Will Rising Numismatic Prices Trigger Market Shortages?

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According to standard supply and demand economics, when demand increases for a product or service while supply remains constant, prices tend to rise. Then, when prices rise, it incentivizes suppliers to try to increase the supply available in the market, which would dampen price increases.

The numismatic market partly works that way, and partly it doesn’t.

For over a year, there has been a huge surge in the growing demand for numismatic coins and currencies. A number of prices rose, disregarding the possible evolution of the precious metal content.

While the number of ultra-rare “trophy” coins seem to come out at auction as frequently, if not more often, than in the past, serious shortages are beginning to develop in the cheapest specimens.

In response, dealers became more aggressive in offering to pay higher prices to find desirable classic collectible gear. But, from the buying messages I see, higher prices don’t necessarily entice existing collectors to rush to unload their holdings.

There is a steady and general supply of coins and numismatic currencies coming onto the market as a result of the death of collectors and leaving their possessions to heirs who are more interested in monetary value than artistry, beauty and history of the pieces. It still happens.

However, where I detect a decrease in fresh stock coming onto the market is from collectors who are still alive. My best guess is that many of them have seen prices go up. But, they expect prices to be even higher over the next few years as more collectors enter the hobby in response to the plethora of new coin designs the US Mint will be producing by the end. of this decade.

One attribute many numismatists learn is patience. They know that finding the “right” specimens at reasonable prices can take time to complete a collection. I’ve had a number of collectors tell me that the last piece of a set they were working on took them at least 10 years to find.

One factor to keep in mind is that the buy/sell spreads for coins and numismatic currencies are wider than they are for gold-priced coins and bullion. Even for items with a retail price of several hundred dollars or more, resellers may only offer 65-85% of their current retail price to acquire certain items. For very low priced items, where the cost of labor per unit is a high percentage of the retail price, prices may need to increase five to ten times, or even more, for a collector to reach the break even.

This wider gap between buys and sells may partly explain the delay of living numismatists not rushing to sell their collection if prices have only risen 25-50% over the past year. . Retail prices may need to at least double for many active collectors to consider selling.

Another deterrent to selling a collectible, especially gold coins, is that a rise in the price of precious metals often causes retail prices to approach the value of the metal (especially in percentage), which also limits the potential profitability of liquidating a collection.

For example, in June 1989, when the spot price of gold was around $360, retail prices for one dollar of Choice MS-63 US Type 3 gold, $5 Liberty, $10 Liberty and $10 Indian were all near or above $3,000 each. . Today, with the spot price of gold around $1,950, retail prices for those same coins are 45-80% lower than they were in June 1989. I know a certain number of collectors who prefer to keep their treasures rather than cash in at a high price. loss, especially with the spot price of gold up 440%.

Collectors who have the financial means to hold their coins and currency for the long term will always be tempted to cash out if they perceive that their coins are trading near a high in the market. But how do you know if the markets are close to a top?

An indicator of a market peak is if the number of potential buyers seems to have peaked. About two years after launching the Statehood Quarter series in 1999, the United States Mint announced that approximately 100 million people collect these coins. This number was so high that it would have been almost impossible to expand the market further. In mid-2001, prices for previous year’s US proof sets, proof silver Eagles, and similar products also peaked in the market.

As an example, a series of US proof sets from 1968 to 1998 at the end of 2002 were selling at retail for about 40% more than they were at the end of 1998. However, the prices then slipped. By the end of 2011, this same group of proof sets were selling at retail for 45% less than at the end of 1998. By the end of 2021, their retail prices, as a group, were still about 25% lower than those in late 1998. Obviously, if a collector had a crystal ball to identify the peak market for these sets, he would have wanted to sell in the years 2001 or 2002.

Essentially, I generally expect the US numismatic market to have significant upside potential for at least one to four years. But, once it seems clear that prices have peaked, expect an increase in living collectors selling their holdings. So for now, you might want to keep holding. But, as you saw with the American proof sets from 1968 to 1998, you don’t want to get greedy and hold on too long.

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