By Doug Winter - RareGoldcoins.com
CoinWeek Content Partner ………

I have been working on a few coin-related projects lately and one component which has made me stop and collect my thoughts on many occasions involves pricing. And then it hits me: if issues about coin pricing confuse me, how confusing must they seem to new collectors? Here are a few random thoughts about coin pricing.

Try to see if you can answer this question without cheating: what do you think an 1893-S double eagle in PCGS MS65 is worth? Without knowing much about the series, I’m going to predict that your guess is in the mid-to-high four figures; maybe as high as $12,500-15,000. What if I told you this was a $44,063 coin and could prove it?

Which brings us to Thought #1 of this blog: can a market be made by one coin trade? Quick answer: “yes but…”

The 1893-S double eagle, it turns out, is the Poster Child for Numismatic Condition Rarity. It is common as dirt in the lower Uncirculated grades and only marginally scarce in MS63. It is very scarce in MS64 with an estimated value of $9,000-10,000 (which in and of itself might prove surprising to you for a coin with a population of 40 pieces, just at PCGS…). But it turns out that in MS65, this date is a beast with a current population of just two at PCGS and none finer.

Which is all well and good but how do you price a coin like this when one has never sold? Well, you wait until one does sell which is exactly what happened in Heritage’s 10/12 auction, when a PCGS MS65 example brought an impressive $44,063.

I’m not going to make a value judgement about this coin as it isn’t my intention to state whether it was a “good deal” or a “bad deal.” But if another piece were to come up for sale, I would have to use the $44,063 figure as a baseline comparison. As long as the population figure (i.e. the supply) stays low for this issue, we can assume that the demand will remain fairly consistent. For better or worse, this $44,063 is what we are left to work with, even if the underbidder at the Heritage 10/12 suddenly thinks the coin is now worth $20,000.

Here’s the thing about coin pricing: in very thinly traded markets (like coins with populations of two and none better) the market price becomes whatever the last trade is. In the case of very rare coins, this makes sense. In the case of a condition rarity in a series which is not typically collected by date, especially in Gem (like our aforementioned 1893-S double eagle) it makes sense but it is harder to embrace.

What about what I call “outlier prices?” Can a pricing structure be based on pricing anomalies?

This is a harder question to answer. Let’s use another 1893-S double eagle as an example; this time in MS64. While scarce, enough have appeared at auction over the last few years that we can make some good assumptions.

The last MS64 to sell at auction was a PCGS MS64 with CAC approval which brought $12,925 in Heritage’s 1/13 auction. It was a nice coin and one of the few examples of this date in MS64 with CAC approval; even so, the price realized has to be considered an outlier given other comparable coins.

The two previous APR’s for the 1893-S in MS64 are $9,975 for a PCGS/CAC coin in Heritage’s 2/10 sale and $9,890 for a non-CAC PCGS example in Heritage’s 2/09 sale. The non-CAC coin, interestingly, was nicer than the CAC (in my opinion).

Why did the one coin bring nearly $13,000 while the other two brought a shade under $10,000? It could be a number of factors. It is possible that two “crackout” dealers felt that it had a shot to upgrade to MS65 (not likely given its scratch on the face) and they bid the coin up. Or, Type Three double eagles may be a bit stronger now than they were a few years ago (possible but are they nearly 30% higher, in the case of this date?). We’ll never know the answer for certain but I don’t feel strongly enough about this price to make the bold statement that all other 1894-S double eagles in PCGS MS64 with CAC approval are now worth $13,000. To me, they are still $10,000 coins and this one “outlier” price realized doesn’t necessarily mean a new price level has been established.

There are many other scenarios in which an outlier price can be attained.

Let’s take a random example: an 1855-S eagle in AU55. This is a coin which could have a potentially huge range in valuation. And there are many factors why this range could be so dramatic. If it was a “real” AU55 with original surfaces and good eye appeal it could be worth double the amount of a crappy processed example. If it was a nice AU55 with an SS Central America pedigree (in the original holder) it could be worth even more. My point is that we could see dramatic variations in prices if enough examples of this date were sold at auction.

I mentioned that the range on this date could be vast. While a junky, low end “buying it for the plastic” AU55 could be worth $7,000-9,000 in the current market, a choice PCGS AU55 with a CAC sticker could bring as much as $12,500-15,000. And a coin with all the bells and whistles (PCGS/CAC/pedigree/old holder) could bring close to $20,000.

Which brings me to another thought.

Some coins are easy to price. An Iowa half dollar in an MS65 holder is worth around $150. An 1882-S Morgan dollar is a $350 coin (unless it has spectacular multi-colored toning but that’s another issue). Other coins are hard to price and they require value ranges. As I pointed out above, the value range for an 1855-S eagle in AU55 could run from a low of $7,000 to a high of close to $20,000. Same date, same grade, same value, right? In the case of very rare, esoteric coins this is far from the case. There are a ton of factors which influence value and, unfortunately, this is often not reflected in pricing guides.

Would it be possible to create a pricing guide which reflected the fact that there are variations in value for many coins? In the case of 1793-1814 Large Cents such pricing already exists. This pricing assumes that there are at least three variations within each grade; let’s call them “A” for nice coins, “B” for average coins and “C” for below average coins. These variations may not matter much for MS65 Iowa half dollars but they matter alot for coins like Chain Cents or 1855-S eagles or even common date Dahlonega half eagles in EF45. I would love to sell multi-tiered pricing for various series and believe that this could be done, albeit with a great deal of effort.

I’ve written this before but I believe that one thing that holds coins back from literally exploding as an asset class among sophisticated investors is a lack of high quality pricing. Someday, someone is going to realize this and they are going to create a proprietary pricing system (its not hard to do but it is extremely labor intensive and requires input from extremely knowledgable market players and specialists) which will revolutionize numismatics. Until then, many new collectors will have to gamble that the 1855-S eagle which they just paid $15,000 for is a $15,000 1855-S and not a $7,500 1855-S. CAC approval is a start, but dissemination of information is a necessary next step.

THE DOLLAR gold price eased back below $1680 an ounce Wednesday morning, though it remained well within its trading range for the past month, while stock markets extended their losses for this week and US Treasuries gained.

