1934 coins like 1904 Double Eagles, Platinum bullion coins, Swiss 20 Franc coins or Russian Roubles from the first half of the 20th century, etc.

On websites here in the United States, there is even much information regarding widely traded foreign gold coins, of the kinds that are sometimes mass marketed and are demanded primarily for their bullion content. Right here on CoinLink, the NGC frequently advertises their “World Gold Coins Value Guide,” which includes a long list of values for NGC certified world gold coins, including Swiss Francs, British Sovereigns, Danish coins and Russian coins, among others. The listing includes common foreign gold coins from the late 19th century or the 20th century, which are frequently traded as bullion products, as they are not scarce. Values are listed for several grades. It is made clear when the chart was last updated and the basis price for gold that is being used as a factor in determining these values. Likewise, the PCGS price guide has a page for bullion related coins, with values for U.S. and foreign coins that are traded primarily as bullion products rather than as collectibles.

My point here is that there is a tremendous amount of information available relating to prices for bullion products and generic coins. If someone is a somewhat competent reader, he should be able to easily gain an understanding of market prices for bullion products. It is almost as easy to learn the market prices for somewhat scarce modern coin issues that are traded as commodities and are often marketed by the same vendors who sell bullion coins, such as Proof American Gold Eagles. Pre-1934 gold coins that exist in large quantities and are sold mostly to non-collecting investors are not as simple. A few hours of research, however, would enable a moderately intelligent, prospective buyer to understand market prices for generic pre-1934 U.S. gold coins as well.

Why is there a problem regarding overpricing? Suppose that five dealers in one area are offering the same brand of TV set, and the same exact model manufactured during the same time period, for between $400 and $500 each. Further suppose that a sixth dealer is charging $4500 for this same TV set. Does it make sense to draw a conclusion regarding the people, if any, who pay $4500 for one of these TV sets? Clearly, it is likely that most such people are being very careless or are at least temporarily mentally incompetent. The existence of a dealer who is asking $4500 would not be a reason for a government agency to regulate the details of TV sets and forever control prices that dealers charge for all TV sets. The equilibrium range of $400 to $500 for this hypothetical (though realistic) TV set is a function of numerous variables, which change gradually over time, and cannot really be known by any one agency. More government regulation would impose additional costs upon manufacturers and retailers, would make doing business more expensive in general, and would result in higher average prices for everyone.

I am NOT declaring that there should never be any government regulation of any business. I am pointing out that government regulation has a role in situations where it is nearly impossible for most buyers to acquire pertinent information on their own. There is a need for government regulation of hospitals because it would be impossible for prospective patients to evaluate all crucial aspects of a hospital, including competent doctors, proper sterilization procedures, adequate precautions regarding fires, proper treatment of those legitimately seeking emergency care (even in the middle of the night), the maintenance of X-Ray machines, the safe use of radiation treatment devices, etc.

The pricing and representing of coins is much different from the pricing and representing of the services of a hospital. Regarding rare coins, common coins and bullion, there is an incredible amount of clear pricing information available for free. Consider all the information at the PCGS, NGC, Numismedia, and coin auction company websites. There are more than a million coins listed in the Heritage auction archives. Moreover, there are hundreds of dealers offering coins for sale via their respective websites. In addition, there are coin clubs and coin publications that provide information. Experts all over the nation are available by e-mail or telephone. It is ridiculous to argue that the government should be regulating a business and controlling prices because some buyers gladly pay the first price that they hear, without spending even ten seconds to find out that the same items are sold by a large number of other dealers for much lower prices.

Buyers who are not mentally competent are in need of additional medical care or of some other kind of assistance. Government domination of the coin business would not solve, or even alleviate, the problems of buyers who are not mentally competent. Besides, law enforcement agencies act, under current laws, on behalf of people who are not mentally competent. In fields where pertinent information is readily available and understandable to buyers, government regulation of prices results in higher prices, and less efficient markets, for everyone.

Consider the vast majority of people who pay ‘too much’ for widely traded commodities, like bullion (not rare) coins, which could easily have been purchased elsewhere for much less. These buyers are very careless. In legal terms, their behavior is often characterized by gross negligence. Does this U.S. Congressman desire for the government to impose costs upon businesses and other consumers just to seemingly benefit buyers who are grossly negligent?

Government regulation of coin markets would not ultimately benefit buyers who are very reckless. There will always be vendors who hire clever attorneys and who find ways around the regulations, or will sell something else to the same reckless buyers. Consider someone who would pay $5000 for a very common, one ounce gold coin that 95+% of dealers would sell for less than $1350. This same person may buy a variety of other goods at prices that are multiples of market levels. It is just not practical for government agencies to even try to control all sellers who wish to take advantage of reckless or very careless buyers.

I believe there is an ethical responsibility for experts is to try to educate gullible buyers, and consumers in general, and that is one of the reasons why I write about coins and coin markets. Government regulations of prices, however, have negative unintended consequences in addition to the intended consequences of preventing prices from rapidly changing when market conditions quickly change, and of making it more difficult for businesses to plan for the future because of the uncertainty regarding the price levels that will be government approved.

While government regulation of the prices of common coins would be very harmful, such regulation of prices of rare coins would be even worse. Even two rare coins of the same date, of the same type, and with the same certified grade from the same grading service, may be very different and have dramatically different market values. Moreover, the market value of any one rare coin may substantially change in a short period of time, and may vary in different settings during the same time period. The same coin may be worth more in Auction X than in Auction Y, in the same city in the same month, and may be worth more at Show A than at Show B. Depending upon the collectors active at a particular moment, the same coin may be worth more in the afternoon than it was in the morning.

Even famous coins vary in price. There are only nine known 1870-S silver dollars. (I have devoted one article to 1870-S dollars and discussed them in two more recent pieces. –  Excitement for an 1870-S, Joseph Thomas collection, Column of June 30th.)

The King Farouk 1870-S silver dollar sold for around $550,000 in Oct. 2007 in a widely publicized auction in a big city and then for more than $700,000 in another auction in early 2008. Another 1870-S dollar, which is clearly of higher quality than the King Farouk 1870-S, sold for a little above $500,000 in April 2009. If the King Farouk 1870-S was auctioned as well in April 2009, it would probably have then realized around $450,000. Both these 1870-S dollar may be worth more than $750,000 now. Rare coin prices fluctuate considerably.

IF there should be any government involvement in the rare coin business, it should be to combat coin doctoring. There are a small number of very talented coin doctors who damage coins in order to make it seem (even to experts) as if the damaged coins are actually of higher quality than these coins were before they were harmed, and the coin doctors are able to sometimes trick graders at the PCGS and the NGC. It is not unusual for a coin doctor to deliberately harm a MS-64 grade coin for the purpose of trying to trick experts into thinking that it grades MS-66.

As graders at the PCGS and the NGC can be tricked, and some of them are among the leading experts in the field of rare U.S. coins, coin buyers cannot learn how to detect doctored coins by engaging in research on the Internet. Even very knowledgeable coin buyers are often victims. (Please click here to see my analysis of the PCGS lawsuit against alleged coin doctors, or here to read the lawsuit itself.)

Branches of Federal or State governments may be able to successfully address the problem of coin doctoring, without a need for additional laws and regulations. As is made clear in the PCGS lawsuit, coin doctors can be charged under existing laws.

©2010 Greg Reynolds

About the Author

Greg Reynolds is a numismatic writer, researcher and analyst. Greg has examined almost all of the greatest U.S. coins and most of the finest type coins and patterns, He has extensively researched the pedigrees of important numismatic properties, and he has written about and analyzed numerous auctions, private sales and collections.

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