TODAY'S DEMOGRAPHICS: DO THEY FAVOR A RISING COIN MARKET OVER THE NEXT 20 TO 25 YEARS?
Change is good. It encourages a new collector base.
Change is good. It encourages a new collector base.
By Richard Giedroyc and Burnett MarusWhat goes up must come down. We've all heard that old bromide before. Stock market investors have been keeping a nervous eye on their portfolios lately for that very reason.
The stock market and the U.S. economy both realized fantastic growth over the last 10 years. Appreciation of paper assets and corporate profits throughout the past decade, has been unparalleled in U.S. or world economic history, although the economy is showing some signs of weakening now in early 2001. Any good economist will tell you that in good economic times with little or no inflation it is wise to keep some assets in cash (and most of the rest in liquid paper instruments like stocks and bonds) so as to take advantage of future opportunities. Conversely, during periods of economic stagnation with inflationary problems, durable hard assets are considered a wise choice over holding cash. Who wants to have money in the bank when its purchasing power is eroding?
In recent times, the coin market has not performed exceptionally well. In fact, coins have under-performed most of the so-called traditional investments and even many other collectibles and hard assets over the past decade. The most important reason may be coin-collector demographics. Indeed, the number of coin collectors is believed to have decreased sharply, from an estimated five to six million in 1978 to about two million in 1998.
But the trend has now reversed. According to the previous Director of the U.S. Mint, in 1999 the collector-base suddenly mushroomed, growing to an estimated 60 million today - a statistic that would seem to favor a much stronger coin market in the medium- and long-term future.
But is it already too late to buy in?
Let's look at what's going on with our coins and currency and why such an enormous number of new participants are suddenly now entering the hobby.
In 1999, the United States began issuing circulating commemorative quarters, coins honoring individual states on the reverse, which have suddenly rekindled interest in circulating coinage. Educators in Elementary and Junior High Schools across the country are using these coins as a teaching aid for geography and history, while their students comb though pocket change (as do many of their parents) in attempt to find whatever states they are missing. Tens of millions of State Quarter coin albums have already been sold in bookstores, Wal-Mart, Blockbuster, and countless other mainstream shopping venues. Additionally, Heritage and many other coin companies have donated millions more albums to students, schools, the Boy Scouts, and similar organizations.
Since the coins are being released at a pace of five different states per year, this Statehood Quarter Dollar program is scheduled to continue at least through 2008. Perhaps the series will extend even further, honoring districts like Washington, DC and territories such as Guam and Puerto Rico, a situation that paints a rosy outlook for pocket change collecting well into the next decade. These coins won't vanish from circulation until worn out -- which the Mint estimates to be as much as 20 years after their issue.
Mintage figures for the years 1999 and 2000 reflect increasing demand for the State Quarters. The coins were issued in the order shown below and are accompanied by their approximate mintage figures:
1999 Delaware 774.8 million
1999 Pennsylvania 707.3 million
1999 New Jersey 662.2 million
1999 Georgia 939.9 million
1999 Connecticut 1.346 billion
2000 Massachusetts 1.165 billion
2000 Maryland 1.241 billion
2000 South Carolina 1.307 billion
2000 New Hampshire 1.169 billion
2000 Virginia 1.250 billion (estimate)
In 1998 there were a total of 1.3 billion quarters struck. In 1999 this total rose to 4.4 billion for the five different quarter types, an increase of 3.1 billion coins or a 246 percent production increase. In 2000, the total mintage for U.S. quarters approached 6 billion! The official Mint reason for the increase is simply that demand is outstripping supply. Though far from the highest of the group, the total mintage of New Hampshire quarters, the final issue for 2000, is a whopping 33.3 percent higher than the total mintage of Delaware quarters, a clearly positive trend. Assuming the same number of coins were needed for circulation purposes during 1998, 1999 and 2000, then the U.S. Mint Director's estimate that the number of collectors increased 30-fold over the last two years may be conservative.
Many collectors and dealers, throughout the two decades before the advent of the Statehood Quarter series, complained that there was nothing in general circulation to encourage the public to begin coin collecting. Our one-cent design originated in 1909, and has had no significant modifications since 1959. We've had the same Jefferson nickel since 1938. There have been no 90% silver composition coins struck for circulation since 1964, no silver at all in circulating half dollars after 1970. Admittedly we had a one-year bicentennial quarter in 1976, and a Susan B. Anthony dollar, which failed to attain public acceptance. Furthermore, the late 1960s was the last era when premium coinage could be plucked from pocket change - until now. Suddenly, it's obvious that people are once again looking at their pocket change and beginning to collect coins in a very big way.
