Commemoratives

Introduction To Commemoratives

an excerpt from Harry Laibstains book "-------"

Now that you know how to use this book, along with some other things I managed to slip into the first chapter, let's talk about commemoratives the market past and present, grading services, bids and a scenario for the future.

Commemorative coins are distinctly different from all other series due to the multitude of designs. In the silver issues there are 50 different coins, often referred to as the 50-piece type set. When PDS coins and other multiple issues are added, there are 144 individual dates and mintmarks. In the gold issues there are 10 different designs and a total of 13 coins.

Commemorative coins combine diversity of design with the richness of history. Every issue marks some historical event or pays tribute to someone or something significant in the annals of our country. With so many opportunities for artistic expression, commemorative coins particularly the larger silver issues exhibit some stunning artwork. These coins were not issued for business purposes, like Washington quarters and Walking Liberty halves, so their designers were not under the same constraints to please the public at large. Freed of this traditional censorship, commemorative issues were able to step up to a higher artistic platform and often did.

Another appealing aspect of commemorative issues is, and always will be, their low mintages. Collectors and investors have always gravitated towards "sexy" low mintages. Many commemorative buyers focus on these issues. Low mintage coins are likely to be hoarded and this increases their scarcity in the marketplace. Some low mintage coins, mainly those from PDS sets, can be purchased for well under $200 in nice mint-state grades. The MS64 1938 Arkansas and Oregon Trails from the same year are good examples. Compare these to any low-mintage coins from regular business issues and you will be impressed with the difference in market prices.

Commemorative issues are also unique in the many ways they can be collected. In addition to the standard methods of collecting by type or completing the set, the commemorative series offers numerous subsets. Multi-year mint-marked sets like Arkansas (15 coins), Boone (16 coins), Oregon Trail (14 coins), Texas (13 coins), Booker T. Washington (18 coins) and Washington Carver (12 coins) are all very popular and highly collected subsets of the complete series. Collectors are also likely to focus on other 3-coin PDS sets, double issues like Missouris and Alabamas or coins that have some historical relation to each other like the four Civil War commems Antietam, Gettysburg, Lincoln and Grant. Other popular subsets are coins with ships (6 different types), eagles (7 types) and animals (10 types).

Some coins besides PDS sets were issued and distributed together. Several of these include gold and silver commemoratives, and are very popular. The most important is the Panama-Pacific Exposition set, which includes four gold issues and one silver coin. These were issued in varying forms of sets and many remain intact today (see Bowers for a complete explanation and history of Pan-Pac sets). Complete sets are expensive due to the inclusion of the two $50 pieces. The three more affordable coins the half dollar, the dollar and the $2.50 are often collected together. The Grant four-coin set includes two gold and two silver issues, each offering a no-star and with-star variety. Finally there is the Sesquicentennial $2.50 and half dollar. These two are common overall but rare and elusive in gem 65 and above. An odd coincidence, if you ask me. Both coins are very popular.

Commemoratives are often of interest to collectors whose state issued the coin, particularly states with large populations like California, Texas and New York. There is substantial demand among non-traditional coin buyers for commemoratives based on historical and regional considerations.

Thus, the market for commemorative issues is broad and with good reason. Unlike traditional single-issue sets, they offer more than 100 portraits of Americana, five denominations in two metals and a span of seven decades. No wonder this series attracts buyers across the spectrum, both here and abroad.

The Market

Wholesale commemorative values are available to anyone with the price of a subscription to the Coin Dealer Newsletter or the Certified Coin Dealer Newsletter. In the trade these are referred to as the Graysheet and Bluesheet, which represents the color paper they are printed on. The Graysheet has been around since 1963 and is the most successful publication of its kind. It tracks the values of sight-seen dealer transactions as well as coins that do not lend themselves to certification. The Bluesheet, an outgrowth of certification, was begun in 1986 to track and record the value of certified coins by grading service. Its values are meant to represent the sight-unseen levels.*

The folks that publish these data study the electronic trading exchanges for commemorative values. They also get information from auctions and offline dealer-to-dealer transactions. However, due to easy accessibility and recording, electronic exchanges appear to provide the majority of data, especially for the Bluesheet. There are currently two exchanges (Certified Coin Network and Certified Coin Exchange). Dealers place bids for coins by grading service and qualify that bid as sight seen or sight unseen. Although both exchanges allow the posting of bids for ANACS coins and one exchange even has a slot for uncertified examples, PCGS and NGC coins account for nearly all transactions. Additionally, both exchanges allow the posting of "asks" (offers to sell a coin) but ask transactions are infrequent and represent only a small percentage of total transactions. Bidding dominates these systems and the number of sight-unseen and sight-seen bids seems to be about equal.

Certification was a giant step toward standardization of rare coins. It did not, however, make all coins equal. Two MS64 Vancouvers in PCGS holders are not always worth the same price unless the coins have extremely similar characteristics. Let me explain. Even within the same grade and grading service, eye appeal can differ. Some coins are high end for the grade, some in the middle and some low end. Sight-unseen bids placed on the exchange represent the low end of the market while sight bids represent the high end. Coins in the middle are represented by the spreads between the two bids.