Silver hovered around $31.30 an ounce for most of this morning, also in line with its recent trading range, while other commodities were similarly flat.

“In the short term, the combination of weaker growth and the run up to the debt ceiling and potential budget sequestration should prove supportive to gold prices,” says a note from Goldman Sachs this morning.

“[However] improving US growth will outweigh further Fed[eral Reserve] balance sheet expansion…the cycle in gold prices will likely turn in 2013.”

Federal Reserve Bank of Kansas president Esther George warned last week that the Fed’s accommodative policies could make it difficult to hit the Fed’s 2% inflation target, while St Louis Fed president James Bullard argued against linking asset purchases to economic variables such as unemployment.

Yesterday however, Minneapolis Fed president Narayana Kocherlokata said the Fed “should provide more monetary accommodation” and argued for an unemployment rate target of 5.5% – one percentage point lower than the 6.5% target announced last month.

“Continued monetary accommodation is absolutely appropriate,” added Boston Fed president Eric Rosengren Tuesday, “and indeed needed as long as we are projected to miss on both elements of the Fed’s dual mandate, inflation and employment.”

Bullard, George and Rosengren are all voting members of the Federal Open Market Committee this year while Kocherlakota is not.

Fed chairman Ben Bernanke warned Monday of “critical watersheds” for US fiscal policy in the weeks ahead. US politicians are yet to reach an agreement to prevent spending cuts postponed to the start of March as part of the deal on the so-called fiscal cliff earlier this month. Negotiations are also expected on the federal budget and the debt ceiling.

“Washington’s activities will keep gold nervous in the next few weeks,” writes Rhona O’Connell, senior analyst at Thomson Reuters GFMS, in the metals consultancy’squarterly newsletter.

“As well as frequently being sold in times of short-term distress, gold has often experienced longer periods when it has suffered in line with a bearish commodities sector as investors have become risk averse; the much longer-term view, however, still points to gold maintaining a role as a hedge against risk. Its short-term characteristics often, therefore, appear to be in conflict with its longer-term role.”

Britain’s banking system meantime “is in a stretched position”, Bank of England governor Mervyn King warned yesterday.

“A combination of a weak [economic] recovery and…people searching for yield in ways that suggest that risk isn’t fully priced is a disturbing position,” King told members of parliament on the House of Commons Treasury Committee.

“In the context of the UK,” says a note from Standard Bank analyst Steve Barrow, “one such ‘risk’ would seem to be a ratings downgrade, which we feel is likely to occur some time this year. But while King might have been referring to the UK, the question is just as valid on a global level.”

The Euro meantime is “dangerously high”, according Jean-Claude Juncker, chairman of the Eurogroup of single currency finance ministers.

The Euro has fallen back a little this week after touching an eleven-month high against the Dollar on Monday, although it rallied this morning following the publication of data showing so-called ‘core’ consumer inflation rose slightly last month.

“Those comments from Juncker suggests that euro zone politicians are gearing up for some rearguard action and responding to the rhetoric we have had from Japan,” says Neil Mellor, currency strategist at Bank of New York Mellon, referring to comments from Japan’s prime minister Shinzo Abe, who has urged the Bank of Japan to be more aggressive in fighting deflation.

In South Africa, workers at Anglo American Platinum’s Rustenburg mine refused to go underground last night, following news that AmPlats plans to cut 14,000 jobs from a total of 60,000 employees.

Shares in the London-listed platinum miner, the world’s biggest producer, were the heaviest fallers on the FTSE 100 this morning, dropping more than 3% by lunchtime.

South Africa’s platinum industry saw a series of strike actions last year, which also affected the gold mining sector. The country’s gold output fell 32.2% in November compared to the same point a year earlier, data published Tuesday by Statistics South Africa show.

THE DOLLAR gold price eased back below $1680 an ounce Wednesday morning, though it remained well within its trading range for the past month, while stock markets extended their losses for this week and US Treasuries gained.

Silver hovered around $31.30 an ounce for most of this morning, also in line with its recent trading range, while other commodities were similarly flat.

“In the short term, the combination of weaker growth and the run up to the debt ceiling and potential budget sequestration should prove supportive to gold prices,” says a note from Goldman Sachs this morning.

“[However] improving US growth will outweigh further Fed[eral Reserve] balance sheet expansion…the cycle in gold prices will likely turn in 2013.”

Federal Reserve Bank of Kansas president Esther George warned last week that the Fed’s accommodative policies could make it difficult to hit the Fed’s 2% inflation target, while St Louis Fed president James Bullard argued against linking asset purchases to economic variables such as unemployment.

Yesterday however, Minneapolis Fed president Narayana Kocherlokata said the Fed “should provide more monetary accommodation” and argued for an unemployment rate target of 5.5% – one percentage point lower than the 6.5% target announced last month.

“Continued monetary accommodation is absolutely appropriate,” added Boston Fed president Eric Rosengren Tuesday, “and indeed needed as long as we are projected to miss on both elements of the Fed’s dual mandate, inflation and employment.”

Bullard, George and Rosengren are all voting members of the Federal Open Market Committee this year while Kocherlakota is not.

Fed chairman Ben Bernanke warned Monday of “critical watersheds” for US fiscal policy in the weeks ahead. US politicians are yet to reach an agreement to prevent spending cuts postponed to the start of March as part of the deal on the so-called fiscal cliff earlier this month. Negotiations are also expected on the federal budget and the debt ceiling.

“Washington’s activities will keep gold nervous in the next few weeks,” writes Rhona O’Connell, senior analyst at Thomson Reuters GFMS, in the metals consultancy’squarterly newsletter.

“As well as frequently being sold in times of short-term distress, gold has often experienced longer periods when it has suffered in line with a bearish commodities sector as investors have become risk averse; the much longer-term view, however, still points to gold maintaining a role as a hedge against risk. Its short-term characteristics often, therefore, appear to be in conflict with its longer-term role.”

Britain’s banking system meantime “is in a stretched position”, Bank of England governor Mervyn King warned yesterday.

“A combination of a weak [economic] recovery and…people searching for yield in ways that suggest that risk isn’t fully priced is a disturbing position,” King told members of parliament on the House of Commons Treasury Committee.

