I'm a complete novice on coins, but nonetheless I've been on a spree buying silver coinage (and a few Palladium) coins over the last week. I've got a happy trigger finger I guess (at least until the wife finds out ). I got to thinking about the relationship between numismatic and melt values. I'm wondering if the value of a bullion coin over spot is "fixed" (I.E. melt value + standard value for coin) or if it can go up or down in some sort of relationship with spot price. Sorry, I like to over analyze things For an example, lets say we have a random 1 oz gold coin that right now is worth $200 over spot. $1800 + 200 = $2000 current value. 1) If the price of gold drops by 50% then, with a fixed numismatic value the coin would be worth $900 + $200 = $1100 Or 2) If the price of gold drops by 50% then, with a relative numismatic value (perhaps we can say desire to own coinage goes down with the price) the numismatic value also drops by 50% yielding a value of $900 + $100 = $1000 I guess what I'm asking is if numismatic value acts as a buffer (reduce beta of investment) or as leverage (increases beta). I'd just like to better understand the risks before I spend anything more on coins other than brand new mintage as close to spot as possible.
No, its not fixed at all. In fact, tons of stuff only worth melt value today were once worth significantly more for numismatic value, like barber coinage. The spread between melt and numismatic premium changes based upon PM value, going down the higher PM goes. If gold went to $3000 an ounce, the example you cited might very well carry NO numismatic premium. However, if gold went to $900 then the premium may be $400. This is the advantage and some downside protection afforded buying historical coins versus bullion.
Interesting. So as prices on gold/silver go up, numismatic value can go down, but it can act as a cushion on the way down. I suppose there are a host of separate complicating factors that determine numismatic value such as economic situations and such. All this makes it a pain to determine an appropriate value for some of these older gold coins I'm looking at.
What is really happening is at a certain price point, say $5, people are willing to pay for say a barber quarter. So, if the melt value of that quarter is only $3, it has a $2 numismatic premium. If melt goes to $5, maybe the numismatic premium will be $.50, (collectors will up their pay price a little). Take melt to $7 and barber quarter collectors will not pay any more than bullion buyers, and maybe not even that much so the collector stops buying altogether and all barber quarters are sold to bullion buyers. Yeah, it complicates things a little, but understandable if you think about what is going on.
I'd say medoraman is right. Numismatic value tends to work more as a price floor rather than a buffer or leverage. As melt value has risen, it has topped the numismatic value of many coins that used to carry a premium over melt. Numismatic value does tend to reset based on melt value, but only over a very long term. It also tends to be most independent of melt value for very high grade coins.
What is even more important to understand is that many coins, even some MS examples, have no numismatic value at all. And that is true with gold and silver coins.
So, perhaps valuation of bullion coins could thought of as being split into 3 categories: first, the paper or spot price of bullion plus the premium for the physical bullion itself plus the numismatic value. What you're saying is that most of your typical silver/gold maple leafs (as an example) have little to no numismatic value (which is what I assumed), and the spread between their cost and spot is purely the physical premium. Another assumption that I am assuming I can make is that the physical value portion of the price is generally fixed.
There is not fixed formula for numismatic value plus bullion value. In fact, we have seen the erosion of numismatic value in many coins as the bullion value has risen. This increase in bullion value has essentially swallowed up the numismatic premium that many coins enjoyed for quite a few years.
This makes perfect sense to me, looking at the longer term PCGS chart: http://www.pcgs.com/prices/Graph.aspx?range=10 years&filename=keys By that Coin Index (please share any others) the numismatic premium TANKED 2008-9 and has not recovered: it's still DOWN ~ -12%. Gold is UP ~ +74% in the same period, so your Bullion (store-of-value) buys alot more numismatic Coin. Given that 3 years underperformance for Key Date collectors, I can't see what will reverse that trend in the short-, intermediate-term. And what has happened to the middle-market, less spectacular coins typically held in most Boomers' collections? I'd imagine it's no better.
Although there is not a fixed formula, I've created one because I'm an engineering nerd. It is as follows: Coin Value := (Bullion Value of Coin * 0.9) + My estimate of value of each coin above bullion value I have all my coins in a spreadsheet with numerous tabs. I update the bullion value of all coin denominations using coinflation (US, Canadian, Mint & Proof Sets). It takes a couple of minutes about once a week. Using Excel's VLOOKUP function, the spreadsheet automatically updates the value of each coin or set in the dataset based on the formula above. Many of the coins do not have an upcharge above 90% of bullion value. Sometimes, I will evaulate the upcharge over bullion value based on a market analysis usually using completed auctions on ebay. It is a good way to kill time on weekends while I'm on assignment in India.
Phil do you mean spot value of coin, since there is difference between Bullion' and commemorative issues'.
Yes, sorry, I should have said metal or spot value of the coin. Bullion value is not the right term here.
No problem i also do use past ebay auctions to gauge coin value, one trick i have used is putting low bids on most coin auctions simply to get the final hammer price and tag those listing into email folder so i can search them.
when i look at what some coins go for on ebay opposed to the real value i have a hard time using ebay for a gauge.new pennies or quarters seem to do best,but any new coin seems to fair quite well and they are not worth what they pay for them as the ground is not tested.graded new coins are rediculous.what perameters do you use or just random,but i know it isn't random because the equation would be flawed.using mean for an average may be useful.just a thought.
BRILLIANT, Phil Ham. VLOOKUP is a very useful function I know: automate, automate, automate! A propos nothing else: a pic of "The Big Phil" was in today's WSJ (print) for some reason. I cannot access it online - new one of these?
Here in Europe, "pro aurum" (a Munich based company) shows one of those pieces around. That is, pro aurum has one, and you can usually see it at their HQ, but they also use it for promotion purposes. See this story from their Swiss pages; they recently showed it in Zurich and near Lugano. Compare the photos ... Christian
