By Mark Ferguson for CoinWeek – MFRareCoins.com

If you’re an investor who believes high inflation is just around the corner and who sees rare coins as a terrific inflation hedge, as they’ve been in the past, now’s a great time to get into the coin market. After a block buster World’s Fair of Money trade show, produced by the American Numismatic Association in Chicago in August, the rare coin market has simmered down a little. Gold has backed way off its $1900 per ounce high seen at that time, softening outside investor psychology for gold and rare coins. However, there’s still a huge pent up demand from those in the know for high end premium quality rare coins. But while trading has been tempered a little, it is still very active and a good time to buy.

Back during the 1970s, when we went through our last high inflationary period, during the Jimmy Carter years, investors were throwing money at coin dealers saying, “Buy me some rare coins.” The market exploded, sending some coins that could be bought for less than $300 dollars in 1977 to nearly $3,000 in 1980 – really! And this was not the exception – it was typical! Market values became distorted as the investor-driven coin market veered away from the fundamentals that make the market what it is – a collector-based market.

Huge overall dealer profits were also reinvested into rare coins at that time, further fueling the coin market, because after all, that’s what we know and do with our money as coin dealers – invest in inventory. After those heady days, the coin market did experience a bubble, but only after fortunes were made in the coin market. Those who lost got in late or took a flyer, not knowing what they were doing. Learning about the coin market is the key to success.

Will a runaway coin market happen again? It very well could, and we have much more positive fundamentals going for the coin market this time around. During the mid-1980s, PCGS, the Professional Coin Grading Service, and NGC, Numismatic Guaranty Corporation, were formed. Today they are the backbones of this industry in terms of coin grading, which is one of the fundamental basics for valuing rare coins. This has led to much strengthened consumer protection and confidence in owning rare coins, unlike the days prior to this era when individual coin dealers would grade their own coins they had for sale. It’s easy to see the abuses and legitimate differences of opinion dealers and collectors had during those days of self-grading, which were based on individual interpretations of standards outlined in coin grading guides.

PCGS and NGC have also given collectors, investors, and even dealers, more confidence in owning expensive rare coins, and because of those services it’s much easier for everyone, these days, to buy and sell coins. However, third-party certified coin grading has also allowed inexperienced coin dealers to quickly enter the market and set up shop. So, choose your dealer wisely. Additionally, on the wholesale or dealer-to-dealer side of the coin market, there are dealers who are market makers for certain coins. This was true before the advent of certified coin grading, but, unlike those days, today some of these market makers will buy many rare coins on a “sight-unseen” basis, without even looking at them, just by relying on the certified grades assigned by the grading services. This isn’t true of all certified rare coins, but this factor is present in the market for certain select rare coins.

Another huge factor in the coin market, that’s become a great backbone of the industry, that wasn’t around for the public during the 1970s, is the Internet. This tool has given collectors and investors a great information resource for learning about rare coins that the market didn’t have during the last inflation-investment surge. It’s also facilitated much greater coin trading online via auctions and inventory offerings for dealers and even collectors who have been enabled to sell their coins themselves online. But there’s a learning curve for new collectors and investors, and even experienced collectors who want to venture into new areas of collecting. What greater resource could there be for this information besides the Internet? Again, the coin market didn’t have this beneficial tool during the inflationary investor market of the 1970s.

Coin price guides have also improved since that time, and the Internet has also given collectors, investors, and dealers another great tool for research – an easy way to access auction records of rare coins. However, sometimes researching auction records is an easy task and sometimes it takes much sophistication in knowing what’s going on in the coin market. As the market analyst who established values for all rare coins for the largest price guide in the industry during the bull market in coins in the 2000s, I believe rare coin pricing is the next frontier to be perfected, as best as it can be, during the coming years, much in the same as coin grading has been perfected since the mid-1980s. Again, for the best help, know your dealer and his or her experience level.

So, while not absolutely perfect, the rare coin market is probably the most structured and efficient of all the collectible, inflation-hedge markets in existence. People can trade rare coins within a fairly narrow trading range, compared to other collectibles, and there has always been a ready market for coins at some price level, even in a down market. Rare coins have always been very liquid at the right price points.

Of course, as a life-long dealer in rare coins, who’s also had a couple of career digressions, into coin grading for PCGS and coin pricing for Coin Values magazine, I’m biased toward the rare coin market. But take a look at stock brokers and real estate brokers, for example. They’re biased toward their own areas of endeavor and often talk down other markets, like rare coins and precious metals. What are we hearing today? “The gold bubble has burst!” But haven’t we been hearing this from traditional investment advisors during the last ten years as the gold price has continued to climb, outperforming most traditional investments?

