Oct. 29 – Nov. 1, 1987
St. Louis, Missouri
You Can’t Keep a Good Coin Down!
By Paul E. Lambert
Wouldn’t it be nice in invest in something that never lost value?
Rare coins enjoyed 34 straight weeks of appreciation in 1985 and 23 straight weeks in 1986. When this happens, investors start believing their coins will be on top forever. Unfortunately, this is not true.
Coin cycles differ greatly from other investments because coin market corrections typically occur only every four to five years. Plus, they often follow changes in what collectors are buying.
Rolls of uncirculated coins in all denominations performed poorly in the 1960s and collectors across the nation decided to sell. After a flood of rolls hit the market, prices dropped dramatically.
In the 1970s, the demand for proof sets dropped, so prices fell as collectors turned their interest toward other areas.
And in 1980, silver dropped from $50 to a meager $7 an ounce. Many investors subsequently left the precious metals and rare coin markets, thinking the two were one and the same. While this is untrue, millions of dollars were withdrawn from the rare coin market, causing another downward cycle.
In the past ten years, investors and collectors have targeted the rare coin market. This creates an automatic “safety valve,” which makes the rare coin market so unique.
As a rule, investors buy only when rare coin prices are on the upswing. When prices reach a peak, investors stop buying, which causes prices to adjust downward. But, as prices decline 10 to 20 percent, collectors and astute investors start to buy, which stops the downward cycle.
When an upward trend begins, its starting point usually is much higher than the previous cycle. Smart investors and collectors will buy coins on a down cycle because historically such trends have been temporary.
Remember that through all of this up and down cycles, rare coins have increased in value an average of 27 percent since 1911. Collectors never should sell their coins unless they are going through a financial crisis. Over the stretch, rare coins have out-performed all other types of investments.
Numerous series of coins are available to investors and collectors. A good dealer or broker will steer you to the series of coins that fit your particular needs. Among the areas in which you can specialize are U.S. gold coins, silver dollars, proof sets, mint sets, proof singles, uncirculated rolls, U.S. type coins, commemoratives or modern issues.
Usually, only one coin series hits a downward cycle at a time. In 1985, a large Illinois bank closed until the FDIC came to its rescue. In the bank’s vaults were several hundred unopened bags, each containing 1,000 old, uncirculated silver dollars. When the bank liquidated the find, it took in millions of dollars. Included in the hoard were bags of S-mint Morgan dollars more than 100 years old.
When a collection like this is found, it often is sold over one to three years so the market can absorb all the new material. Dealers who purchased the bags “cherry picked” the MS-64 and MS-65 coins. The more plentiful supply of lower grade MS-60 to MS-63 coins were put into 20-coin rolls, and started to appear in large quantities at coin shows last year. Naturally, this caused the silver dollar roll market to drop because the supply exceeded demand.
On the other hand, this presents a tremendous buying opportunity – you can buy uncirculated silver dollars for $25 to $35 each when you buy them in rolls.
I advise clients to put a few rolls of these back for their children because prices probably won’t be low for long.
The most recent short-lived coin cycle ran from October, 1986 to April, 1987 when the U.S. government’s gold and silver Eagles hit the market. Americans spent more than $750 million on the Eagles, money that was siphoned off the rare coin market. As a result, silver dollar and gold coin prices dropped. Once again, a tremendous buying opportunity emerged as investment-grade $20 gold coins dropped from $4,400 to $3,600. Silver dollars also are a good buy as investment-grade Morgans dropped from $650 to about $450. Collectors and investors will force prices up as they buy at these costs.
Another piece of good news: Many people who bought Eagles are entering the rare coin market. The fixed supply of quality coins, combined with the increased demand by first-time buyers, should cause another upward cycle.
Never get discouraged about a downward trend because, as I said earlier, the next upward cycle will start from a higher point than a previous. You will have only “paper losses” unless fear prompts you to sell during a down trend. If you plan to hold onto your coins, you shouldn’t be concerned with short-term cycles. Supply and demand always will push the cycles up.