Richard Schwary – California Numismatic Investments
The incredible rise in precious metals prices has given more than a few rare coin investors a reason to pause and question their investment strategy. And while this commentary will not be of much interest if you own the rare coins which have moved substantially higher this past decade there are legitimate sectors of the coin market which have not done as well and some which have performed poorly. It is because of this irregular price performance the following Email is common today: “I want to convert my collectible coins into bullion but would like an education before I proceed.”
In the process of addressing this question of value a collateral issue is often raised: Which is the better choice: collector/investor rare coins or the less complicated bullion products? These two areas are loosely related in that both can be sensitive to inflation and sometimes overlap because older US circulated coins can sometimes act like bullion coins. But there two big differences the buyer should understand before writing a check: (1) The small buy and sell spread associated with bullion products appeals more to a “bottom-line” type of mentality and allows a great deal more opportunity for trading. (2) The higher commission rates associated with rare coins simply means you trade less often but may be able to take advantage of longer term price trends.
For the historical record the question of which sector does better price wise has been hotly debated since the 1970’s and to make matters less easy to understand rare coin prices have been used and abused to sway the uninformed base which for some reason likes to throw money at local dealers during times of financial crises. But like many questions in this business the answer as to which is best is a moving target in that it depends on which sector of the rare coin market is compared to commodities prices at any given time.
But because of the general rise in precious metal prices today some rare coin buyers want to trade for bullion. And while this now looks like a good strategy the opposite could be true if the metals go down because interest rates go up, the world becomes friendlier, or the dollar gets stronger so caveat emptor makes sense. Don’t believe that just because the metals have done well lately that they will outperform sectors of the rare coin market.
For our discussion however let’s assume you are the average guy and bought a combination of certified rare coins and precious metals and further you compared the two stacks after 10 years of patient waiting. If the mathematical results show the precious metals did better price wise it is human nature to consider selling the rare coins and buying more bullion.
And given you assembled the collectible coins with some price discernment the trade of rare coins for bullion is not earth shattering. But there are a few guidelines which should be followed to insure you get good value and a reasonable admonition: It makes little sense to criticize yourself or your dealer because some rare coins did not do as well as gold or silver bullion. This type of backseat driving makes little sense and besides who knew? The question of rare coins or bullion has been debated for 40 years and I can tell you there are clear periods when the precious metals won and other times when quality rare coins easily finished first.
It is my sense however that the key to answering which choice is best for you has less to do with examining relative price spreads and more to do with examining your personality. I own and enjoy both rare coins and precious metals but it helps that I love collecting and remember the days of the Helm’s bakery truck and the milk man. If you also enjoy nostalgic trips into the past and wonder about early gold mining camps then rare coins can be fascinating and their history presents a lifetime of enjoyment. The introspective person turns the rare coin in his hand into a picture of the past and so generally does better as far as “rare coin investment” is concerned because the collector in him forces a greater understanding of the process. And because money is not the driving force his decisions are more balanced and he looks forward to the next purchase which can turn into another adventure. Rare coin price movement is a consideration but there are emotional issues on the table and selling might only be done to raise money which is then used to purchase other rare coins of interest.
But if you study your spread sheet each morning over coffee the precious metals are probably better suited to your way of thinking given you can stand the volatility. This type of person has a more detached way of approaching his pile of stuff and is willing to make changes by simply looking at the ticker tape. The shorter buy and sell spread associated with bullion is also more appealing and the fact that there is no history involved an advantage because after all gold is just a commodity which is dug out of the ground.
So what to do if you are part of the “bullion is better” group but have acquired rare coins and are now having second thoughts? At this point keep in mind you are most likely on the “ask” or retail side of the price spread so making this trade might cost you money. Whether it makes sense to you is a judgment call but if you want liquidity the “bid” or wholesale side can be 10% to 20% less than what you paid given the wholesale market has not moved. This is a common range used by dealers and while the spread is negotiable rare coins are not commodities so get used to the numbers or avoid this asset class.
If you are promised anything else run like a rabbit because you are about to have your pocket picked by what I call the Big Rare Coin Lie (BRCL). No dealer works for nothing so there is always a difference between the buy and sell price on any rare coin. And no amount of dealer expertise can protect you from the normal up or down price movement seen in all rare coins.
There is also a darker side to this commentary as far as pricing is concerned. Allow me some poetic license for one of my favorite Mark Twain quotes: “There are no distinctly American criminal classes…save Congress and the “new-breed” of corporate bullion and rare coin telemarketers”.
