The Numismatic Coin Illusion: Rare Coins Are a Luxury Item, Not A Hedge Against High-Finance Armaggedon

Gold and silver have had a considerable price rise over the last week. The jumping in price can be attributed to increasing pundit nattering about the necessity for a quantitative easing to give a fiat enema to the bowels of a civilization that is plagued by irritable bowel disease.  Despite this rise in gold and silver, however, the prices in gold and silver rare coins have stagnated/fallen. Are rare coins a good investment?

On the television in particular, where all great ideas go to die, we bear witness to a lineup of schemes either designed to take our money or take our dignity – in most cases, they take both. One of these schemes is the numismatic coin market.

First allow me to hedge against my thesis – which postulates that the honor of the rare coin market is undermined by exorbitant premiums – by saying that there is reason to preserve artifacts of history. But, these artifacts of history are not always necessarily the best “investments.”

Gold closed May out at approximately $1560 an ounce.  Today, it hovered around the $1620. That is nearly a 4% increase.  Despite this, the going rate for, say, a MS 63 Saint Gauden’s coin on Heritage’s Gold Fax, on 31 May 2012 was $1760. Today, Heritage lists the same coin wholesale for $1750. That’s about a .5% decrease!

One can only gather from this that numismatic prices shrink even with gains of less than 5%. The going rate for most of the MS Morgan Dollars, according to Heritage, have essentially gone unmoved, despite the uptick in silver of approximately 5%.  Here are the screen shots:

First Up, June 1, sent out at 12:44 PM:

Second Up, June 6, 2012, sent out at 1:29pm

Now, the public is not necessarily falling for statements such as the following, which is posted at Blanchard Online:

MS64 $20 Saint-Gaudens Double Eagles have been known to trade as high as four times the price of gold, but right now they’re at less than twice the spot price of gold. Because the rare coin bull market hasn’t even begun to heat up (it typically launches after gold has reached a stable peak) the upside potential of this coin is great.

Low risk. High potential. Now is the time to diversify your bullion holdings with an affordable rare coin that offers two kinds of value: intrinsic value for its pure gold content, and collectible value as an iconic piece of U.S. history that is sought after and traded worldwide. The MS64 $20 Saint-Gaudens Double Eagle can be acquired right now with relatively little risk at prices not too far above bullion – and it could rise radically in value from current levels if it returns to its previous percentage over spot

These coins are at all-time lows not because it is a great opportunity to buy due to temporarily weak economic conditions, but because the entire global economy is in freefall and these coins, considering their oft exorbitant premiums above their gold content, have been in recent history merely a luxury good. If you study these two price lists carefully, you see that some of the higher graded coins, like the MS 64 Liberty, have kept pace with the price of gold. Nonetheless, the price lists sends a mixed message to the numismatic market.

According to Google trends, “bullion” is, rightfully so, the more popular precious metals safehaven play, as it is queried, according to Google, 5.6 times more than “numismatic”:

Market analyst of precious metals for half a century, Bob Chapman,  recently said this to Silver Vigilante regarding numismatic coins:

Numismatics and mint state graded numismatics are usually overpriced because of the commissions charged by dealers anywhere from 6% to 50%. This is particularly true in circulated numismatics – putting that aside the premium on mint state numismatic coins are close to their lowest level in 35 years. In the markets from 78 to 1980 we saw tremendous gains in numismatics and mint state guarantees did not exist at that time. Today, if purchased intelligently the mint state coins are a good buy.

So, basically, optimistically speaking for this market, the numismatic market shields one from falling raw gold prices, but when the price spikes, as we have seen in this article, there is no such luck.  Historically, these prices have been slow to react to the market, but today there are gobs of them available on the market, which is certain to change the pricing mechanism. In my opinion, we are looking out a soft numismatic coin premium outlook.