The publishers of the Bluesheet/Graysheet attempt to represent this spread using the Bluesheet for unseen prices and the Graysheet for sight values. Several factors, some beyond their control, keep them from succeeding completely. First, as mentioned before, they do not list every issue individually, even though dealers trade them this way. Grouping PDS sets under one price leads to inaccuracies and misunderstandings. Second, several grades in the Bluesheet are not included in the Graysheet, most notably MS62, 66 and 67. Perhaps the solution is a monthly supplemental listing to both sheets of all issues in all grades. Such a page is currently available for P/L Morgan dollars, Standing Liberty quarters and St. Gaudens $20 gold pieces among others.

Another problem facing the Bluesheet and Graysheet is the sheer size and diversity of the market. Sometimes price inconsistencies develop. It is common to find examples in the Bluesheet and Graysheet that have the same or nearly the same value on issues where a spread actually exists in the marketplace. Some data are harder to retrieve than other data. Inaccuracies through omission are not uncommon.

The major problem in regard to the sheets revolves around interpretation. The Graysheet reports higher prices but does not clearly indicate that it too applies to certified coins. The Bluesheet, on the other hand, does not emphasize that its prices represent the low end of the market. Customers and dealers try to use the sheets to their own advantage. Stealthy buyers try to purchase nice sight-quality examples at (Bluesheet) sight-unseen prices. This is frustrating for dealers whose costs are rooted in sight levels.

For example, most of the coins I purchase for our customers are sight quality. We pay around the sight levels, often without consulting the Bluesheet. As a subscriber to both national teletype services and perhaps the most prolific bidder on commemoratives, my buy prices are more likely to reflect the prices listed on the exchange than those in the Bluesheet. Reasonable and experienced customers, as well as dealers, understand these differences and accept that values of nice specimens are more accurately reflected in the Graysheet or at some additional percentage to Bluesheet values.

PCGS versus NGC

The Professional Coin Grading Service (PCGS) was originally started by seven coin dealers in 1986 to standardize rare coin grading. Borrowing heavily from David Hall's cash market program*, this concept revolutionized the way rare coins were traded. PCGS became the leading third-party grading service, a position it still holds today. One of the original seven was a dealer named John Albanese who split from the others to form his own grading service the next year called Numismatic Guaranty Corporation (NGC).

Generally speaking, PCGS coins are somewhat more valuable than NGC coins in the same grade. There are several reasons for this. PCGS garnered a large market share, with significant dealer support and participation, before NGC opened its doors. Additionally, NGC had a greater tendency in the beginning to grade heavily encrusted and toned coins more favorably than PCGS. Although these coins had been popular among experienced numismatists in the 1970's and early 1980's, tastes were changing and buyers were more interested in eye appeal than technical grades based on originality. With a larger base and a larger budget, PCGS continued to enjoy advantages over NGC even though the quality of their products became similar.

On lower-price, sight-quality coins, you can expect to pay about the same with a small edge going to PCGS. On more expensive issues, sight-quality PCGS coins can sell for up to 20% more than NGC. The average difference is usually around 10% depending on the issue. It's easy to get two opinions as to which grading service is best. Because of higher values and greater market share, many choose PCGS. Contrary to this, some dealers tout NGC coins as a better buy because you can get the same coin for less money. Even if this were true, as it sometimes may be, it is probably irrelevant and the services are more similar than different. If you pay less than an equivalent PCGS coin cost then you will probably have to sell it for an equivalently lower amount. The in-and-out costs should be approximately the same.

Low-end (sight unseen) NGC coins can trade for even larger discounts owing to a lack of sight-unseen bidders for their product on the electronic networks. The NGC market suffers from a lack of support in this area. However, these lower sight-unseen bids can often lead to favorable prices on middle-quality coins. Even though NGC coins cost a little less than PCGS coins, they probably represent equivalent value on these pieces. As pointed out recently by Mark Salzberg of NGC in an article he wrote for Coin World, "Consumers should buy the coin not the holder." I agree consumers should consider the coin's quality above whether it's in a PCGS or NGC holder. It should be mentioned that other grading services have not received the same level of acceptance as PCGS and NGC. Coins purchased in other holders must be evaluated on a case-by-case basis. Can Coin Prices Rebound?

Commemoratives, like all areas of the coin market, have been in a five-year downtrend. Since the glorious 1989 peaks, coins have continued to move lower and lower with only a few minor upturns. None of these were significant and none lasted more than a few months. In 5 years, some prices declined almost 90% and many by 50%. Many coin buyers took a bath on their holdings.

Can coin prices rebound? Have populations grown too large? Were 1989 levels real or artificial? The answers to these questions can be obtained by a thorough examination of what has happened since 1986 and the beginnings of the rare coin revolution. The concept of coin standardization was long overdue. ANACS' photo certification had gained rapid and widespread popularity in the middle 1980's. Unfortunately, this service was unable to sustain its market share because of grading inconsistencies, inadequate dealer support and the lack of a tamper-proof protective holder. PCGS was able to almost immediately overcome these problems and its product was an instant success.