“In the context of the UK,” says a note from Standard Bank analyst Steve Barrow, “one such ‘risk’ would seem to be a ratings downgrade, which we feel is likely to occur some time this year. But while King might have been referring to the UK, the question is just as valid on a global level.”

The Euro meantime is “dangerously high”, according Jean-Claude Juncker, chairman of the Eurogroup of single currency finance ministers.

The Euro has fallen back a little this week after touching an eleven-month high against the Dollar on Monday, although it rallied this morning following the publication of data showing so-called ‘core’ consumer inflation rose slightly last month.

“Those comments from Juncker suggests that euro zone politicians are gearing up for some rearguard action and responding to the rhetoric we have had from Japan,” says Neil Mellor, currency strategist at Bank of New York Mellon, referring to comments from Japan’s prime minister Shinzo Abe, who has urged the Bank of Japan to be more aggressive in fighting deflation.

In South Africa, workers at Anglo American Platinum’s Rustenburg mine refused to go underground last night, following news that AmPlats plans to cut 14,000 jobs from a total of 60,000 employees.

Shares in the London-listed platinum miner, the world’s biggest producer, were the heaviest fallers on the FTSE 100 this morning, dropping more than 3% by lunchtime.

South Africa’s platinum industry saw a series of strike actions last year, which also affected the gold mining sector. The country’s gold output fell 32.2% in November compared to the same point a year earlier, data published Tuesday by Statistics South Africa show.

Ben Traynor

By Ben Traynor – BullionVault

Euro Weakness “Contributing to Gold’s Fall”, Lagarde “Throws the Gauntlet Down” to Merkel

WHOLESALE MARKET gold prices traded as low as $1560 an ounce Friday morning, before recovering some ground by lunchtime in London, while European stock markets were also down and commodities were broadly flat.

Silver prices meantime sank to a 2012 low at $26.64 an ounce – a 7.2% drop on last week’s close.

“We believe a break of $26.00 has the ability to trigger liquidation of silver with it looking for $18.00,” says the latest technical analysis note from bullion bank Scotia Mocatta.

Heading into the weekend, gold prices by Friday lunchtime looked set for their biggest weekly fall since the first week of March, having fallen 3.7% since the start of Monday’s trading.

On the currency markets, the Euro ticked lower against the Dollar, hitting its lowest level this week.

“A decline in the Euro may have contributed to a drop in gold prices,” says HSBC precious metals analyst James Steel.

“Near- term momentum may take prices lower, but we believe it may create an attractive point of entry for gold.

The Dollar held onto yesterday’s gains made following Wednesday’s Federal Reserve decision not to launch another round of quantitative easing.

The Fed opted to extend Operation Twist, the maturity extension program whereby it aims to lower longer-term interest rates by selling shorter-dated government bonds and buying longer-dated ones.

The extension to Operation Twist could reduce liquidity in the short-term funding market, traders have told the Financial Times, since the Fed’s System Open Market Account will have sold most of its short-dated Treasury debt by the end of this year. The Fed, they argue, will be less able to lend out short-dated securities at times of high demand, which have often coincided with periods of heightened market stress.

“[It is] a little unsettling for the repo market to no longer have SOMA lending as a backstop,” says Michael Cloherty, head of US interest rate strategy at RBC Capital Markets.

“We do not believe that [the] extension of Operation Twist is sufficient, and expect further action from the Fed later this year” says a note on asset allocation from analysts at HSBC, who add that they “retain a very conservative strategic portfolio with a focus on US Treasuries and gold.”

Here in in Europe meantime, stock markets extended losses into a second day this morning, after ratings agency Moody’s last night announced it was downgrading 15 major global investment banks.

Moody’s noted in a statement that “government support [for banks] is likely to become less certain and predictable over time”.

Spain’s banks meantime could face capital shortfalls of up to €62 billion in the event of adverse economic conditions, according to the results of stress tests published Thursday. The figure is based on potential losses of up to €274 billion, offset against expected earnings and provisions already made for losses.

The €62 billion potential shortfall is less than the €100 billion credit line Eurozone leaders have agreed to offer Spain to finance banking sector restricting.

The stress tests however did not consider the impact of losses on Spanish banks’ government bond holdings, newswire Bloomberg reports.

Benchmark yields on Spanish government bonds, which set Euro-era highs earlier this week, ticked lower this morning, ahead of a meeting of a meeting between the leaders of the four biggest economies in the Eurozone.

German chancellor Angela Merkel headed to Rome Friday for talks with Italian prime minister Mario Monti, French president Francois Holland, and Spanish prime minister Mariano Rajoy.

Earlier this week, at the G20 summit, Monti suggested Eurozone rescue funds should be used to buy government bonds on the open market – a proposal supported by Hollande but rejected by Merkel.

Rajoy meantime said last week that he is “waging a battle” to persuade the European Central Bank to buy debt from Eurozone countries facing high borrowing costs.

“The viability of the European monetary system is [being] questioned,” said International Monetary Fund head Christine Lagarde last night.

“A determined and forceful move towards complete European monetary union should be reaffirmed in order to restore faith.”

Lagarde also called for recapitalization of weak banks, “with preferably a direct link between [bailout funds] and the banks, without going through the sovereign, in order to break the negative feedback loop that we have between banks and sovereigns.”

“Christine Lagarde is throwing down the gauntlet,” says one Eurozone official quoted by the New York Times.

If European leaders fail to agree measures at next week’s European Union summit that calm the markets, “there would be progressively greater speculative attacks on individual countries, with harassment of the weaker countries,” argues Monti in an interview carried by several European newspapers this morning.

“A large part of Europe would find itself having to continue to put up with very high interest rates…this is the direct opposite of what is needed for economic growth.”

“Monti knows he has to get his ducks in a row on the European side,” says James Walston, professor of politics at the American University in Rome, citing pressure on the prime minister from those parties that have so far backed him.

“Friday’s summit is important for Monti in symbolic terms because it shows Italians that he is center-stage.”

The Italian government agreed this week to move forward Friday’s meeting, to enable Merkel to attend a soccer match at the European Championships in Poland – where Germany play Greece tonight.

Over in India, traditionally the world’s biggest gold bullion market, the postal service today offered a 6.5% special discount on gold coins to mark the festival of Pushya Nakshtrey.