Yes, the gold bubble probably will burst at some time in the future, and maybe it will again for rare coins, but only after the economy goes through the coming inflationary years and fundamental changes are made to reduce the world-wide debt bubble. But until those days are upon us, rare coins will likely prove to be a great inflation hedge during the coming years. Government spending cutbacks are what are needed, but we haven’t seen Congress develop the backbone and cohesiveness to pull this off. Reduced living standards and protests will result with the needed cutbacks, and even banking and housing crises and social protests might occur before the needed austerity measures are taken. Sound familiar? We’re already seeing the beginning of all that.

The federal debt is continuing to grow. Deficit spending is occurring every year, adding to this debt, and the temporary way out of this problem, to contain social unrest and financial crises, has been to print more money. Clearly this can’t continue indefinitely, but it likely will for years to come, creating progressively higher future inflation. It’s already starting. As I’m writing this, today’s Wall Street Journal, for example, contained several reports of higher inflation in this country and around the world. Gold and rare coins have served as stellar inflation hedges during inflationary spiral, like the one we’re entering now.

Mark Ferguson was a coin grader for PCGS , a market analyst for Coin Values and has been a coin dealer for more than 40 years. He has written for the ANA, Coin Dealer Newsletter, Coin World, Numismatic News, , Coin Values, The Numismatist and currently has a weekly column on CoinWeek. Mark can be reached at Mark Ferguson Rare Coins ( www.mfrarecoins.com)

August 20, 2010

by  Paul M. Green

Summary

There has been very little attention paid to type coin collecting in numismatic literature. Largely because there are few, if any individuals, who are truly qualified to treat type coin collecting in depth.

This article was originally printed in the latest issue of Numismatic News.
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Type collecting received a shot in the arm in terms of publicity with the publication of A Guide Book Of United States Type Coins by Q. David Bowers. The book is perhaps the first real analysis of collecting by type and in all probability it will make a significant difference in the interest in type collecting and prices of key type coins as the years go by.

In reality there has really been very little attention paid to type coin collecting in numismatic literature in large part because there are few, if any individuals, who are truly qualified to treat type coin collecting in depth. It is a simple fact of life as there are many great dealers, collectors and scholars all of whom may have nearly encyclopedic knowledge in a given area.

Having that in-depth knowledge for the entire span of U.S. coins is a very different thing and few, if any, have the qualifications of Q. David Bowers. It is natural that Bowers would be interested in type collecting as he has over the years handled literally every coin of the United States.

Such a claim may sound like hyperbole, but in Bowers case it is legitimate. Moreover, over the years he has handled most of the great collections, meaning he has not only had experience with every coin of the United States but also in most cases with the finest known example. It makes him a natural for a book on typecollecting and it makes his observations especially valuable.

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Serious discussion of type collecting has been neglected for a long time. The circulation finds generation wanted an example of every date and mintmark. It was wired into their brains by the Whitman albums they filled as kids.

However, for a long time it has really not been possible for collectors to approach collecting as they once did attempting to acquire an example of every coin issued in the history of the United States.

There are  number of coins now in the group where there is only one possible in private hands such as the 1933 Saint-Gaudens double eagle, 1870-S half dime and $3, a single 1822 half eagle in private hands, the 1873-CC no arrows dime and a number of others. That means there are simply not enough of the great rarities to have many collectors attempting a complete collection at the same time.

There are other factors that make type collecting more logical today. Even though few can attempt a complete U.S. collection, it is also becoming increasingly difficult to attempt even a substantial collection for a period of a century. Back in the 1950s when people would talk about a 20th century type collection few would take it very seriously as such a collection was easy to assemble even in uncirculated grades as back in the 1950s any uncirculated Barber quarter or half dollar would suffice. Such a collection is much more difficult today as now the demanding buyer wants an MS-65 and those are not as easily found as a simple uncirculated.

While a type collection for a century has become more difficult, the individual collections possible have become even more of a problem. Today you might be able to attempt a collection of one or two major sets, but very few have the financial resources and patience to attempt all the half dollars of the United States or all the coins of the past century.

In some ways it is probably not being negative but rather realistic to suggest that the day of the truly enormous private collections like Norweb and Eliasberg is basically at an end. That does not mean there will be no great collections as there will always be great and important collections. It is simply a case where the great collections of the future are likely to be different from the great collections of the past, which were clearly an attempt to obtain one example of every date from every mint in the history of the United States. Those collections are rapidly becoming impossible, giving way to more realistic challenges such as having the nicest collection of Seated Liberty dollars or Barber quarters.

