Really Base Question: How are Coin Prices/Values Determined?

[astrostu]

You'd think I'd know this by now. But alas ... How are coin prices figured out? I know that, to a large extent, it's basic supply and demand. But, to what extent does the idea that, "This coin guide says this coin is worth $100 but this coin is worth $150," a person sees that, and then when they go to an auction is willing to pay up to $100 for the first coin but up to $150 for the second.

 

Like I was looking at some Teletrade, Heritage, and eBay auctions. And when I was figuring out my maximum bid, I was looking at Heritage auction records and thinking that I would try to come in at about 80-90% of the median price for a given coin (I'm not in a HUGE rush to buy these, otherwise I may be more aggressive).

 

But the whole concept there is that I was basing my own bid price on what other people say it's worth. And I'd bet that if I were to put down as a high bid maybe 25% OVER the median price for the last few sales, I'd win the coin because other people would drop out thinking, "This guy's willing to plunk down more money than the guides say it's worth, so let 'im."

 

I dunno ... maybe I answered my own question. But I'm not sure. Could anyone clarify this for me?

[MikeInFL]

"How are Coin Prices/Values Determined?" ... "Could anyone clarify this for me?"

 

Not really.

 

In my opinion, as a buyer, coin prices/values are ultimately determined by how much you're willing to spend. As a seller, the question is how much are you willing to sell for. Nothing more, nothing less. Auctions just compound this question to include more buyers -- but it all comes down to the same questions.

 

In truth, the issue is far more complex....economics, market theory, and phsychology are just some of the sciences that have a bearing on it.

 

All IMHO...Mike

[WoodenJefferson]

Price Guides (any published price guide, ie; sheet, book, intranet) should be treated as more of a set of guidelines and not accurate with every coin of the same date, same mint mark or same grade. Coins have individual nuances that can be reflected in the value of the coin such as eye appeal, strike, tone, etc.

 

Kind of like Pirates of the Caribbean, the pirates are governed by a single Code. While the Code has the force of law in Shipwreck Cove, where a codex containing the complete code is kept under the care of Captain Teague, elsewhere, the Code is treated more as a set of guidelines than as actual rules.

 

 

 

[cladking]

A great deal is based on dealer buy prices. The guides look at this and just add a margin for profit. Obviously this won't work at all for some coins and every coin, ultimately, is unique.

 

Dealer buy prices are determined by the depth of the market that the dealer has. If he has customers clamoring for product he'll raise his price to get more material but if his customers aren't aggressive he can't be either. Sometimes offers will be made when it's known there's no or little product available in order to prop up a market. These fall flat in the long run so you need to take the price guides with a grain of salt.

 

When buyers outnumber available supply it will take higher prices to thin the buying herd and coax more coins away from sellers. In collectibles when sellers outnumber buyers it can be a disorderly decline until the price is so low that people step up to absorb all the coins. Moves up tend to be long and relatively shallow while down moves are brutal but fast.

 

Of course, there are macroeconomic factors overlying all these moves as well and demographic changes can be overwhelming. It's just an ebb and flow and a regular attrition that works on everything constantly.

[DaveG]

I think you answered your question about as well as anyone could.

 

If you're not in a rush to own the coin, you bid about 90% of what people have been paying. If you really want the coin, you bid up to 125% of what people have been paying.

 

If there are more people who aren't in a rush to own a particular coin, the price goes down. If more people really want the coin, the price goes up.

[physics-fan3.14]

As many have mentioned, the value of a coin in your eyes is largely what you are willing to pay for it. But, the real value of a coin is not solely what you will pay for it, but also what the other guy will pay for it. Especially in an auction setting, value is set through open competition between several buyers - if one wants it more, he will pay more for it. The value of the coin is set where the other buyer backs out. This equilbrium is different for every single coin - no price guide can tell you exactly what a coin is worth. Of the billions of coins out there, each one has its own value, and the price guide only tries to approximate the median value of a certain issue in a certain grade. Eye appeal, strike, luster, marks, and tons of other variables all assert themselves in determining the specific value of any numismatic piece.

