By Eric Jordan
Coin collecting is a wonderful and enjoyable hobby that for many represents art struck on precious metals. For astute and patient collectors it represents a useful personal asset. A recent article entitled, “Modern Issues Lousy Investments,” points out that dirt-common modern proof sets have not performed well over the last 20 years, and that modern commemorative issues – with their initial surcharges mandated by Congress – have performed poorly relative to bullion. Based on these minor segment conclusions, the entirety of modern coinage was written off as a lousy holding. Benjamin Franklin once said, “The murder of a beautiful theory by a gang of brutal facts is a terrible thing,” and that is certainly the case here.
Classic coins are statistically not any better than modern coins as investments. Both are carried chiefly by their three top key-date issues, which is where the focus of “investing” should be. If you go through Greysheet archives or review market segment indexes like the PCGS3000 for all subsets of classic coinage and index them to inflation or gold, almost every segment of classic coinage has lost ground (in real terms) over the last 20 years. The only classic market segment that has held its own since 1992 is the key date index. The Greysheet shows that for typical complete Mint State sets – in most cases – over 50 prcent of an entire set’s value is contained in the first three key and semi-key dates. Obviously key date material is normally the place to be. The rest of the set is just along for the ride and increase in value only as the price of their metal of manufacture rises. Over time Mint State common date collector premiums diminish as a percentage of the coins’ market value if the metals are trending upward. This is why classic coin commentators over the years have correctly stressed the importance of key dates in high grade.
The first of two graphs shows the constant dollar performance of the major classic coin market segments along with the price of constant dollar gold.
Today’s key date moderns are displaying exactly the same behavior, but are still affordable to the broad middle class. While the article mentions the 25th Anniversary silver Eagle set as an unusual exception to the “lousy” performing moderns, it is actually only demonstrating typical key and semi-key date behavior. In the listing under the article there were at least 30 key dates that on average have outperformed inflation and their metal of manufacture since the date of sales closure. Most of them were open for sale at the Mint for extended periods of time.
It is interesting to note that the keys and semi-keys listed directly under the “lousy investments” article have, on average, experienced price increases of a factor of about 3.4 since their year of issue, which has – with little exception – taken place within six years. That is a screaming increase for almost any asset class. The suggestion that one needs to get “lucky” with the purchase of a 25th anniversary silver Eagle set in order to do well with infant key dates is simply not valid. All one needs to do is focus on low population attractive issues in series with rapidly expanding total populations just as collectors with foresight have for generations. Let’s look at the numbers in the chart below.
We can learn some things from this listing. Many modern keys and type coins have very low mintages. Rarity and relative series rarity that have not been evident in classic U.S. coinage for nearly a century is becoming evident in Modern Coins. These young series key dates are doing what young key dates do – grow. High cost and high material content suppress value growth in large denomination series because the cost of the complete set gets so high it discourages new collectors from taking up the set.
Small denomination key dates, on the other hand (as can be seen above), tend to be resistant to the high material cost dampening effect larger denomination series have on collector growth rates.
Comparing mature series key dates to modern key dates has its flaws – they are not the same. The problem with mature series key dates is that they are so expensive they tend to price the typical collector out of the market therefore stalling collector base growth. Most modern keys – in the midst of massive high grade populations – have a great deal of public exposure. These key issues can be acquired comparatively close to melt thus encouraging continued growth in collector ranks. Collectors who would like to assemble good looking sets struck on precious metals are absorbing these coins at a staggering rate, as is clearly seen by the population report growth at Numismatic Guaranty Corp. and Professional Coin Grading Service. All indicators point to moderns as today’s growth segment of the collecting hobby.
It is possible to get hurt buying key date moderns if you are impatient. As the second graph illustrates, key moderns generally spike in value shortly after release, then settle down for a period before steadily (yet slowly) climbing to ever higher values.
Notice that strong young keys tend to have an “out of the box” bounce to 2-4 times issue price shortly after issue. The market has the tendency to drop about 25-40 percent from this peak and stay dormant for about 2-4 years while dealer and speculator inventories dissipate into the hands of the public. Series that enjoy loyal collector interest then begin the growth cycle that can run anywhere from 10 to 50 years. If the opportunity slips to purchase key dates at issue price in cases where they are a quick sellout at the Mint, statistics show it is wise to allow the prices to go through the consolidation phase prior to purchase. In the case of purchasing MS-70 or Proof-70 keys, the best time to make a purchase is late in the coin’s year of issue while they are still plentiful and the rush to buy is over.
Modern series are affordable, good looking, have a high intrinsic metal content backing them and have key date issues that are tight bottle necks. These are classic sign posts of future greatness and opportunity. Those who choose to ignore low mintage moderns forfeit their opportunity to absorb the potential super coins of their generation. Looking back over market history this is an often repeated but serious error.
So before publishing blanket statements bashing modern coins as a lousy investment it might be wise to take a look at their key-date performance as compared to their classic series relatives. While they are different from one another, they exhibit very similar behavior. Giving undue credence to either party is unfair to the other because they both have very supportable merits. Just as modern coins have the common date proof set to answer for, the low grade common date classic coins also gather more dust than value.
Eric Jordan is author of Modern Commemorative Coins: Invest Today, Profit Tomorrow, available at www.shopnumismaster.com.