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Will Rising Numismatic Prices Spark Market Shortages?

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It is standard supply-and-demand economics that when demand increases for a product or service while the supply remains constant, prices tend to rise. Then, when prices rise, that encourages providers to try to ramp up supplies available on the market, which would dampen price increases.

The numismatic market works partly in that manner, and partly not.

For more than the past year there has been a huge surge in rising demand for numismatic coins and currency. A number of prices have increased, without regard to the change in possible precious metal content.

While the number of ultra-rare “trophy” coins seem to be coming out in auctions as frequently or maybe even more often than in years past, there are serious shortages starting to develop in the less expensive specimens.

In response, dealers have become more aggressive by offering to pay higher prices to locate desirable classic collector material. But, from the buy messages I see, higher prices are not necessarily enticing existing collectors to rush to unload their holdings.

There is a general constant supply of numismatic coins and currency that come to market as a result of collectors dying and leaving their estates to heirs who are more interested in the cash value than the artistry, beauty and history of the pieces. That is still occurring.

However, where I detect a decrease in fresh inventory coming onto the market is from collectors who are still alive. My best guess is that many of them have seen rising prices. But, they anticipate that prices will be even higher within the next few years as more collectors enter the hobby in response to the plethora of new coin designs that the U.S. Mint will produce by the end of this decade.

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

A factor to keep in mind is that the buy/sell spreads for numismatic coins and currency are wider than they are for bullion-priced coins and ingots. Even for items with a retail selling price of several-hundred dollars or more, dealers may only offer 65-85 percent of their current retail price to acquire some items. For very low-priced items, where the labor cost per unit is a high percentage of the retail price, prices may need to increase five to 10 times or even more for a collector to break even.

This wider buy/sell spread can explain part of the lag in living numismatists not jumping to sell their collection if prices are only up 25-50 percent in the past year or so. Retail prices may have to at least double for many active collectors to consider selling.

Another deterrent to selling off a collection, especially one of gold coins, is that a rising precious metal price often leads to the retail selling prices moving closer to the metal value (especially on a percentage basis), which also limits potential profitability of liquidating a collection.

For example, in June 1989, when the spot price of gold was around $360, the retail selling prices for a Choice MS-63 U.S. Type 3 gold dollar, $5 Liberty, $10 Liberty and $10 Indian were all close to or more than $3,000 each. Today, with the gold spot price around $1,950, the retail selling prices of these same coins are 45-80 percent lower than they were in June 1989. I know a number of collectors who would rather hold onto their treasures than cash out at a significant loss, especially with the gold spot price up 440 percent.

Collectors who have the financial wherewithal to hold their coins and currency for the long term will always be tempted to cash in if they perceive their pieces are trading at about a market peak. But, how can you tell if markets are near a top?

One guide to a market peak is if the number of would-be buyers looks to have reached a maximum. About two years after it initiated the Statehood Quarter series in 1999, the U.S. Mint announced that there were about 100 million people collecting these coins. That number was so high that it would have been almost impossible for much further expansion of the market. By mid-2001, prices for prior-year U.S. proof sets, proof silver Eagles and similar products also hit their market peaks.

As one example, a run of U.S. proof sets from 1968-1998 at the end of 2002 were selling retail for about 40 percent higher than they were at the end of 1998. However, prices then slid. By the end of 2011, this same group of proof sets were selling retail for 45 percent less than they were at the end of 1998. At the end of 2021, their retail selling prices, as a group, were still about 25 percent lower than at the end of 1998. Obvious, if a collector had a crystal ball to identify the market peak in these sets, they would have wanted to sell in the years 2001 or 2002.

For the most part, I generally expect the U.S. numismatic market to have significant upside potential for at least the next one to four years. But, once it seems evident that prices have peaked, expect an uptick of living collectors selling off their holdings. So, for now, you may want to continue to hold. But, as you saw with the U.S. proof sets from 1968-1998, you don’t want to get greedy and hold too long.