Indian Gold Dealers have reported slow demand this week, with currency weakness contributing to record Rupee gold prices in recent days. Traders on Friday said the Reserve Bank of India stepped in to prevent the Rupee falling further, after it sank to a record low against the Dollar.

“For a while already we’ve seen weak Indian buying owing to a weaker Rupee and the usual seasonal decline we observe over this period,” says Friday’s note from commodities strategists at Standard Bank.

“South East Asian players have been doing well at picking up the slack but of late they have not.”

Ben Traynor

BullionVault

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

(c) BullionVault 2012

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

by Louis Golino for CoinWeek

There has been some interesting discussion on this web site recently about the need for more accurate pricing information about U.S. coins. For example, Vic Bozarth recently wrote about the Coin Dealer Newsletter (CDN), commonly known as the Greysheet (www.greysheet.com), and said that its data is skewed by the inclusion of too many sales of lower quality coins.

Others, such as Mark Ferguson, Laura Sperber, and Doug Winter, have all suggested that the Greysheet, Coin World’s Coin Values Price Guide (www.coinworld.com), and other sources include information that is not accurate about coin values. Mr. Winter recently (http://www.coinweek.com/market-reports/first-quarter-2012-rare-coin-markets-a-quick-recap/) noted how he paid more than $30,000 for a coin which is valued at a fraction of that in Coin World Trends.

To be honest, I rarely refer to Coin World’s retail value information. I know that they say it is based on the value of coins that are solid for the grade and that it draws on multiple sources from auctions to retail sales, but in my view older coins are valued too high there, and the valuation data for many better modern coins is often too low based on my experience as a collector and market analyst.

I find similar problems with Numismatic News’ monthly Coin Market section (www.numismaticnews.net) that provides pricing information, but I do find it to be useful. I know it is hard to update so much information, and for older collector coins, I often agree with these values (which are prepared by Harry Miller). But many times I have found gold coin prices that were below current melt value and other errors.

Michael Zielinski, editor of Coin Update (www.coinupdate.com), recently published an article (http://news.coinupdate.com/a-few-errors-in-the-red-book-1317/) which points out multiple errors in the Red Book, or Guide Book of United States Coins, published by Whitman (www.whitman.com).

Last year I wrote a review of the 2012 Red Book for Coin Update (http://news.coinupdate.com/review-of-the-guide-book-of-united-states-coins-0748/) that made some constructive criticism, particularly on the need for more accurate mintage information on modern U.S. coins. The Red Book, even in the 2013 edition, continues to publish incorrect mintage data on the First Spouse $10 gold coin series that has been available for years from the Mint and various web sites.

One point to keep in mind about the Red Book, or coin bible, as many call it, is that it is only a starting point. To know more, one needs to consult other sources from web sites with modern mintage data to specialized books like Jeff Garrett’s excellent book on pre-1933 gold coins (The Encyclopedia of U.S. Gold Coins 1795-1933). And Whitman’s own professional edition of the Red Book (the third edition came out towards the end of 2011) includes a lot more information about the classics such as auction data, but it is geared towards higher end and higher grade coins.

There is no question that the Greysheet, Red Book, Coin World Trends, PCGS and NGC online prices, etc. are all useful resources, and I am certainly not suggesting that they have no value for coin collectors and market analysts. Each of them generally serves a different purpose, and one should check many different resources before reaching a conclusion.

But I believe that the coin market needs better, more accurate resources, especially on coin values and mintages.

And it is my contention that the coin market and the entire field of American numismatics is held back by the lack of such information. We try to compile it from multiple sources, as best we can, but with no readily available, accurate information that everyone can check, it is difficult to know much a coin is really worth, or many such coins actually exist.

That can suppress market values, lead buyers to overpay for coins, or result in them under or overvaluing their coins for insurance purposes.

Those two data points, value and mintage, are at the heart of coin collecting and investing, and without them one is in the dark.

To be sure, there are many different values to a coin, depending on whether it is a wholesale, retail, or auction price.

And mintage data is also quite complicated for older and more recent coins, and compiling it is an enormous undertaking.

For older coins, one needs to first know how many were made, and then attempt to factor in the number that have been melted over the years, especially when it comes to coins like Morgan dollars, which were melted in the millions under the Pittman Act and other laws. And a lot of pre-1933 gold coins were sent to Europe over the years when America was paying off debts, and many were also melted because of FDR’s executive order that made it illegal to own all but $100 face value of gold coins, or coins with significant numismatic value.

For modern coins, one starts with the Mint’s sales numbers, which are then adjusted to account for returns and other factors. The Mint generally issues a tentative number when sales end, and those numbers are often adjusted substantially at a later date.

This happened, for example, a couple of years ago when the mintage data for the low-mintage 2008 Buffalo gold coins and American gold and platinum eagles were revised significantly by the Mint in 2009. I think that the new, lower mintage numbers played a major role in the subsequent increase in values for those coins.

For many coins, like the spouse gold coins, there is a dearth of published, accurate pricing data. So for those coins I like to use e-Bay sale prices and retail prices at a company like John Maben’s Modern Coin Mart www.moderncoinmart.com to get a sense of what the coins are actually trading for.

The bottom line for me is that the market and collectors spend so much time trying to track down all this data, and a lot of it changes quickly. We could all therefore use an online resource that covers retail, wholesale, auction, and slabbed coin values as well as the known information about mintages.

The closest source that exists to this ideal would be the data that is available at Heritage Auctions (www.ha.com), or perhaps PCGS Coin Facts (www.pcgs.com), and NGC’s Coin Explorer (www.ngccoin.com).

Louis Golino is a coin collector and numismatic writer, whose articles on coins have appeared in Coin World, Numismatic News, and a number of different coin web sites. His column for CoinWeek, “The Coin Analyst,” covers U.S. and world coins and precious metals. He collects U.S. and European coins and is a member of the ANA, PCGS, NGC, and CAC. He has also worked for the U.S. Library of Congress and has been a syndicated columnist and news analyst on international affairs for a wide variety of newspapers and web sites.

