Tuesday, February 17, 2015

Directions in Copper - where from here?

The Greek Philosopher Heraclitus is credited with the famous quote "Change is the Only Constant"*
*this is loosely translated from the Greek, which has also been interpreted as "Everything changes and nothing stands still"
Things may change less rapidly in the world of coin collecting than in other human endeavors, yet change they will.

This past year has witnessed some remarkable milestones in U.S. copper coins, with important implications for those with an interest in these series:
  • In Jan. 2014, the sale of the Missouri Cabinet collection by Ira & Larry Goldberg established numerous price records for U.S. half cents, including the first two half cents to sell at auction for at least $1 Million. The sale was reported in this blog, and in the on-line story  below:

  • http://news.coinupdate.com/missouri-cabinet-half-cent-collection-auction-results-3128/
  • Just last month, not one, but two early copper coins broke through the $2 Million mark. The first of these was the fantastic 1792 Birch Cent (NGC graded MS65). The second coin, from the same Heritage auction was the finest graded 1793 Chain Cent (PCGS graded MS66). These results have been reported in the on-line story below:

  • http://news.coinupdate.com/birch-cent-leads-heritage-fun-auctions-4655/

    In most respects, the copper coin market has been holding up very well, and is apparently thriving, along with the markets for U.S. equities and real estate in most places.
    However, it is often worthwhile to look beyond the headlines, and get "beneath the surface" in order to understand the dynamics of a complex market. Not every sector of the copper market is on the upswing.
    While the stellar collections and high-grade rarities have been grabbing the coin news headlines, another more insidious trend has also emerged. Prices for many rare coins in less-than-flawless condition have languished or even declined recently. What could be causing this apparent contradictory behavior? Here are a couple of thoughts:

  • The Quest for the Best - Nothing is particularly new about this trend. People have always tended to want the best, whether it is for their morning cup of coffee, their home, their car, or the coins in their collection. Popular coin publications even suggest that, when selecting a coin, we should aim for the "Best You Can Afford". What has changed is the intensity with which this sentiment is now pursued. Everyone cares about the "finest known" for a coin type or variety. Apparently being in 2nd place is simply being 2nd-class! The third-party grading services have aided and abetted this trend, by publishing population reports and establishing set registries, to encourage the race to the top. Uncertified coins have become "suspect", and are presumed to have problems that prevent them from being graded. Being at the "top of the pop" gives a coin the added marketing buzz needed to justify its astronomic price level. The only problem is: if everyone wants only the best, who is left to want the rest?

  • New Collecting Strategies - Higher coin prices are good for those selling, and also for those who already own the coins. For those who are still collecting, higher prices mean one of two things: either you will collect fewer coins, or you will collect more low-grade coins. And, since we have already mentioned the "quest for the best" trend (see above), most collectors are making the rational choice to limit the size of their collections. Most are choosing some specialty area to focus on - whether it is coins from one particular year (1794, for example), or a copper type coin set, or a collection with a special theme (coins previously owned by famous numismatists, etc.)

  • Most collectors of early copper are familiar with the Sheldon rarity scale. This logarithmic scale classifies the scarcity of copper coins into eight levels, running from R1 (common, >2000 known) to R8 (unique, 1-3 known). There are a number of early copper coins that have traditionally been highly revered and eagerly sought for being considered scarce (at least R5 or higher, with fewer than 75 examples known). These coins were considered "necessary" for a full collection, and they were sought in all grades for inclusion in collections. But lately, these coins have been pinched on both sides of the economic equation: On the demand side, there are fewer collectors trying to obtain a "full" set, especially a set in low grade. On the supply side, more coins have emerged on ebay and other internet sites. The net effect has been soft demand for these formerly desirable scarce varieties. This is neither good nor bad, but just "the way it is". The driving forces behind this trend do not look like short-term phenomena. This is the new reality with which copper collectors should learn to live.