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Rare Coin Liquidity, Supply and Demand

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Rare coins, as opposed to gold bullion coins, aren’t ever reminted, which means that this exclusive market revolves entirely around the availability, liquidity, supply and demand of coins that have already been produced. In this post we’re going to look at how these factors affect and determine the value of a rare coin as well as its official grading. Rare coins have developed an international reputation for being one of the most liquid assets of all collectable markets and historically deliver a high ROI, which is why it’s important that you understand these evaluation aspects before you start investing in what is generally considered a lucrative market.


The Coin Liquidity Factor

The liquidity factor of a coin basically comes down to how quickly a coin should or would sell under normal market conditions at an auction, through a private seller or through a dealer. The liquidity factor was first developed by JT Stanton (President of PCI Grading Company) and is based on a scale of 1-5. A liquidity factor of ‘1’ indicates that a coin would be difficult to sell (on the market for an extended period of time) or would sell for less than its recommended value. A liquidity factor of ‘5’ indicates that that a coin would sell quickly for the recommended value, or even inflated value in some cases. Bear in mind that highly active market conditions also help inflate the liquidity of any coin. Added to this, liquidity is aided along by a 24-hour online world audience. At any given time, anywhere in the world, there are coin dealers, investors, collectors and hobbyists online, ready to buy and sell. One thing you need to give serious consideration to before you purchase a rare coin is its long term realization. You need to be sure that the coin(s) you invest in are going to give you the best ROI possible, so find out as much as you can about them before making any decisions. For example, what have they previously been bought and sold for, how long do they generally stay on the market for before selling and what is its general annual ROI?


The Coin Supply Factor

As we mentioned before, rare coins are no longer minted, so their supply is based purely on what has already been manufactured and what is available. The supply of rare coins, as well as any reduction in market availability, is affected by a number of factors: either the coins are put into circulation; they are melted down to extract the original metal content; they are lost or irreparably damaged through careless storage or handling; they are donated to museums or they are held permanently in private collections. Once all these factors are taken into consideration, it becomes clear why particularly valuable rare coins are so hard to source and why, if a collector does have one, they are rarely put on the market.


The Coin Demand Factor

Put simply, the higher the quality, condition and rarity of a coin, the more valuable it becomes and therefore the more in demand it becomes. The general consensus is that the rare coin market has four levels of demand. The first level considers the ‘face value’ of a coin. For example, a silver dollar minted a century ago could still be used today to pay for something that costs a dollar. The second level considers the price of the metal that a coin is manufactured from, although with rare gold coins this is only one factor in the valuation of a coin (alongside rarity, preservation and age.) In contrast, the value of a Krugerrand lies purely in the intrinsic value of the metal it’s manufactured from, if the price of gold goes up or down, so does the value of the coin. The third level considers how much a collector is willing to pay over the intrinsic value of the metal of a coin. If the coin is a particularly good specimen, rare and highly sought after, its overall value is going to be considerably high. The fourth and final level considers the future realization of the coin and for the more serious collectors and investors is possibly the most important level of demand. What has the coin previously fetched in auctions and what is the average annual ROI you can expect to receive from it?


Once you’ve had the opportunity to assess the liquidity, supply and demand of the coins you are interested in, you can decide whether it will be an appropriate investment for your portfolio or collection. It’s important to remember though that with rare gold coins their value only ever appreciates over time.


Hope you enjoyed the article. Remember to go and 'like' our new Facebook Page for a chance to win a 1898 Sammy Marks Penny valued at R45 000. See you there!

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  • 2 years later...

Interesting. Thanks once more for the summary. Perhaps the root of the problem is the confusion between hobby and investment. If you like something and want to own it, then you do. When it comes time to sell, we all like to show a profit, but the fact is that not everyone else shares your values. For investment in collectibles - as it is to equities or land or whatever else - the way to get ahead is (1) turn it over; (2) turn it over often; and to do that you must (Zero) buy what many other people want. "Buy and hold" is Warren Buffett's famous strategy, but, really, you are hoping for the rising tide that lifts all boats.


If you make 1% per day for 300 days, you increase by almost 20 times or 2000% for the year. The alternative is to find one thing that will appreciate 2000% in one year. Change the parameters as you wish: buy a Van Gogh and hold it for 50 years, and you may fall far behind the repeated daily working lifetime purchase and sale of petrol if you owned your own service station.


It is an axiom of the Austrian school of economics that no replicable formula for success exists. We know the failure modes, especially in retrospect. How do you succeed in business? Know accounting? Yes. Know sales? Yes. Know the material? Yes. Work hard? Certainly! But many people do all those things and still fail and others lack some element and still succeed. (Did Bill Gates ever learn bookkeeping?) So, too, with rare coins.


Every dealer has too many coins they cannot sell. They stay in business (and keep body and soul together) only because of the coins that other people do want. If anyone knew exactly how to bring those into alignment, everyone would be rich.


The one thing that does seem to make a difference and is also impossible to bottle and resell is true passion. I write. I meet many people who say they want to do it. I tell them to do it. I do not know what else to say. Either the flame burns, or it does not.


So, too, with numismatics as a market. If you love the buy and sell, you will prosper far better than someone who just "wants to" but has no passion for it.

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