The times and the collecting patterns are changing and type collecting fits in well as a potential source of increased interest in the future. In fact, the 50-state quarters may well be a sign that a new generation of collectors while interested in collecting in a traditional manner may be even more interested in a collection that offers diversity of designs.

That diversity has always been at the root of the appeal of type collecting. Whether a type collection involves just the coins of the past century or all the coins of the United States, there is significant diversity and in attempting such a collection you are basically forced to study the coins of a period.

Certainly one major feature of the Bowers book is that it has given real credibility to type collecting, which it might have lacked in the past. There have probably been type collectors throughout U.S. history from the time someone back in 1793 looked at the reverse of a large cent and was startled to discover that it no longer had a Chain reverse but rather a Wreath. Later in the year that early observer of U.S. coins could have found still another different 1793 cent design and if they had decided to obtain one of each they might have been starting a large cent collection, but it is equally likely they were collecting by type.

Since the 1930s, the focus has been basically on acquiring an example of every coin of every date and mint. The type collection almost had a stigma of being basically ordinary coins that were easily assembled. Of course, that view assumed you were not concerned about the condition of those coins and that you were also not attempting gold coins where many early issues are difficult. In fact, even if the type collection was of the 20th century, it could be basic or it could be made more difficult by adding some coins like the 1909 VDB Lincoln cent or the 1921 Peace dollar, which are legitimately different types, but which are not included in the most basic of collections.

If the Bowers book makes a single important contribution to numismatic literature, it is that perhaps America’s most respected expert is clearly taking type collecting seriously and equally clearly pointing out that there are a number of type coins that are legitimately challenging. In fact, Bowers not only explains that some designs are tough, but includes lists of the toughest designs as well as another important piece of information regarding which types, while perhaps readily available in circulated grades, are extremely difficult in Mint State.

For example, he states, “Among type coins the 1794 and 1795 Flowing Hair half dimes, half dollars and silver dollars are scarce, but still readily available in such grades as VF or even EF. But in gem Mint State each is incredibly rare. The same can be said for most other early copper and silver issues.”

In fact, the book, which gives a description of every type, also includes charts of availability. Market value and past market performance in assorted grades. For the type collection or potential type collector it is a virtual road map as to what the challenges will be in your collection.

It might seem like a stretch to suggest that one book can make a significant difference in the market, but consider for a moment the 1796 and 1797 half dollars with a Draped Bust obverse and small eagle reverse. The combined mintage for the two years was just 3,918 pieces and of that total Bowers estimates fewer than 350 remain today, which would be well within the normal 3-10 percent some suggest as a survival rate for early issues. As Bowers suggests, “Among the design types of  United States silver coins made in circulation strike format (not proof finish) this is the Holy Grail, the rarest by far.”

When you examine the availability in terms of the estimates Bowers provides as to numbers known and numbers certified you can easily see that a book such as this if it were to encourage even just a small number of collectors to consider forming a high-grade type collection it could have an enormous impact. After all, Bowers suggests that there are only a couple dozen of the 1796 and 1797 half dollars combined in Mint State and there are even doubts the number is that high with the remaining 200 to 300 examples in circulated grades.

Even in circulated grades with the number certified from AU-50 to AU-58 being no higher than the Mint State total the impact of even a few new serious collectors with substantial budgets can be understood as there is simply no supply at today’s prices of the 1796 or 1797 half dollar to meet any new demand.

What can be surprising as you read through the descriptions of various issues is that there is a significant number of issues where the numbers known in any grades are just a few hundred and even more where the numbers known in Mint State are also far too small to satisfy any new demand.

Take, for example, the first $2.50 gold piece of the United States, the 1796 without stars on the obverse. If a number of new collectors were to surface requiring the 1796 no stars quarter eagle for their collection, where would the coins be found at today’s prices as the no stars 1796 had a mintage of just 963. In fact the no stars 1796 seems to have a decent survival rate as Bowers estimates 150 to 225 in circulated grades, but the number in Mint State is put at just 20 and all but three of them are in the MS-60 to MS-62 range. Just a small number of serious new collectors could have an enormous impact when the numbers known are so small and that is the case over and over again in the early issues of the United States and especially in early gold issues.

In his analysis Bowers is also not at all timid about his views on the appropriate place for certain issues. A good example are Gobrecht dollars, which many have basically dismissed as patterns over the years. In fact, Bowers includes them as two different types with the 1836 having no stars on the obverse but stars on the reverse, while the 1839 has stars on the obverse but none on the reverse. Including the two at all is important recognition, which Bowers supports, noting in the case of the 1839, “now it is known that in 1839 the mintage of 300 coins of this type was mostly placed into circulation.”

