Collect Rare Coins if Looking for a Profit

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By J. Esposito
I would like to address the letter from Richard Allain, which appeared in the Dec. 18, 2007 issue of Numismatic News. While I agree with the heading for Mr. Allain's letter (i.e. "Coin grading way for companies to profit"), I also think that he may be partially missing the point.
No doubt coin grading is a cash cow for NGC, PCGS, etc. This is especially true now that a "fourth party" has decided to grade the third party graders. If the third party graders are doing their jobs, there is no need for an additional middleman. After all, how long will it be before we have a grader of the grader of the graders? That being said, the major grading services do provide a level of protection for the collector when they do their jobs well.
The real crux of Mr. Allain's letter, however, seems to be anger at being offered melt value for graded coins. His talk of MS-70 and PF-70 leads me to believe that he is talking about modern Mint products. If that is indeed the case, I can understand the reluctance of dealers to offer high prices.
Think a little about the dynamics of the "rare" coin market. Take for example the extremely popular Saint-Gaudens series of Double Eagles. This series has extreme rarities that are valued at millions of dollars. The series also has dates where literally tens of thousands of coins certify to high grades. Having looked at population statistics in an effort to understand how the market works, I have come up with a rule of thumb. If at a particular grade of Saint-Gaudens 2,000 or more coins are certified to that grade or higher, that date in that grade is likely to behave as a bullion coin with a small numismatic premium; it will go up and down with the price of gold - melt value plus a small premium. Note that this rule only applies to Saint-Gaudens $20, but I am sure that similar rules could be developed for other readily available coins (e.g. 1938-D Buffalo nickel).
Consider now a modern, limited-edition collector coin like the First Spouse gold coins. Even if you are lucky enough to purchase one of these coins directly from the Mint, there are still 39,999 other coins that would grade MS-69, PF-69, MS-70, or PF-70. In other words, your coin is 20 times less rare than a common date Saint-Gaudens $20, which does not trade for much more than melt. Dealers know that after the first burst of enthusiasm, people will likely lose interest in the First Spouse coins and the coins likely will fall to values approximating their value in gold. This is not to say that in 100 years, when 39,000 or so of these coins have met their fates, that these will not be rare coins. Just don't hold your breath waiting for it to happen.
As an example of my premise, I quickly checked a major auction site for a cheap Saint-Gaudens Double Eagle. I found a 1915 with the following statistics: PCGS at MS-62, 468; PCGS above MS-62, 804; NGC at MS-62, 599; NGC above MS-62, 585. Adding all the coins at MS-62 or greater at the two major grading services, one finds a grand total of 2,456 certified coins available. The buy-it-now price for this 93-year-old coin is $1,063.75, or approximately $200 over melt after nearly a 100-year wait.
Thus, if you want to gain some value from what the grading services provide, use them to verify that you have an authentic scarce or rare coin. Those are the only coins to own, if long-term profit is your motive. Modern coins are only good for flipping on e-Bay.


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