Old Money: Numismatics—acquiring
old coins—outperforms other investments By the Economist
- NEW YORK | May 18th 2017
A once shady market
aspires to respectability
BEHIND the heavily fortified
door of Stack’s Bowers, a gallery of rare coins in New York,
smiling salesmen show off their precious wares neatly displayed
in pristine glass cabinets. To the untutored eye, it looks
like pocket change. Numismatists, who study the history
and art of old money, see well-preserved coins as aesthetic
masterpieces worth many times their face value. At an auction
organised by Stack’s Bowers on March 31st, an American cent
from 1793 (pictured) sold for $940,000, becoming the costliest
penny ever.
An index of tangible alternative asset classes
compiled by Knight Frank, a consultancy, shows that returns
on rare coins over ten years to the end of 2016 were 195%,
easily beating art (139%), stamps (133%), furniture (-31%)
and the S&P 500 index (58%). Coins are more portable
than paintings or furniture, and boast a higher value-to-volume
ratio. Stamps may be lighter, but, come doomsday, cannot
be melted down.
The rare-coin market, however, has long
had a reputational problem. What distinguishes a highly
valuable coin—lustre, sharpness of detail, toning and friction-wear—is
imperceptible to the untrained eye. So shady coin-dealers
for decades successfully duped investors into paying top
dollar for non-premium or even counterfeit coins.
The market’s wild-west days ended in 1986
when the first independent coin certifier, the Professional
Coin Grading Service (PCGS), based in California, established
itself as an authority on authenticity and quality. Grading
each coin on a one to 70 scale, PCGS gave the market transparency,
boosting investor confidence and sales volumes. Today, global
sales of rare coins are estimated at $5bn-8bn a year, with
85% of the market in America. So important has third-party
grading become that almost all rare coins sold at auction
these days have been graded and sealed in stickered plastic
by either PCGS or its main rival, Numismatic Guaranty Corporation
(NGC), which is based in Florida.
Some blame the grading system itself for
the eye-watering returns. Investors cling to the assigned
grade: even a one-point boost can double or even triple
a coin’s retail price. An 1884 silver dollar from the San
Francisco mint, for instance, sells for $19,500 at the 62
grade but surges to $65,000 at 63.
The grading process is subjective: the evaluation
criteria include “eye appeal”. Scott Travers, a coin dealer
in New York, says investors sometimes resubmit the same
coin ten or 20 times to the same company in hope of an upgrade.
All this led to a steady “grade inflation”, that has been
cheered along by investors. But in the long term, a sustained
rise by simple fiat in the number of high-grade coins will
surely depress prices. Already, a new type of “grader of
graders” has emerged, hoping to instil some discipline by
rating the consistency of the two primary graders. Next:
graders of graders of graders?