By Doug Winter – Raregoldcoins.com

I had an interesting experience at a recent show that I thought was worth sharing. A new-to-the-market collector/investor came up to my table and asked to see my “best coins.” I was happy to share them with him and pulled out a gorgeous 1802 quarter eagle in PCGS AU58 and a lovely 1798/7 eagle in PCGS AU55. After some back-and-forth negotiating, I could see this deal was not going to get done. The reasons why it didn’t are what I want to briefly discuss.

Now let me say in advance that the individual that I was dealing with is younger than I am, better looking than I am, smarter than I am and without a doubt much, much richer than I am. He’s someone whose family has had tremendous success investing in other areas and he is a recent convert to the rare coin market. But I think he’s approaching coins from a totally wrong perspective.

This guy likes deals. And he likes sexy, interesting coins. In other words, he wants to buy the best coins that I (or other dealers) have but he wants to buy them at levels that are unqualified, unquestionable “deals.” Good market or bad market, I don’t see this happening.

One thing that I have learned as a dealer in the last few years is that really good coins are really hard to find. Most of the great old-time collections have been dispersed and you just don’t see many “old time Gems” any more. Any when you do, like in the instance of the recent Naftzger Collection of late date Large Cents, the pent-up demand for the fresh, superb coins is so strong that they sell for crazy prices.

The investor I mentioned comes from a real estate background and he is, no doubt, used to panic sellers who have a nice piece of property but who are in over their heads and have to bail. Quickly. This doesn’t really seem to happen much anymore in the coin market. The speculators who bought the “deals” in the last Bull Market are the guys who bought the overgraded, overrated “stuff” that, in retrospect, maybe wasn’t such a good deal after all. The guys who bought the great coins and paid up for them aren’t selling. They aren’t selling because they don’t have to and because they know that what they have can’t be easily replaced. The “stuff” is what you tend to see, over and over, in auctions.

In the coin market, price buyers invariably wind-up with the worst possible coins for the grade. As I have mentioned before, there are coins with huge variations of value within a specific grade. For example, there are MS65 1795 half eagles that I think are worth well over $500,000 And there are MS65 1795 half eagles that I wouldn’t pay $350,000 for. The guys who “like the deals” are always going to wind up with the substandard coin. No ands, ifs or buts. It always works out this way.

That’s not to say that there aren’t good values in the coin market. I can think of dozens and dozens of coins that are undervalued in relation to their rarity and level of demand. I think that’s what the deal-hunters don’t understand. The real deals in numismatics come with knowledge of coins, not buying something for 10% less than Greysheet Bid. The Greysheet is never going to teach you that, as an example, an 1864-S eagle is a sensational value at double current published levels.

I realize that this sounds like a self-serving dealer blog justifying the “need” to stick a high price tag on nice coins. It’s not meant to be that but I can understand that interpretation. I just was sorry to see a potentially great customer pass on two incredible coins for his collection because they weren’t “deals.”

By Mark Ferguson – MFRareCoins.com
CoinWeek Columnist

The prices that coins have sold for at auction contain very valuable market information. This information is used in a variety of ways. Increasingly, these values are used by buyers of coins who want to know how much like-kind coins have been bringing on the open market so that they don’t overpay for coins they are buying. This use has been greatly enhanced by the Internet.

For example, Heritage Auctions provides a very efficient Internet resource for searching their auction sales, by coin issue, for values that coins have sold for. The PCGS website also has a search function that lists auction prices realized from several different auction firms – all by coin issue. Most auction companies list their prices realized from each sale on their websites. These are usually displayed as a list comprised of auction lot numbers and the prices the coins sold for. You’ll need an auction catalog, either a printed copy or an online listing, that provides descriptions of the coins for each lot; then you can look on the list to find the prices those coins sold for.

Price guide writers use prices realized from coin auctions as the basis for establishing the values they publish, especially for higher end coins. Prices for common modern coins or other circulated coins not normally found in auction sales are derived from other sources. Coin appraisers also use auction prices realized for performing appraisals, for estate purposes, for example.

Importantly, the interpretation of what is represented by the prices coins have realized at auction is of key importance to using these values. For example, one auction price for a coin issue does not make a market trend. That coin may be a high end example which sells for a much higher price than average coins for the issue typically sell for; or prices can go to the other extreme on the low side. Therefore, a trend must be established. A market trend should also be large enough to represent what’s going on in the market. Just two or three sales of a coin issue may not be enough to really give a good picture of the true market value trend of a particular coin issue.

This brings us to the point of this article. Rare coins sold at auction are purchased by both dealers and collector/investors. On the very high end of the market – let’s say for an 1804 silver dollar or a 1913 nickel, examples of both which have realized $3,737,500 at auction in recent years – prices don’t matter whether these coins have sold to collectors or dealers – it’s “the market.” At the other extreme, a common MS 67 1879-S silver dollar, graded by either NGC or PCGS, may have sold for anywhere between $575 and $862.50, which has been the recent trend.

Obviously each of these coins is unique and has different characteristics, but the average of these two points (not the whole) is $718.75. Does this mean this is the price a “retail” collector is paying for this coin issue? Or do auction prices represent dealer “wholesale” prices that get marked up and then sold to collectors at a higher price? Many coins purchased from auctions by dealers also get re-sold to other dealers who then sell them to collector customers, or even again to other dealers.

One belief is that auctions are “wholesale” venues and collector/investors can reward themselves by buying at the “wholesale” price level by going through the work of buying this way. Others believe auctions are “the market” and there is no “retail” or “wholesale.” Many dealers represent collector clients at auctions and help them by viewing the coins and offering advice and then bidding on those coins in the auctions, services for which they receive a commission. I have also done this for clients on a flat fee basis so that if a coin sells for a high price my client doesn’t have to pay me a higher commission, and I also get paid for my time and expertise either way, whether we win the coin or not.

Similarly, collectors who buy at auctions must take the time to do their homework by looking at the coins, either in person or online, researching and figuring out the prices they will pay for the coins and then travelling to the auction venue or taking the time to place bids online. In essence, they’re doing the same work a dealer does, so does that mean they are buying at “wholesale” from auctions? So maybe coins sold at auction deserve “retail” price markups to find their true market values.