[World Colonial]

I believe that price guides may have a substantial impact for coins that are not frequently available. Or at least, that is the case for at least some of the coins I collect.

 

Many or most of the coins I collect do not sell that frequently. And without transactions, there can be no price discovery. So for most collectors, they will have no basis to determine if they are "over paying" or "under paying".

 

This is not generally a problem with US coins but it is with world issues. The Krause manual is grossly out of date for the South Africa issues I collect. It has not really changed since 1998. If you compare the US Krause prices to the South Africa Catalog, the discrepancy is huge. Almost all of the South Africa coins I sell on Ebay are to buyers in South Africa. I presume it is because they are buying them at a discount to their catalog but foreign buyers are not willing to pay that much.

 

As a buyer, I just have a general "feel" for what is a reasonable price to pay for these coins though I cannot say I have never paid too much.

[Oldtrader3]

There are enough buyers and sellers nowadays to run what is defined as an an "orderly market" (i.e. like the NYSE runs) of steady bid and ask prices with active markets being maintained on most coins. Where there has been manipulation in the bid market historically, it has been during times when the collector/investor (bid) base has shrunken to the point where a minority of dealers can manipulate bids, by only bidding progressively lower to generate less normal market activity and break the orderly market stream of revenue flow.

 

This happened in 1990 and greedy dealers shrunk the bid market to a trickle with only those dealers only willing to pay lower prices bidding. Eventually this trend reduced the active bid level to about 25% of the previous market active bidding level. This destroyed any orderly market activity of the coin market for almost (3) years. IMHO, I hope that this type of prolonged market weakness never occurs again.

 

Today the collector/investor base in coins is well established and larger, creating a more robust orderly market of buying and selling activity which can no longer be manipulated by a few dealers. Plus, there is sufficient activity in the coin market to provide a vigorous pricing history as a basis for pricing most any coin, except extreme rarities.

[World Colonial]

I am not familiar with what you describe though I still think that even that would only happen in unsual circumstances or when prices were falling anyway.

 

For the South Africa coins I mentioned, it is unlikely to happen as a result of manupulation and has not been the case. Because if it was, I would have been able to find the coins which I could not and still have difficulty doing so. Impossible as it may be to believe, I would estimate that only a handful of dealers in South Africa and one in the United States have inventory in this area that is better than my fairly modest collection.

 

As for pricing weakness similar to 1990, not only do I expect that to happen soon but I also believe it will be worse and last longer. And I expect this to happen in the next few years, probably starting fairly soon.

 

Coin prices in general (especially US coin prices in selective areas such as generics and conditional rarities) have been benficiaries of the bull market in gold and silver plus the credit bubble which has inflated all asset prices. The credit bubble is at risk of completely bursting (with housing being the initial kick-off to the bear market) and this places commodities including the metals at risk as well though it is not absolutely required that liquidity withdraw from every market.

 

The broader economy is also at risk. My assumption is that the typical collector is better off than the general public (something for which I have no proof one way or the other). If so, then that will provide somewhat of a buffer, at least temporarily. But this will only be the case if credit conditions do not deteriorate from here to any significant extent. I expect that they will and if this does happen, then many assets, including coins, may potentilaly be be sold by owners either out of precaution or necessity.

[Oldtrader3]

IMHO, I do not think that eminent market meltdown will occur in this linked, transnational, world economy. Everybody owns part of everybody else, central-bank wise. We all all really (!) in this together. Short of an atomic holocaust, I don't believe that extreme of a general economic devaluation will happen. No central bank is crazy enough to initiate that type of an economic implosion.

 

We have been in a reevaluation periods of currency severe currency valuation and economic regional adjustments for the past 40 years. In this period, there have been regional central bank meltdowns, driven by internal lack of controls and loan fraud (i.e. Japan Korea in the '90's) but not a general complete failure of the world economy. That is unconscionable, kind of like the Antichrist theory.

