A Weekly CoinWeek Column by Greg Reynolds
News and Analysis on scarce coins, coin markets, and the coin collecting community #99
Although I very much prefer to write about scarce or rare coins, rather than common coins, generic U.S. gold coins continue to be a frequent topic of conversation, not because these are ‘hot,’ but rather because they are not. The purpose here is to discuss the factors that affect the prices of generic gold, particularly Saint Gaudens Double Eagles ($20 gold coins).
On March 8, the price of gold was about $1700 per troy ounce. One year earlier, the price of gold was $1425. Although the price of gold increased by about 19% over the past year, average prices of generic U.S. gold coins are now about the same as such prices were in early March 2011, according to PCGS (CU) data. Are prices of generic gold low in relation to gold bullion value?
Before discussing the factors relating to the price of generic gold, it is best to discuss the meaning of generic gold. Classic U.S. coins were minted from 1793 to 1934. Generic U.S. gold coins are common U.S. gold coins that were minted prior to 1934. A very large percentage of these are particular issues between 1900 and 1932 in grades below MS-65.
The most popular generic gold coins are the Double Eagles ($20 gold coins) of 1904, 1924 and 1928. Eagles ($10 gold coins) dated 1901-S, 1926 and 1932 are also very common and very popular. Various Quarter Eagles ($2½ coins) and Half Eagles ($5 coins) are generic as well, as are other Eagles and Double Eagles.
It is important to distinguish between rare coins, scarce coins and common coins. A coin is rare, in absolute terms, if five hundred or fewer representatives of the respective coin issue currently exist. A coin is scarce if 5,000 or fewer exist. If more than 5,000 exist, a coin issue is common, though it may be rare in certain grade ranges.
Generic coins tend to be super-common. The series of Saint Gaudens Double Eagles (Saints) contains the most popular U.S. gold coins and the ultimate generics. More than one million 1924 Saints exist, possibly even two million. There are more than six hundred thousand 1928 Saints and more than five hundred thousand 1927 Saints, plus more than ten thousand each of some other dates.
I. Condition Rarity
To identify generics, it is sometimes necessary to understand the concept of ‘condition rarity.’ A coin issue may be common in general, yet rare in a particular grade and in grades higher than that particular grade.
On April 15, 2008, Spectrum-B&M (now SBG) auctioned a 1961-D quarter for $18,975. While this coin is the only 1961-D quarter that is PCGS graded MS-67 (on a scale from 01 to 70), more than eighty million 1961-D quarters were minted. While 1961-D quarters in grades below MS-64 are worth just silver bullion value, or a little more, a PCGS graded MS-67 1961-D quarter is considered, by some collectors, to be something much greater than a generic coin. It is a high level condition rarity
The O’Neal 1914 Indian Head Half Eagle ($5 gold coin) was auctioned by Heritage for $126,500 in Jan. 2011. It is a top condition rarity in that it is the only 1914 Half Eagle that is PCGS graded MS-66 and the PCGS has not graded any at a higher level.
It is also true that the PCGS has graded fewer than twenty different 1914 Half Eagles as MS-65. So, all PCGS graded MS-65 grade 1914s are condition rarities as well. At grades below MS-65, however, 1914 Half Eagles are generic gold coins. In MS-64 grade, these are worth the same as the most common dates in the series of Indian Head Half Eagles.
On March 9, Heritage was selling PCGS or NGC certified MS-64 Indian Head Half Eagles for $3020 each, when the price of gold was $1708. So, these are more than 600% over bullion. Each Half Eagle contains a little less than a quarter of an ounce of gold.
In MS-61 grade, the Heritage price was $495, about 19.8% more than gold bullion content (‘melt value’). In grades below MS-61, 1914 Indian Head Half Eagles and other generic Indian Head Half Eagles are worth so little over gold bullion content that it is not worthwhile to pay a fee to have any of them graded by the PCGS or the NGC.
II. Generic Gold Coins
The line between a generic and a condition rarity is not always clear. To some extent, the generic status of a coin depends upon its grade.
Generally, a U.S. coin is a condition rarity in a certain grade if fifty or fewer coins in total are known at its grade level AND at all higher levels. For a very popular coin, like a Saint or an Indian Head Eagle, a coin may be a condition rarity if 250 or more are known at the given grade level and at all higher levels.
A 1924 Saint Gaudens Double Eagle ($20 gold coin) is a generic coin in grades up to MS-66. In MS-67 grade, a 1924 Saint is no longer considered generic. Each MS-67 grade 1924 Saint is a condition rarity.
Among 1924 Saints, the PCGS has certified just 78 and the NGC just 164, as MS-67. This total of 242 is probably indicative of just 125 different coins and maybe 80 of these would be accepted, sometimes reluctantly, by most experts as truly grading MS-67. The CAC has approved twenty-three. It is fair to assume, however, that there are many certified MS-67 1924 Saints that have never been submitted to the CAC.