Now add to this mix the launch during 2000 of the Sacagawea dollar coin, a distinctively golden color coin. In fact, even in early 2001, the so-called "golden dollar" is still seldom seen in circulation.
If Sacagawea dollars continue to be produced in the vast quantities the Mint has projected, it will only be a matter of time until businesses and consumers accept this coin for vending purposes as a great convenience over the dollar bill. In other countries around the world during the 1980s and 1990s, large value coins have successfully replaced small value bank notes in circulation. The Unites States may be a Johnny-Come-Lately to the coin-replacing-the-banknote scenario, but the future of this coin looks good. It seems very likely that soon the U.S. dollar bill will be supplanted by the dollar coin. Once the Sacagawea coin begins to circulate, more of those checking their pocket change for different dates, mintmarks and varieties of this coin will also start to collect it.
To spread icing to the cake, in recent years our paper money has received a facelift. The notes were noticeably redesigned, with fascinating new anti-counterfeiting technology added, including watermarks, optical variable devices which change when viewed from different angles, and even microprinting. Paper money has never enjoyed the same popularity among collectors as coins have, but currency-collecting numbers are also growing rapidly in tandem with all these changes taking place.
The Bureau of Engraving and Printing has recently acknowledged that it will consider changing our paper money on a more regular basis than in the past due to increasing threats from counterfeiters worldwide, offset by an increase in the anti-counterfeiting technology available for banknote security. In fact, the BEP announced that it plans to again change the designs on our banknotes, maybe as early as 2003. What a boon that would be for the currency market! Once again collectors would evolve from novices, simply due to… change.
Change (or, rather, changes in our pocket change) are great for the growth of coin collecting: The more noticeable the changes, the more the field of numismatics grabs headlines and the more additional collectors are attracted to the hobby. No hard figures exist for the numbers of people collecting coins at various times throughout this century, but consider the following dates. The popularity of coin collecting is generally recognized to have increased after these significant events, for the reasons cited:
1934: U.S. Mint increases the number of commemorative coin types being issued. This in turn encourages Wayte Raymond to publish his "Standard Catalogue of United States Coins" the same year, the introduction of "Numismatic Scrapbook" magazine the following year, and an enormous increase in the number of collectors. Within five years, coin prices skyrocket.
1946: GIs returning at the end of World War II with foreign money in their pocket and the introduction of "A Guide Book of United States Coins" by Richard Yeoman. Both spur coin collecting and a subsequent appreciation in coin prices. Again, coin values begin rising.
1955: Public interest rises over the announcement of doubled die Lincoln cents found in circulation. Four years later, the country finds itself at the beginning of another coin boom.
1959: Public interest increases with a change in the reverse of the Lincoln cent and a major variety in the cent appearing the following year. Roll and proof set prices explode just a few years later, and rare coin values rise steadily through 1974.
1964: The Kennedy half dollar is released. With the U.S. Mint ceasing production of silver coinage, many hoarders begin to accumulate them. The coin boom continues.
1968: The GSA begins sale of a cache of Carson City dollars, spurring heightened interest in Silver Dollar collecting that continues today - and a continuation of rising overall coin market for six more years.
1977: The price of precious metals and bullion coins begins to increase as conversely the collector coin market and collector coin prices come off a two-year slump, ushering in a three-year boom that would cause investment-quality coin prices to rise more sharply than at any other time this century, peaking in early to mid 1980.
1980-1998: Nothing much happens to circulating coinage. There are peaks and valleys in the market as interest in coin collecting steadily wanes. The advent of third-party grading services, notably PCGS and NGC in 1986 and 1987, and a major involvement by Wall Street firms including Merrill Lynch and Kidder Peabody in 1988 and 1989, cause rare coin prices to skyrocket from 1987 to 1989. But without a large enough collector base, the price rise proves temporary, and prices collapse. Overall, during this period coin prices increased more slowly than most other investments.
1999: U.S. Mint introduces the Statehood Quarter dollar series, encouraging new people to become collectors. Almost 60 million new collectors enter the hobby, mostly youngsters. This is at least five times as many collectors as have ever existed in this country!
The conclusion appears obvious. This historically unprecedented number of collectors should hold steady or even rise, at least as long as changes continue to take place in our pocket change (2008 or longer). And larger numbers of people attracted to coin collecting (as well as to currency collecting) is a good thing for the mid- to long-term fundamentals of the numismatic market.
