By Jeff Garrett for Numismatic Guaranty Company (NGC) ……
For much of the last 50 years of my career, the rare coin market has been dominated by investors. Starting about 1979, when rare coins soared because of record gold and silver prices, the market for numismatics was dominated by investors. In the 1979-80 market boom, many of the biggest investors for rare coins were coin dealers. They were plowing their bullion profits into rare coins with abandon. In 1980, the price for many commonly traded type coins reached levels from which they still haven’t recovered.
At peaks in January 1980, the price of gold reached an astounding $850 and silver nearly broke the $50 level. Silver had been artificially inflated by the Hunt Brothers’ attempt to corner the world’s silver market. Shortly after, the Federal Government intervened to thwart the oil company heirs, causing silver to fall about $10 per ounce. It would continue to fall from there, dropping to about $3.50 in 1991. Silver stayed below $10 for the next 25 years!
A multitude of coin dealers and investors lost massive sums starting in 1980 when bullion prices fell. The rare coin market famously crashed “overnight” at the 1980 Central States Numismatic Society Convention in Lincoln, Nebraska. There was a race to the exits, and by the following week, many coins were worth less than half what they had just traded for. It was volatility most had never seen. The crash of prices for Brilliant Uncirculated rolls in the 1960s may have been similar, but few who experienced that market are still around to recall the tale.
In the following decades, the rare coin market continued to be dominated by investors urged on by new trends and events. The market recovered around 1984 when there was a rush of dealers selling common United States gold coins to investors. Many of these firms were marketing companies based in Minnesota, and they sold massive numbers of coins, spurring demand and prices.
The next big innovation that impacted the demand for rare coins by investors was the creation of third-party grading in 1986. The dream was that with third-party grading, coins would become a commodity that might one day trade like stocks and bonds. There were several rare coin funds created to facilitate the investors’ demand. Most closed later, with at least one large financial firm having to give investors refunds because of mismanagement or misleading information.
All during the 1980s and ’90s, rare coin prices were dictated mostly by the rapid infusion of capital by investors or the undisciplined liquidation of positions. Price volatility was the norm. Investors were the prime target for most of the rare coin companies in the U.S., with many having the word “Investments” in their company name. Selling rare coins as an investment was standard operating procedure for most companies.
This started to change in the early 2000s with the advent of the internet. Suddenly, there was an avalanche of information available to anyone interested in coin collecting. You could also shop for rare coins around the world from the comfort of your home. The internet profoundly impacted how people buy and sell coins. Collecting rare coins became massively easier with an incredible amount of information to inform purchase decisions.
Consumers of rare coins no longer had to rely strictly on someone selling you coins as an investment. They could collect coins for enjoyment, with the investment part no longer being the primary reason for making a purchase. Because of third-party grading and the internet, there have been many amazing collections assembled in the last 20 years. The rare coin market was no longer subject to the whims of investors.
Due to legal issues and better pricing transparency, the majority of marketing companies try to avoid the word “investment”. Selling products as an “investment” now requires much more legal disclosure and qualifications. The Federal Government has become more stringent about rules dealing with anything being sold as an investment. Nearly all large numismatic companies have their marketing materials reviewed by legal experts. We live in a litigious world, and numismatics is not exempt.
The question many have is: What will bring investors back to numismatics?
There are several recent developments that could spur interest from investors in numismatics. Technology has been created in the last couple of years that would make the sale of fractional shares of numismatics much more practical. This could give investors a chance to own a small piece of a famous coin, or even a complete collection. I would expect to hear much more about this in the coming year or two.
Another significant increase in gold and silver prices could also bring back investors to the hobby. There are a lot of interesting numismatic items that now trade for historic lows in relation to their bullion values. Investors could see opportunity and try to exploit the low premiums.
Many of the largest coin companies in the U.S. spend most of their marketing dollars and efforts selling recent United States Mint issues. You see these ads on TV, magazines and the web. If interest in U.S. Mint issues waned, some of these companies may turn to vintage coins. It would not take much increase in demand for prices to rise dramatically. In 2021, when the Mint released the Morgan and Peace Dollar commemoratives, the prices of vintage Morgan Dollars jumped sharply.
As mentioned above, it would not take much increased demand for prices to rise on many numismatic categories. There is lot of money in the world chasing returns and if properly managed, the rare coin market could be ripe for a hedge fund or other well capitalized group to invest in. Hedge funds have already entered the coin market by purchasing third-party grading companies. The hobby is clearly on the radar of these Wall Street “wizards”.
For stability, a market dominated by collectors clearly is healthy. Hobby leaders have spent a lot of effort to attract young people to the hobby. There is an abundance of numismatic literature available for collectors. Perhaps the next big move should be trying to encourage responsible investing in numismatics. This could also be healthy for the hobby, as many who start by investing become serious collectors.
I love numismatics and would like to see more participation in the hobby. But whether you are buying coins for your collection or making an investment, you should do your homework and find dealers you can trust.
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