The PCGS has graded a mere one as MS-67+ and the same number, one, as MS-68. An overall point is that all Saints, not just 1924s, are condition rarities in 67 and higher grades.
A 1920 Saint is an extreme condition rarity in MS-65 grade and is not rare in MS-63 and lower grades. Indeed, probably more than 15,000 1920 Saints exist. Yet, the finest known Eliasberg-Morse-Duckor 1920, which is PCGS graded MS-65, sold for $86,250 on Jan. 5, 2012 in Heritage’s auction of Dr. Duckor’s set of Saints.
Similarly, a 1926 Indian Head Eagle is generic in grades up to MS-65. In MS-66 and higher grades, 1926 Eagles are condition rarities. There are certainly fewer than one hundred 1926 Eagles that most experts would grade MS-66 or higher.
Liberty Head Quarter Eagles from the 1900s tend to be generics, in grades below MS-67. Among Indian Head Quarter Eagles ($2½ gold coins) that grade below MS-65, the 1925-D, 1926, 1927, 1928 and 1929 dates are generics. A few other issues in this series are generics in grades below MS-62, and become ‘better dates’ at the MS-62 or MS-63 level.
Among Liberty Head and Indian Head Half Eagles, there are too many generic issues to list here. The 1908 Indian Head issue is very common. ALL Indian Head Half Eagles are condition rarities in MS-65 and higher grades.
The most common generic U.S. gold coins are Saints, especially the 1924. This series also contains many truly rare issues, especially the 1920-S, the 1921, the 1927-D, the 1930-S, the 1931, the 1931-D and the 1932-D.
III. Collector Demand for Generics
Although these are the most common, the most popular generic gold coins are Saint Gaudens Double Eagles, of the ‘With Motto’ type (1908-33). Some points that relate to ‘With Motto’ Saints also apply to 1904 Liberty Head Double Eagles, 1926 Eagles, and many other generics. There are more generics in existence than there are collectors who want them.
Perhaps five hundred people collect Saints ‘by date,’ in some way. Yes, I know that there are rare date Saints for which fewer than two hundred or even less than one hundred are known to exist, in all grades. People often collect Saints at the same time they are collecting other series and people who assemble sets usually do so over a long period of time. Many collectors buy rare date coins on occasion, few buy rare coins every day.
Maybe twenty-five thousand people seek to include Saints in type sets. A set of coins where design types are each represented by one coin is a type set. More elaborate type sets may include more than, though a small number of coins, of each type. In some cases, an extended type set will, for example, include representatives of all Mints that produced a certain type of coin.
It is rare for someone to build a complete type set of all classic U.S. coins series from 1793 to 1933. Most type sets are specialized. It is popular to build type sets of just gold coins from one century, 18th, 19th or 20th, or of one denomination. A type set of Half Eagles ($5 gold coins), including all series minted from 1795 to 1933, is not difficult and is quite interesting.
Usually, a 1924 or a 1928 Saint is sufficient to satisfy a collector’s demand for a ‘With Motto’ Saint for a type set. I repeat, though, that some collectors seek to build more elaborate type sets, sometimes including rare dates or coins of one specific year.
In summary, suppose five hundred collectors each own or plan on buying fifty Saints on average, mostly rare or better dates, they would then own a total of 25,000 Saints, including perhaps 15,000 non-generic Saints. Further suppose that 25,000 other collectors each demand three Saints, on average, usually as type coins, these 25,000 collectors would then demand 75,000 Saints, mostly generics.
I maintain that collectors demand maybe 100,000 Saints, in total. There are more than two million Saints in existence. Therefore, for generic Saints to be worth more than their gold bullion content, these must be marketed to non-collectors, including people who are not at all interested in coins. Generics are thus sold as investments, historical artifacts, cultural items, souvenirs, or often as commodities for short term speculation.
IV. Current Prices
Kris Oyster is an active trader in generic gold. He is a managing director at DGSE. Kris reveals that, “for prices for generics, most dealers go by the asking prices of the main wholesalers. Most dealers markup generics 10% for their retail customers. I mark them up 5%. I sell a lot of generic gold to customers who walk into the store” in Dallas, Oyster adds.
On Friday, March 9, 2012, at 9:50 AM Central Time, Heritage was offering PCGS or NGC graded Saints at the following prices. The gold bullion basis was then $1708 per troy ounce. Here, I am placing the premium over gold bullion content in parentheses: MS-61 $1820 (10.41% over bullion), MS-62 $1835 (11.04%), MS-63 $1860 (12.35%), MS-64 $1930 (16.97%).
In contrast, for U.S. one ounce gold “coins,” primarily American Eagle or Buffalo one ounce pieces, one leading dealer in the Midwest currently charges from 4.30% to 4.83% over gold bullion levels, depending upon the quantity ordered. While these items have the legal status of coins and are produced by the U.S. Mint, knowledgeable collectors regard them as bullion items, not coins, in a cultural sense.