Obviously, no one has a crystal ball, but there are an unusual number of favorable indicators at play. The first, just reviewed, is the expanding base market for the coin-collecting pursuit and the logical reasons why this base is expanding. The intensity in the level of seriousness in coin collecting is a pyramid. There have historically been more people buying or accumulating less expensive coins than expensive coins. This makes sense. This pyramid also reflects the numbers of people with disposable income, those with higher disposable income possibly considering the purchase of more expensive coins due to their ability to pay.
This amount of disposable income and where it is directed becomes the second factor. Yes, for prices to rise, the coin industry must first attract people with significant disposable income to spend some of this money on investment-quality coins. A growth from two million to 60 million collectors in only two years speaks for itself, however the number of people within these numbers with both "significant" disposable income and the mindset to use it to purchase valuable collector coins is still small. Most likely, the vast majority of these new collectors are children - teen-aged or younger. But out of 60 million, some significant percentage will remain attracted to coin collecting throughout their lives, and many will become serious buyers once they begin to earn substantial disposable income.
In fact, a study done several years ago by a leading coin hobby publication is quite instructive. The conclusion was that a very high percentage of the young (preteen-aged) collectors of the 1950s and 1960s abandoned their collections as they reached adolescence, only to return to collecting as adults once they had finished their education, settled down with families and stabilized themselves financially. This outcome seems logical: a high percentage of the serious collectors I know, collect things that interested them as children. Whatever someone chooses to collect, be it stamps, comic books, baseball cards, sports memorabilia, autographs, coins, or anything else, the reason is likely to stem from factors that include personal affinity, comfort and nostalgia.
As the current coin-collector base ages, fixed supply and increased demand should speak for themselves. Just as the 18-year coin-collecting "boom" of the early 1960s and the 1970s - punctuated by a 2-year market slump from mid-1975 to mid-1977 - was arguably sparked by the 1955/55 Doubled Die, the change in the cent design in 1959 (from wheat-backed to Lincoln Memorial reverse), and a major variety (1960 small date) the following year.
Only a fixed number of desirable older rare coins exist, soon to be sought by some members of a significantly increased group of casual collectors now entering the market. A reasonable (possibly even a fixed) percentage of these new collectors can be expected to "graduate" to collecting traditional older coins. True, most of these new collectors are now youngsters, who do not currently have significant enough disposable income to purchase expensive collector coins. But this is actually bullish news for the long-run prospects of the collector coin market, because it means that the current explosion in collecting has yet to be reflected in today's coin prices. Most rare coins are still cheap!
Children, most of whom find themselves at the bottom of the spending-power pyramid depicted above, will tend to climb it as they get older. Growth in disposable income has been record-setting over the past 10 years, and in the long run will almost certainly continue. Economic downturns may come and go, and inflation coupled with increased disposable income also becomes a factor when people switch their investing tactics between paper assets and tangible assets, including collector coins. Some children of today will become very wealthy while still in their early 20's, or younger. Others may not have disposable income until much later in life, if ever. Regardless, the inevitable result of today's collecting demographics is a much larger group of collectors with growing financial wherewithal and vastly more spending power overall, chasing the same number of coins.
In summary, the outlook for coin collecting and a corresponding increase in the price of older coins remain bright, perhaps for the next two or three decades. With different state quarters being issued regularly through at least 2008 and other changes on the horizon, the popularity of coin collecting and an accompanying increase in the price of the traditional collector coins should easily be propelled well into the 21st century. In fact, your coin collection might well outperform the traditional long-term investments in your portfolio.
IMPORTANT NOTICE: Heritage Market Research Reports are intended to provide in-depth, objective analyses of market trends and events to help our clients and members make better buying and selling decisions. Each report combines Heritage's extensive numismatic experience and years of buying/selling. This information is protected by copyright. Access and use of this information is governed by the Membership Terms and Conditions. Heritage does not provide financial, investment or tax advice and does not recommend or endorse any investment product or strategy. The availability of the Information does not constitute a solicitation or offer to buy or sell any investment product. Heritage does not guarantee the accuracy of the information and data provided although it is believed by us to be reliable. Commentary or analysis may contain forward-looking statements. Heritage is not responsible for the quality or suitability of this information. All investments involve risk. The past performance of a security, industry, sector, market or financial product does not guarantee future results or returns. Please consult other sources before making any investment decisions. Please note that Heritage and its affiliates and principals may at times hold inventories and investment positions in the items discussed.
HERITAGE RARE COIN GALLERIES RESEARCH REPORT, February 2001
© Copyright 2001, Heritage Rare Coin Galleries. All rights reserved.
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