Yesterday I showed you one of my most recent GST findings and talked a little about the price difference in coins. The three examples I used were, in summary:
1909S VDB 1986 Price: $550 2013 Price: $1,700
1877 IHC 1986 Price: $1,500 2013 Price: $3,800
1892S Morgan 1986 Price: $4,000 2013 Price: $36,000
**For simplicity sake, I’m using MS60 prices on all three coins.
Not to be Captain Obvious, but something has changed. Prices are up considerably over 25 years for the same exact coins. But why? Let’s talk about why. But first, let me remind all of you that I am not even qualified to be the Secretary of my coin club, much less speculate on the entire economic system of numismatics. I’m just blogging, and you’re just reading….let’s keep it at that.
Reason #1: Inflation
From 1986 to 2013, the rate of inflation is about 110%, so a $100 item in 1986 would cost $210 today. I don’t need to get into what causes inflation, let’s just all agree that inflation does exist and go from there. That being said, just using inflation as a multiplying factor, the three coins above should look like this in 2013 dollars:
1909SVDB: $1,155 1877 IHC: $3,151 1892S Morgan: $8,404
Inflation definitely gets us closer to the 2013 figures, but there is still some increase that is unaccounted for. Specifically:
1909SVDB: $1,700 – 1,155 = $545 1877 IHC: $3,800 – 3,151 = $649 1892S Morgan: $36,000 – 8,404 = $27,596.
So there must be more to the answer….
Reason #2: Intrinsic Metal Values
This would seem to make sense, until you realize the first two coins have virtually no precious metal value. And while silver has increased from roughly $5/oz to $29/oz today, that only explains the intrinsic difference; which would be $3.86 in silver in 1986 vs $22.40 in silver value today….a difference of only $18.54 – – – a far cry from explaining the leftover $27,596 we’re trying to account for in the 1892S Morgan.
It’s safe to say that the only role metal values play in this is establishing the baseline for low grade coins. Do you agree?
Reason #3: TPGs
I’m going to humble myself and say of all the points I’m discussing in this post, this is the one I know the least about. In full transparency, I still haven’t even submitted my first coin to a TPG. So take what I say with a grain of salt (as if you believe anything else I say).
I can only assume when you have businesses disguised as grading companies, you’re going to have some sort of economical impact on numismatics. Reslabbing, cracking out, human error, they all play a part in the craziness. I don’t have to tell you what difference it can make if your coin achieves MS65 vs MS63. Do you really think there’s a uniform system out there? Oh you think so? Why don’t you send your cleaned, AT cull to one of the “up-and-comers” and enjoy your MS70 in a few weeks.
I’ll leave it at that and let everyone else decide what role the TPGs play in everything.
Reason #4: Simple Economics
Supply goes down, demand (and price) go up. Boom.
It could be said that reasons 1 through 3 are detailed parts of the overall economics, and I would agree with you if you said it. But it all boils down to this: market demands shift, price points shift, and that whole invisible hand thing actually messes with numismatics every now and then. (ed. note: does anyone else envision Adam Smith as a double amputee with no hands?)
Inside of this “simple economics” reason are many factors. What happens when gold and silver sky-rocket? A trend starts among precious metal coins and bullion. Trends come and go, but the one thing they always do is affect the demand side of the equation.
So if market trends affect the demand side, what about the other side, supply? One thing I know for sure is the mint is not producing anymore 1892S Morgan Dollars. China might be, but the US mint is not. So at the VERY LEAST, supply is fixed. I would argue that it’s actually worse (or better depending on how you look at it) than fixed……
Gold bullion coins – mintages and pricing
I would say most definitely that the supply is decreasing. Just look at the number of *^*CASH FOR GOLD*^* stores popping up all over the place. Have you ever wondered, like me, how in the world these people afford their overhead just from buying metal? The answer is simple…..there are enough knuckleheads out there who need a quick buck and sell their gold and silver for a fraction of its value. These stores turn around and melt most of what they get in and all of a sudden *****drum rolllllllllll***** SUPPLY SHRINKS.
Do any of you serious collectors out there get sick to your stomach when you think about some of the coins that might have been melted in this last run up of precious metal value? Think about the poor souls that might have taken an old collection handed down to them that contained a worn down Draped Bust Dollar. DUDE!!! Sell that 8th TV you own if you need a few bucks.
Supply and demand. It’s really that simple. And it’s also the reason I’m optimistic when it comes to the value of my collection. Under no circumstances will the supply of collectible coins increase. Make sense?