There may be no clear cut answer to the question posed by the title of this article – just opinions. If you have “the answer” or want to share your opinion about whether coins sold at auction represent “retail” or “wholesale” values – please submit your comments to CoinWeek. Thank you.

Mark Ferguson has been dealing in high-end rare coins and precious metals since 1969. He has graded coins professionally for PCGS and was the Market Analyst for Coin World’s Coin Values magazine between 2002 and 2009. He has written feature articles and regular columns for Coin World, Coin Values magazine, The Coin Dealer Newsletter, Numismatic News, The Numismatist, ANA Journal, Coin News – a British publication, and currently writes a weekly column for CoinWeek. He is a recognized authority in appraising rare coins and a recognized expert on the 1804 silver dollar, which is known as “The King of American Coins.” Mark can be reached at Mark Ferguson Rare Coins, LLC (www.MFRareCoins.com).

By Mark Ferguson for CoinWeek – MFRareCoins.com

First of all…I want to point out that coin price guides are just that…GUIDES! For convenience, they list just one price for a given grade of a coin. It’s important to note that different coins of the same issue and grade often trade for higher and lower prices than the published prices that appear in price guides. This is most often because there are coins that are strong for a grade, often just missing the next highest grade, and there are coins that just make a grade, which of course will sell for less than the former.

But sometimes market conditions result in coins selling for higher or lower prices than what is published in these guides. At other times, it’s actually the prices established by the price guide writers that miss the real market – by a little or a lot. I know…I’ve been there. I can speak with authority on this issue, after having been the Market Analyst for Coin Values magazine during 1997 and again between 2002 and 2009. Since then I’ve also consulted with other price guide publishers.

Many other factors influence how price guides establish their prices for coins, but their accuracy really comes down to the individual people who interpret and report the market for coins, and their motivations, methods and systems. Prompt timing in performing updates is also another crucial factor. Some series in popular price guides may not get updated for months, or even years! For this reason alone it’s very important to compare prices from various price guides. In years past my business used to sell coins by “mail bid sale,” which is a type of auction sale. I provided sales estimates in my auction catalogs, along with the coin descriptions and photos. In establishing those sales estimates, I regularly compared prices from at least three different price guides. I was frequently astounded to find prices for the same coin issues and grades that varied enormously!

Today, because of the Internet, a popular method many buyers of rare coins have been using to estimate the prices they should pay for coins is by using prices realized from auctions. Collectors, investors and dealers are doing their own research, rather than relying solely on price guides. However, there are cautions urged in using this method. Are the individual coins sold at auction high-end for a grade, or low-end? Were they purchased by collectors to hold for the long-term, or by dealers for quick resale? Are there large runs of the coins you’re researching in a particular sale, or are you researching a scarce coin that rarely makes an auction appearance? Are you researching a coin for which there are few buyers, or is it a popular coin that many people want? Has a particular auction been well publicized, or is it a quiet, unknown sale? Did the coins really sell, or did they go back to the consignor because reserve prices weren’t met?

I could go on and on with examples of considerations in your auction market research, but these ideas should give you an idea of what to take into account in doing your own market research. However, writers of price guides are often limited in their knowledge of the market as well, especially for private transactions. This is the nature of the coin market – it’s a private market, unlike the stock and real estate markets, for example, in which transaction information is more public.

Other considerations to think about are the influences of Registry collecting upon auction prices, in which collectors are vying for the best coins of the best; or in the case of a close-knit group of buyers, like for early copper coins, in which most of the advanced collectors know each other, and know who’s currently in the market for which coins and who’s out? Knowing the personalities in the market, when it comes to such specialized collecting and investing is a big advantage in buying and selling and in knowing how to price coins.

The methods and systems by which price guides collect their market data is another factor in how their editors establish price guide listings for coins, and so is the purpose of a price guide. There are currently five prominent price guides that publish “retail” values for coins, which are what collectors pay when buying from dealers, and just one prominent guide that publishes “wholesale” values for coins, which are dealer-to-dealer prices. This distinction between dealer purchases and collector/investor purchases is blurred at auction.

The Coin Dealer Newsletter, popularly known as “The Greysheet,” along with its family of publications, is the most widely used price guide that publishes wholesale prices of coins trading between dealers. Retail values are found in: A Guide Book of United States Coins, which is popularly known as “The Redbook,” annually published by Whitman Publishing; Coin Values, which is no longer a stand-alone magazine, is now found in a special monthly edition of the weekly publication, Coin World; Coin Prices magazine and Coin Market, part of another weekly, Numismatic News, both published by Krause Publications using the same prices; the PCGS Price Guide; and the NGC Price Guide, compiled by Numismedia.

One important distinction between all these retail publications is the system each of them uses to compile their valuations of coins. The Redbook, and Coin Prices and Coin Market, compile their price guides by collecting prices from dealers around the country who specialize in particular areas of the market; then editors evaluate the collected data. Coin Values uses independent “Market Analysts” to research and make “price discoveries.” The others use their own experts to maintain values, some are involved in coin trading and others operate at arm’s length, similar to the Coin Values system.

There are two schools of thought with these systems. Some experts believe that dealers are more knowledgeable and experienced in their own areas. This is true, but one concern with this system is that they can be biased and influential for their own personal benefit. Importantly, there are editors who oversee these systems. Coin Values prides itself on operating at arm’s length, however their analysts get lobbied to change values for the benefit of the dealers and collectors who lobby them and they have to make judgments about the information received. On the other hand, those dealers and collectors who lobby routinely offer valuable market information and insights. A balancing act must be performed and editors much consider the motivations of all contributors – human nature is a huge factor! And sometimes just one person, with all his or her personal biases and naiveties, mixed in with expertise, establishes values for a given series.

In addition to finding pricing information from auctions and market intelligence, dealer ads and price lists are regularly monitored from which to derive valuation data. Another important point with coin prices guides is that there are many issues of coins (date and mintmark combinations) that are not sold on the open market for long periods of time. Therefore, price guide writers must estimate values and plug them into price guides to stay current with these coin issues that don’t sell very often. This is where talented judgment comes in, to achieve accuracy.