Suffice to say with a mintage estimated at 300 even though many still survive today, the 1839 has suffered over the years as not being seen as the type coin it is and this recognition by Bowers may well change the view of many or at least suggest to some who have not really studied the situation that there are two types of Gobrecht dollars with both being tough and extremely desirable. As Bowers concludes, “The 1839 Gobrecht dollar stands today as the rarest of all types in silver,” and that statement alone could well produce additional interest in what was for many a somewhat obscure and misunderstood coin in the past.

The Gobrecht dollar is simply scarce, although among the numbers known the bulk would tend to be in better grades although that is less evident in the case of the 1836, but generally speaking it is the opposite of the situation found with most early issues.

In general for early issues of U.S. coins, the numbers known while perhaps low will be in circulated grades with VF-20 being a fairly average grade. In Mint State, however, many early issues simply are unavailable. The 1794 Liberty Cap large head facing right half cent is a good example. Once again Bowers takes a clear stand as to whether this coin should be considered a distinct type by including it as a type and if you do consider it a distinct type and not included with the other 1795 to 1797 issues you find an immediate problem. There might be 2,000 examples of this type known to exist in all grades although the number Bowers places between 1,000 and 2,000, so while available there is a severe problem if you want an example in Mint State as there the estimate is just 15 to 25 pieces, which is hardly enough to supply many with an example if new demand were to surface either from half cent or type collectors. That, while perhaps more extreme than others is typical of the real difficulty in assembling a Mint State type collection especially if you include types from the 1790s and early 1800s.

There is more than ample food for thought in some of the other information to be found in the Bowers book. Having read Q. David Bowers for more than four decades, it would be fair of me to suggest that no one has more consistently advocated purchasing the best coin you can afford. That wisdom if practiced results not only in more enjoyment from your collection but normally speaking a better return on the dollars you invest in your collection. Anyone who tried to cut corners in obtaining the best will usually find themselves wishing they had listened to Bowers and others who have preached quality over the years.

As Bowers readily admits when it comes to coins of the past century, Mint State examples are not rare. In fact, only a few issues of the 1900s would be seen as tough even in a grade such as MS-65 and the more recent the coin normally speaking the more easily it is discovered in top grade.

In his information on all the individual types we find more than ample evidence to suggest that at least in type and very probably in regular sets as well the standard of quality most would assume they want in their coins is perhaps not good enough. Certainly, in the case of most coins in U.S. history, obtaining an example in Mint State is desirable and an example in MS-65 is even better. Advanced type coin collectors might even go higher in grade if the potential exists.

What we can learn from the information in the Bowers type coin book is that realistically if you want a truly top quality type collection in some cases MS-65 is not good enough. For example, in the case of silver clad Kennedy half dollars from 1965-1970 Bowers lists the certified population at 2,508 in MS-65, but in MS-66 it is even higher at 2,811 while in MS-67 the total is 1,886. Only in MS-68 where just 132 have been certified is there a significant decrease in numbers available. Those totals would certainly suggest that if you are to buy the best you can afford when it comes to the silver clad Kennedy half dollars from 1965-1970 the coin you want is an MS-68 or at least an MS-67 and not an MS-65.

In fact the situation is hardly limited to Kennedy half dollars and it is not all that surprising as after all the current grading system comes from the 1949 Harper Brothers Early American Cents by Dr. William Sheldon and the system dealt with large cents from 1793-1814. In fact, if you counted up all the large cents from those years certified in MS-67 and above you would probably find that the total is not even equal to one year of the Kennedy silver clad half dollars or any other types currently in production and that is no surprise as the methods for production are significantly improved since 1814 and the number of collectors to save top quality example is substantially larger.

While it is easy to understand why there are more coins being produced today in top grades the fact is that if you are assembling the best possible collection of type coins, or any others for that matter, some adjustments in the grade you are seeking will be required. That shows clearly in the special section Bowers has on the 50-state quarters where he includes the grade seen most often at the grading services of each of the quarters. For example, the most often seen grades for the Delaware quarter are MS-65 and MS-66, but in the case of Texas, the grades seen most often at the grading services  are MS-67 and MS-68. While it is still very early to draw conclusions for the 50-state quarters as a whole the fact is that the possibility is very real that some of the 50-state quarters will prove to be tougher than others in some grades although they all seem uniform at least for now as in the case of proofs the grade you want is at least Proof-69.

With a wealth of information about the entire history of U.S. coins, A Guide Book of United States Type Coins is a significant contribution and it might mark the point in numismatic history where a change in collector attitudes will come to be seen as a break with the full-set approach that prevailed for much of the 20th century.

Type coin collecting could become the dominant method in the 21st century, but not before the Baby Boomers hang it up.