We have all seen these jokers on TV which is an advertising medium rarely used by honest dealers because it costs too much. Or perhaps you heard them on conservative radio where some of our most celebrated talk show hosts are shamelessly paid to recommend the worst gold deals on the planet and yet are legally shielded because the listener is warned in advance. If this sounds familiar I’m sorry for your loss in one of these pricing scams but hopefully this is not the end of the world. The first thing to do is check with your CPA to see if you have an offsetting gain or alternatively if you sell the position the loss may be tax deductible. Taking action to put your financial house in order is not easy in this situation but from my experience it is better to solve the problem and move on with your life.
On the brighter side of the price equation don’t forget to look carefully at your rare coins if they are housed in old PCGS or NGC holders. Over the years professional services have relaxed some grading standards so there is a possibility your coin could be reassessed and given a higher grade. This happens more times than you might imagine so it is worth the extra fee because a one grade increase could move the value of your treasure substantially higher. This is cheap insurance compared to the possible outcome but you would be surprised how often this strategy is ignored if the rare coin owner is in a hurry.
When selling or trading your rare coins for bullion always ask the buying dealer for the basis of his price evaluation. Most dealers use the Coin Dealer Newsletter (the Grey Sheet) and CCE (Certified Coin Exchange) as a beginning point. If the material is not particularly rare this may serve all parties well but understand that the Grey Sheet serves up a variety of “price” sheets: The Blue Sheet (considered cheap because prices are based on “sight-unseen” bids) and the Grey Sheet (more exacting but the higher prices are based on “sight-seen” material). For rarely encountered material or extreme rarity the Grey Sheet may not be your best source of information. This type of rare coin is always worth more so add dealer experience to your research which means you may have to knock on a few more doors.
Finally there is this important question of whether the coin under consideration has any “pop” or eye appeal? As you know by now not all coins within the grade range are created equal so if your coin is at the higher end of this range it is worth more money because this “visual extra” is like beach front property.
On the other hand if the coin is a “clunker” (sorry folks but sometimes your certified rarity will fall into this group) it will not fetch a top price regardless of what the holder may offer in the way of pluses or stars or special stickers but this extra information can often play a role in making the coin more valuable.
In this process don’t be afraid to price your own material, after all you bought the coins and know what you need to make the deal work. Be reasonable but if you think your collection is worth say fifty grand don’t be shy in explaining your thoughts behind the figure. Most dealers find this approach refreshing and if you show some respect for the dealer’s work and talent he will reciprocate in the evaluation. Always be friendly as there is no bigger turn off for a busy dealer to figure a collection and get no respect in the process. If you honestly believe his number is too low offer your insights as to why your number is better. This approach has saved more deals than I can tell you because it requires both parties to invest time which often leads to a successful conclusion.
Don’t be afraid to get more than one bid on the collection and understand that it is common for one dealer to pay more than another especially if he has a particular customer in mind or the issue is actually rare. Most dealers today can get you in the ball park with a simple list if the coins are certified by PCGS or NGC but this number will be conservative and higher numbers are usually forthcoming when the dealer examines and likes the material. It is true that in the final pricing stage everyone wants to look but by then you will have had time to check credentials. And remember most transactions have some room (which is coin talk for the final price could still be negotiable) regardless of the claim that you are getting the last dime.
Finally if your collection is very rare or unique in some other way you might want to consider auction. There are great selling points to this solution but there are also distinct disadvantages as opposed to a private sale. When it comes to auction one size does not fit all but selling at auction can be promising if you have the right material and a little extra time and you don’t ask too much of the process.
If you do consider auction there are a number of ways a dealer can get you better terms which puts more money in your pocket. Most auction companies quote fixed commission rates but in fact these rates are negotiable depending on who you are, the value of your consignment, and whether or not the coins are given minimum bids or “reserves”. So the seasoned advice of a good dealer can often help with your decision. If your dealer seems fuzzy when it comes to the positive and negative aspects of auction or cannot recommend specific companies by strength and weakness consider asking a member of The Professional Numismatists Guild.
You may in the end decide not to trade your collectible coins for bullion but I hope the above information will provide insight into the process. And a few professional tips as to how you can rise above the pricing storm and easily make adjustments can only help. If you have further questions my blog (Richard Schwary/Ask an Expert) is only a click away when you Google “rare coin commentary”. Thanks for reading and collecting.