Welcome to the April edition of CoinWeek FAQ’s Q & A with Charles Morgan and Hubert Walker!
Each month we take some of the more interesting questions from the reader mailbag and answer them in our unique analytical way.
If you have a question for us, email us at [email protected]
Q. When gold was going up, everybody said it was a great time to buy. Now that it’s sold off, others are saying that gold was overpriced all along. What gives with gold?
Personally, we had a hunch that gold was too high after it topped $1,500 and began to make a run for $2,000 an ounce. We based that on old dealer’s logic that an ounce of gold should equal two weeks’ wages for the average American. Deriving that from America’s per capita income puts the price in the neighborhood of $1,640 per ounce[1]. However, GDP per capita is no longer a viable way to evaluate the average American’s income, because the top 1 or 2% earns such a disproportionate amount of income compared to the rest of us. The numbers are too skewed.
We’re actually comfortable with gold where it is now. Maybe we’re too conservative in the metals market, but now seems like a healthy level. Not necessarily for investing in bullion – but for investing in and enjoying gold coins. At current levels, approximate melt value for classic American gold coins are as follows:
Gold dollar: $67.00 Gold Quarter Eagle: $168.00 Gold Half Eagle: $335.00 Gold Eagle: $670 Gold Double Eagle $1340
This is a much more affordable point of entry for collectors building type sets. There’s still time for you to fill in the gold page of your Dansco 7070 after all.
Q. Why would somebody pay thousands of dollars for top population moderns when all it takes is for a couple of additional coins to be made to crash prices? It makes no sense.
This is a great question. First, consider how a grade is assigned. A grader reviews a coin for a matter of seconds, assigns the coin a grade, and passes it to another grader who does the same thing. If the graders agree, the coin is assigned that grade. If they disagree, a third coin grader breaks the tie. The amount of time each of these three individuals looks at a coin can vary, but you shouldn’t expect a run-of-the-mill coin to get the same thorough vetting that a Class III 1804 dollar would get.
Most of the arbitrage assigned to high-grade coins, especially ones that are by no means scarce, comes from the relationship between grade and population. A high-grade coin with hundreds of examples in a pop report will sell for much less than a coin in the same series and same grade with only dozens of examples in that grade. We as collectors have an emotional reaction to the idea that a coin is rare – even if it’s only a conditional rarity – and because of this we’re sometimes tempted to stretch our budget to buy a coin in a high grade if we think few additional coins of that caliber will come to market.
When we act this way, we assume that the TPGs will look out for us and maintain rigorous standards when it comes to handing out high grades. But what if we look at Pop Reports another way? What if we look at these tables to see grading tendencies? To analyze the reports this way, you need to compare populations of coins in the table against populations of coins from previous tables. Savvy collectors will spot a trend if, say, a certain quarter had a population of one for 25 years but all of a sudden becomes a pop 5 coin in a matter of weeks. This is happening as you read this, much to the chagrin of the owner of the pop 1 coin we can assure you.
Does this new total mean the system is broken? Perhaps. But it could also mean that the TPGs now have a tendency to give that grade to very nice examples, where in the past they might have been reluctant to do so.
Grading inconsistency will ultimately prove fatal, we’re afraid, to high-value conditional rarities – at least until another grading revolution happens and someone steps in to undo the damage being done this hobby cycle.
So to answer your question, no one should pay thousands of dollars for top pop moderns unless they know exactly what they are dealing with and prepare for themselves a parachute so that they can sell the coins when necessary to avoid taking huge losses. For the rest of us, be patient. Your want list will “magically” become more affordable as more coins enter the marketplace.
Q. I’ve read your first two interviews of candidates for the ANA Board of Governors. What will you guys do if you think someone isn’t qualified?
We’ll let them speak for themselves.
Q. What are the most overrated modern coins?
Did you know that at one point the 1984-D Olympic dollar sold for three times what the P & S Olympic dollars sold for? It’s almost absurd to think about and is surely the result of crafty coin marketers. We’d like to think the coin market is more fair and transparent now than it was then – but some of the stuff that goes on behind the scenes (shill bidding, collusion, deceptive toning to name a few) can make you lose faith in humanity.
A few coins that are now hyped beyond reason are actually in series we like. The 1979-S and 1981-S Type 2 dollars, for instance, are overrated and overpriced, even at today’s depressed prices. We also think the 1970-D half dollar and the 1973 and 1973-D dollar in grades below MS-65 are overrated.
We might take some flak for this, but we think the MS-69 1982-D Washington half dollar is overrated. We’ve never liked the obverse; it makes Washington look like a miniature toy soldier. Nevertheless, the reverse IS beautiful. Many of the MS-69s we’ve seen are unimpressive – and if the grading standards at the major TPGs for MS-69 are anything like what we’ve seen, then there’ll be hundreds of thousands of coins that qualify. Why pay $100 for that?
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It’s hard to believe it’s almost May. Hubert and I are going to pour over the 2014 Red Book and hopefully catch up on some reading. Got any questions, concerns, ideas? We’d love to talk about it. Drop us a line at [email protected], and we might feature them on CoinWeek FAQ.
©2013 Charles Morgan and Hubert Walker