It’s also important for price guide writers to recognize and follow trends in the coin market. When I began managing the Coin Values price guide back in 2002, an experienced dealer friend said to me, “One price doesn’t make a trend.” While I was doing that work I always kept that statement in mind. I believe it is a disservice to the hobby and market for price guide writers to not take the time to figure out market trends and just update price guide values based on one sale of a coin in one auction. As I previously pointed out, a specific coin in an auction could be a high-end coin or a low-end coin, and its auction price could skew a price guide value if it’s not compared to other sales of the same or like-kind coins.

In establishing values for prices guides I believe it’s very important to consider how values affect both buyers and sellers, and owners of particular coins. I’ve seen many people flippantly say a coin is worth “X,” not bothering to consider people’s equity positions who already own such coins. Finally, it’s also important to realize that most people typically want a discount off a price guide value most of the time. This seems to be human nature! Sometimes this is taken into account when establishing price guide values.

I’ve said for several years that price guides are the next frontier to be improved upon in the coin market, now that coin grading has been improved to the best of the ability of the professionals in the market. In my estimation, prompt timing and accuracy are the two primary concerns. I believe computerized valuation models are in store for price guides in the coin market. However, there are so many factors involved that need to be considered in developing such models, many of which I’ve addressed here, that it’s not an easy task!

Mark Ferguson is a specialist in precious metals investments and deals in all bullion products currently traded in the market. If any products or services mentioned in this article are of interest to you, Mark can be reached at 920-233-6777 or mark@MFRareCoins.com. Mark Ferguson has been dealing in rare coins and precious metals nationally since 1969. He has written feature articles and regular columns for Coin World, Coin Values magazine, The Coin Dealer Newsletter, Numismatic News, The Numismatist, ANA Journal, and the British publication, Coin News, and currently writes a weekly column for CoinWeek. His website is www.MFRareCoins.com, where additional research information about precious metals is available.

by Louis Golino for CoinWeek

There are many different ways to try to explain and understand the precious metals markets.

Some people focus on short-term vs. long-term factors, while others stress underlying fundamentals. Profit taking also often explains sudden drops like the one on Feb. 29, when gold plunged $70 in an hour.

There are also people who believe that these markets are subject to widespread manipulation by major banks that trade in metals.

All of those factors play a role, but sometimes markets simply act in ways that do not seem to be supported by the facts, at least at first glance.

My point is not to try to predict short-term moves, but to attempt to understand underlying dynamics that investors should be aware of.

A closer examination of what happened shows that the drop actually made sense.

Gold dropped almost 5%, and silver plunged almost 8%, after having done very well so far this year. Until that day, gold was up almost 15% for the year, and silver’s gains were nearing 40% after a tough late 2011.

Monetary stimulus

Metal prices declined sharply because Federal Reserve Chairman Ben Bernanke made comments which were interpreted as deceasing the prospects for monetary stimulus in the U.S. But anyone paying attention knew that the short-term prospects for that were already very slim.

Meanwhile, the European Central Bank on the very same day actually did provide a second, major infusion of low interest loans to European banks.

The ECB made another $710 billion available, which 800 European banks will be able to borrow at 1%. That is on top of a previous infusion last December of a similar amount, bringing the total to over 1 trillion euros, or almost $1.4 trillion.

One would think that the reality of stimulus in Europe, particularly when coupled with recent similar measures by the Bank of England, would have trumped the unrealistic expectation of further action by the U.S. Fed.

I think that Bernanke’s comments overshadowed the ECB action mainly because the U.S. still plays a larger role in shaping global economic developments than any other country or bloc.

In quick reactions to the day’s stunning developments, some metal analysts suggested that since the prospects for more QE were indeed not realistic, the plunge in prices was evidence of manipulation by the big banks.

I would not rule that out, but I would suggest that another explanation is that after the healthy run-up in prices this year, some profit taking was in order.

Investors were disappointed that Federal Reserve chairman Ben Bernanke emphasized the recent improvement in the U..S. economy and downplayed the prospects for further monetary stimulus, or quantitative easing (QE).

Mr. Bernanke, in testimony to the Congress, said that such actions would be conditional on the state of the economy, meaning that it would only be done if economic conditions deteriorate again.

But that was hardly news. He had already said as much in his previous statements in the past several months.

The Federal Reserve has come under intense scrutiny and criticism for its previous rounds of money supply expansion, even being accused of treason by former presidential candidate Rick Perry of TX.

There is a spirited debate between those who believe the economy is improving, and those who see little evidence that things are getting better. On balance, the optimists are definitely in the majority right now, but multiple pressures remain.

Moreover, while I believe there have been some significant signs of improvement, the prospects for next year are clouded by the looming combination of tax increases and spending cuts, which would have a very deleterious impact on economic growth.

In addition, what matter is less how people say they feel about the economy, i.e., consumer confidence levels, and more how they actually act.

Europe looms

And, of course, Europe looms in the background. In the short-term, the second EU bailout of Greece, the massive injection of liquidity into the European banking system by the European Central Bank, and the relatively mild European recession so far, probably mean there will not be a major crisis in the near future.

But numerous factors suggest that the twin European crisis of indebtedness and the banking system will be here for years to come.

Any combination of these factors could easily put the U.S. back into recession.

Ireland has just announced that it will put the new EU fiscal treaty to a referendum. Ireland has a history of rejecting EU measures when put to a public vote.

In addition, if French President Nicholas Sarkozy loses his bid for reelection this spring and is replaced by Socialist Francois Hollande, which polls suggest is very likely, France too will put the fiscal compact to a vote.

The compact requires euro-zone members to adhere to strict rules on government spending to help restore investor confidence.

Mr. Holland represents a view common among many people in Europe that there has been an excessive focus on austerity as a means of getting Europe out of its economic predicament. Higher economic growth, according to this view, is the only way out.

Underlying fundamentals

To understand where metals are headed over time one should return to fundamentals.

The key fundamentals are underlying economic conditions, the rate of inflation and its direction, supply and demand, and most importantly, interest rates.

In the past many people believed that gold would not do well in an improving economy because in such an environment investors were likely to flock to other asset classes like stocks.

But today precious metals and the stock market typically move in the same direction. The main reason is that both are driven by interest rates and their impact on the risk environment.