“Generic Saints can go a few percentage points lower, but they can’t go much lower,” John Albanese asserts. “Premiums [over gold bullion] were much higher in the past. The premiums are now at the lower end of the range,” John emphasizes. Albanese is the founder and president of the CAC, and he handles millions of dollars worth of generic gold every year.
Assuming “you have decided to buy gold as an investment, you have a lower downside if you buy Saints. There is a bit of a cushion for downside risk. If gold were to fall 50%, [certified] MS-64 Saints might only go down only 25%.,” Albanese suggests.
Kris Oyster likewise points out that, “if you buy American Eagle or [U.S. Mint] Buffalo gold coins and the price of gold goes down, your eagles or buffaloes will definitely go down, too. If you buy Saints, and the price of gold goes down, there is a [realistic] chance that your Saints will not go down in value when the price of gold goes down,” Oyster declares.
V. What Premiums For Generic Saints?
As U.S. Mint gold bullion pieces may be purchased for less than 5% over gold bullion (“melt”) prices, does it make sense to pay 10% to 30% over bullion values for generic Saints that grade less than MS-65? John Albanese and Kris Oyster assert, separately, that it does, for people who are planning to buy gold, as a metal, anyway.
Kris points out that telemarketing firms have “aggressively promoted” generic gold in the past and will probably do so again. Oyster suggests that premiums probably will be pushed up again in the future. Albanese agrees. “Some telemarketing firms have been selling more modern coins and less generic gold. But, generic gold is still being marketed and will be, aggressively sometimes, in the future,” John says.
Albanese emphasizes the attractiveness of Saints. “If you show someone a Saint who has never seen one, they may gush over it. These are gorgeous coins. They are works of art. We [in the gold coin business] take them for granted because we see them all the time. They look much better than gold bullion coins. Augustus Saint Gaudens is a famous sculptor,” Albanese notes. So, John regards Saints as cultural prizes, not just as coins or investment vehicles.
I agree that Saints are much more attractive than currently produced bullion coins. Granted, Saint Gaudens is the most famous and accomplished sculptor in the history of the United States. I continue to estimate, that there are twenty-five thousand collectors who are each willing and able to buy at least one Saint, yet each collector will not typically acquire a sizeable number of Saints. Albanese stresses the importance, however, of non-collectors who have become enthusiastic about owning Saints.
Saints are always exceptionally attractive coins. Why do premiums for generic Saints vary considerably over time?
In my view, most of the fluctuations in premiums for generic Saints over gold bullion content has been due to the ebb and flow of pertinent telemarketing programs. In early Jan. 2009, PCGS or NGC graded MS-62 Saints were selling for more than 50% over gold bullion value, which was then around $850 per troy ounce, approximately half the current level. During much of the period from 2002 to 2007, certified MS-62 Saints were selling for 20% to 30% over gold bullion content. As already noted, the current premium is around 11%.
When the management of a major telemarketing firm decides to allocate resources to pushing generic Saints, then prices for Saints, especially for those of the grades that are being pushed, tend to rise, sometimes substantially. If three large telemarketing firms push PCGS or NGC certified MS-62 and MS-63 Saints during the same time period, then premiums may rise tremendously.
I contend that another key reason why premiums for generic gold have fallen is grade-inflation. For example, generic gold coins that used to be certified as grading MS-62 have been upgraded to MS-63 or even MS-64. Many of those that were previously graded MS-64 are now graded MS-65. Plus, many that were previously PCGS or NGC graded AU-58 are now graded MS-62.
Also, markets for generic Saints have been worsened because many generic Saints have been doctored for the purpose of deceiving PCGS or NGC graders into assigning higher grades than are really merited. Each grader views hundreds of coins each day, and they sometimes miss added putties, creams, gels, films, pastes, or even ‘new’ metal.
There is no doubt that Saints, even extremely common 1924 Saints, are and should be worth more than bullion items. Of course, Saints are wonderful coins. It is great to own three or four generic Saints. Market prices, however, are strongly affected by people who each buy hundreds or thousands of generic Saints.
The CAC is a factor in markets for generic gold coins. I have not here focused upon the CAC , however, as the CAC has approved just a microscopic percentage of all the PCGS or NGC graded generic gold coins in existence.
CAC approved generic gold coins are of higher quality, on average, than those that are not CAC approved. In some cases, CAC approved common date gold coins fall into the category of condition rarities and are thus not generic in the sense that the term is typically used in regard to U.S. gold coins.
In the future, I will devote a separate article to gold coins and grading issues, in which the impact of the CAC will be discussed. My theme here that generic gold coins are plentiful and that their respective prices are largely determined by marketing programs. As there are dramatically more generic gold coins in existence than there are people who collect them, collector demand is only a small factor in the determination of the premiums over bullion that generic U.S. gold coins command.
©2012 Greg Reynolds