Coin prices rose in 1986 and again in 1989. These run-ups were due in some measure to the limited supply of coins in holders. This was demonstrated quite clearly by the 1989 market, where issues that appreciated the most were those with low populations. These are the same coins that suffered major declines as the bear market of the 1990's began to unwind. Now that populations have grown substantially, values are more in the line with reality. Many prices have reverted back to late 1970's and early 1980's levels, long before slabs were introduced. Nine years into the revolution of third party grading, prices have come full circle and the stage has been set for future growth.

An Even Playing Field

The most important change to rare coins as a result of certification was the tremendous increase in fairness. With impartial third parties doing the grading, dealers could no longer buy coins at one grade and sell them at another, a common practice before 1986. In addition, to the dismay of many dealers, profit margins declined dramatically. One dealer could not claim his MS65 was much different from another dealer's and a pattern of unfettered competition began. Information became more accessible and accurate as bids were posted on electronic trading circuits and population statistics were kept. Consumers had finally arrived on an even playing field and coin dealers would have to work hard and become more sophisticated to prosper.

Changes like these, that protect the consumer, usually occur when an industry is ready to go mainstream, but many dealers resisted. I have heard some dealers complaining and wishing for the old days, when the game was really one sided and they could make an easy buck. They prefer less information to more and try to blame their problems on coin certification or the recording of bids via electronic bidding centers. This is a classic case of shooting the messenger. Though these dealers can give multiple reasons why they feel the recording and dissemination of bids is wrong, their real but unspoken reason is that it makes the playing field too even. Left to this faction, censorship and deception would still be the name of the game.

Electronic bidding has propelled the coin industry into the 21st century. It has given the market much needed liquidity, confidence and accountability. Without these electronic bids, consumers cashing in their holdings would have to settle for a lower percentage of actual value. Even honest dealers, uncertain of what coins might bring, would leave themselves a larger cushion than necessary. Bids also eliminate a dealer's cash flow from negatively impacting on a transaction. Coins can be wholesaled more easily and even a dealer with a small capital base can make a sizable transaction. The existence of standing bids has given consumers and dealers more confidence to enter the market. I have often argued that buying coins is the secondary purpose of electronic bidding. The first is to display our demand, clearly, for all participants to see.

Bidding for certified coins on exchanges with rules is a good tool to keep dealers and price levels honest. The exchange makes dealers more accountable to other dealers as well as consumers. Before certification and electronic bids, a dealer requesting a certain item would advertise a bid in the general marketplace. Since coins were uncertified he had much more latitude to accept or decline the coin he was sent. In addition, he wasn't trading on an exchange and dealers tendering coins to him had little leverage to make him honor his bid. Bidding dealers often bought coins only when they were undergraded or when their closest buddies had some to sell. The Ogood old boyO network was the rule of the day. It was difficult for the average consumer or (unconnected) dealer to realize the bid price or even close to it. If you were not an insider you would have had to run a gauntlet of middle men. Now with a certified coin and a formal bid mechanism, anyone can participate and at levels much closer to the top.

I believe the widespread reporting of bids and the certification of rare coins has been our salvation and legitimized our market to a greater degree than ever before. This was nothing less than a complete turnaround from the free-for-all, let-the-buyers-beware attitude that preceded it. The new business climate ultimately led to a shakeout and realignment of the firms that constitute our industry. Today's successful dealer, besides having numismatic knowledge, is a sophisticated businessman who is equipped to make a profit on smaller margins, through higher volume, to the advantage of his customer. With certified coins, buy/sell spreads are much closer than ever before.

The Future

The 1990's is the age of the information highway and the coin business is rapidly entering. With increased reliance on computers and a fair playing field, demand for the numismatic product will continue to build. What was once a cottage industry with a cult-like following is attracting serious new investors with money to spend. There were not many safe places in the coin market for investors prior to 1986. Unfortunately, those that followed the rare coin revolution were hurt by the overblown bull markets of 1986 and 1989, but I think 1994 is different.

Several factors are occurring that could propel us to real, sustainable growth. Prices have decreased as populations increased so that future growth will only come through real demand. Price manipulations, which ultimately drive people from the market, are more difficult today and unlikely. Third-party grading combined with accessible information have made the coin market safer for a larger audience.

While these issues pertain primarily to the demand side of the equation, the unknown variable is still supply. As the populations have increased so have the percentages of the original mintages which have been certified. At some point, raw supply coming on to the market will greatly diminish and the number of coins coming into the certified market will slow down and eventually become a trickle.

Nobody can predict when this trend will become significant enough to affect prices. At that time, the other factors that have been set in place by certification and its trail of information will combine with lower production to create higher values. When this happens, I think commemoratives will be in the forefront. In the long run, today's buyers should be handsomely rewarded.