Chairman Bernanke earlier this year took the unusual step of announcing that short-term interest rates, which are set by the Fed, would be held at close to zero until 2014. That has been a major catalyst for higher metal prices this year, and it is likely to continue doing so as the year progresses.

When nominal interest rates are so low that when coupled with inflation, savers are receiving negative real rate of return, and the same is true of government bond holders, investors inevitably look for returns elsewhere.

This increases the appetite for riskier investments like stocks and metals.

Gold is typically described as an inflation hedge, but rising inflation will at some point result in higher interest rates, so oddly enough, gold may perform better in a low inflation, low interest rate environment.

Finally, supply and demand factors should not be ignored.

Demand for precious metals remains very solid, especially in the physical market, and particularly in non-U.S. markets such as in Asia and other emerging markets.

And supply is likely to remain constrained. Higher commodity prices theoretically lead to increased supply, as the incentive for greater production increases.

But, as explained recently by articles in Mineweb [www.mineweb.com], it is not the spot price, but overall profit margins after input costs, that drive production. And input costs are rising because of the difficulty of finding new supplies, political upheaval in many of the countries where mining is concentrated, and other factors.

I would expect long-term metal investors to take advantage of the drop in spot prices, and over the course of the year, gold and other precious metals should resume their upward momentum.

by Louis Golino for CoinWeek

Spot prices on the futures markets for precious metals have always been volatile, especially for silver.

But since last year’s roller coaster ride, in which gold and silver reached previous or new nominal highs then plunged dramatically for months, spot price volatility has reach new heights.

To be sure, circumstances were similar at the height of the 1980 metals mania, but back then the big jumps mostly took place over just a few days, and the decline that followed them took place at a more measured pace.

Today’s circumstances have put pressure on the U.S. and its foreign mint competitors to try to keep up with a constantly moving target.

Last year as silver prices rose dramatically, various foreign mints took a number of different steps to make sure their products were priced appropriately.

Foreign Mints

Germany, which issues a series of 10 euro commemorative coins in proof and uncirculated finishes, decided to change the composition of the uncirculated coins to cupro-nickel metal while keeping the proof coins, which are priced higher, in silver.

Austria, which issues a series of 5 euro silver commemoratives, took the unusual step of melting tens of thousands of one issue, and since then has decided to offer two versions of the coin. One is a copper coin with a higher mintage, and the more limited mintage coin continues to be made in silver.

France, Austria, Canada, and Australia all issue a wide range of non-bullion commemorative coins that are widely collected. They did not have to make changes because their coins tend to be priced a levels well above their metal value.

Canada, Austria, China, and Australia also issue widely traded bullion coins, but those are mostly sold through bullion dealers at small markups over melt value.

France began issuing circulating silver bullion coins a couple of years ago, although they don’t actually circulate. I will be discussing them in a separate article.

US Mint

The U.S. Mint, which is probably the largest coin seller in the world unless one considers all e-Bay sellers in the aggregate, has taken a different tack.

Its silver commemorative dollars are also priced sufficiently above metal values because of the $10 surcharge for the affected constituency or organization, and each coin has about 72% of an ounce of silver. As a result, so far prices have always been well above melt.

Pricing Grid System

But for other precious metal U.S. Mint products, pricing became a daunting issue last year that resulted in multiple sales suspensions and new price grids.

Gold and platinum collector coins have had a pricing grid in place for several years now. Once a week Mint officials review the average price for the previous week, as well as the London pm closing prices, and then decide whether or not prices should be increased or decreased.

For large coins, this usually means a $50 increase or decrease for gold, and a $100 increase or decrease for platinum, even though that amount does not correspond to the actual change in spot prices.

During the summer, a similar grid was developed for gold commemoratives when prices for the Medal of Honor and Army $5 gold coins began to get very close to their metal content. The coins were pulled from sale until a grid could be created for those coins.

Silver coins have been the biggest problem because they still have no grid, and when silver prices move substantially the Mint has no choice but to remove the coins, and re-price them after a notice is published in the Federal Register.

This is a deeply unsatisfactory system for all parties concerned. The Mint has to stop sales of coins for weeks at a time, which is also frustrating for collectors.

Moreover, the grid system for gold and platinum coins is simply unsuited to the volatility of today’s metal markets.

A case in point is the patently absurd situation that developed on Feb. 29. On the very day when gold and silver had their biggest drop since last fall, the Mint raised prices on gold and platinum products because of the increase in prices over the previous week.

That seems like a sure recipe for lower sales in the subsequent week and a lot of unhappy customers.

During the previous week, the Mint suspended sales of a number of silver products like the five-ounce America the Beautiful coins to re-price them because silver had increased by at least $5 an ounce since the price of the coins was last adjusted. But the drop on Feb. 29 meant the repricing might not be necessary.

This whole system simply does not work for collectors or for the Mint, and a more nimble approach is needed.

Need For A New System

The Mint should implement some kind of real-time, or at least daily, pricing of its precious metal products, as major coin retailers already do.

The current system, which uses different pricing systems for different products, is simply too complicated and surely inhibits sales of the Mint’s products. Greater transparency would likely spur more coin sales.

An easy to understand system based on real-time pricing like what bullion dealers use, or one that at least updates once a day, would be a major and welcome improvement over the current system.

Looking forward, spot metal prices are widely expected to be even more volatile than they have been in the past year, especially as large moves in gold become more normal. As gold prices approach $2,000 an ounce, an increase or decrease of 5% or more in a day is not unusual.

Why should Mint customers have to pay $50 more for a coin one week when the price of gold actually declined by almost $90 the day before, as happened at the end of February?

And why should silver coin buyers have to wait weeks while products are repriced?

It’s time for the Mint to develop a 21st century pricing mechanism, and that is putting aside other issues with the ordering system, such as how to handle high-volume periods and limited edition sets.

Louis Golino is a coin collector and numismatic writer, whose articles on coins have appeared in Coin World, Numismatic News, and a number of different coin web sites. His column for CoinWeek, “The Coin Analyst,” covers U.S. and world coins and precious metals. He collects U.S. and European coins and is a member of the ANA, PCGS, NGC, and CAC. He has also worked for the U.S. Library of Congress and has been a syndicated columnist and news analyst on international affairs for a wide variety of newspapers and web sites.