 

I strongly disagree that this will happen. If it does we all will suffer to an unimaginable extent. Things are bad but not apocalyptic and not beyond our stepping back from the brink! I thought that the Soviets were going to destroy the world in over Cuba in 1962, but they blinked and stepped back from certain destruction! Humans are foolish but not collectively that crazy.

[just-john]

The price depends on if your buying or selling and if somebody is looking to buy what you have to sell.Then it depends on that buyers pocket how deep and if theres more than one buyer out there.But most of the time I buy High and end up selling Low because when I need money everybody needs it to.

[Oldtrader3]

That is why coin collecting is not an prime investment vehicle. You can not time any collectibles market to any short term schedule to recover your money. You should plan to leave funds in coins as long as it takes for a strong market price to sell into. I also lost money in the coin market until I stopped trying to time my coin sales to provide for other needs. Coin should only be purchased with discretionary income which not earmarked for other needs.

[World Colonial]

You and I are talking about two different things completely. I am not talking about the end of the world or anything like it but a prolonged period of economic weakness which could cause a significant decline in the prices of many or most coins. The two are not dependent upon each other. Coin prices (at least for many US coins) did fall substantially in the late 1980's without any sustained economic weakness. Given that a substantial number of Americans are flat broke, it could easily happen again. It is just difficult to predict under what circumstances this would happen, partly because it also depends upon the financial capacity of collectors generally and we do not know what that is.

 

Additionally, the interrelationship of the world economy you describe is not a strength now, but a weakness. That is what we are seeing with the losses in the mountain of weak credits that have been issued..

 

As for central banks, not only can they not prevent this from happening but if it does happen, they will be one of the primary causes of it. Regardless of whether general economic hardship happens in the near future, later or not al all, what we are witnessing is the greatest misallocation of capital the world has ever seen and the world's central banks are one of the primary reasons for it.

 

 

[World Colonial]

I do not consider coins an investment but there are opportunities to make some money in coins in a short period of time because I am able to do it with one of my series. It isn't a lot in absolute terms but it can be done if you focus on the "right" issues.

 

Now I would agree that this is not possible with US coins generally, but that is because US coin prices are more "efficient" as the pricing on them is more established and there is more competition form both buyers and sellers.

[Oldtrader3]

I think that we have been in a period of sustained economic weakness since the collapse of the corrupt, Japanese, Thai, Indonesian, et al, banks, currencies and Korean Chaebol in the mid-1990's. IMHO, we are in the final throes of this central bank and government spending corruption. The pendulum swings both ways, from one extreme to the other despite the best efforts of mice and men. Now it's our turn, Greenspan held back the dominoes from falling for probably (20) years but it finally had to happen.

 

From my (admittedly limited) study of macro-world economics, I know that this pendulum has been swinging back and forth since Keynes described modern, economic-theory 120 years ago and even before, actually, since the start of the Industrial Revolution and formation of central banks in France and England during the colonial era. This too shall pass and IMHO, we are in the worst of the adjustment now. Our entire, insular, economy driven by middle class excess was doomed by the modern, efficient, transnational, developing nations, economic growth, model that is presently transferring wealth on a scale never seen before. We will adjust and survive.

 

The present coin market is a different market with a large collector base and with much larger orderly and efficient market forces at work than in the 1990's or 1980's when a few large dealers ran the show. I don't even know if they still teach the theory of orderly and efficient markets in micro-economics any more? However, Heritage just turned over $40 million in a single auction last month which is more than a year's activity in the 1990's coin auction markets. I believe that we will have pendulum swings in the coin market also but not as destructively as in past decades. Much more wealth is at stake now with much smart money strength that will buoy investments.

 

In (65) years on this earth, I have seen these bull and bear markets come and go with dire predictions of economic meltdown before. Actually, I have found that in the stock market, this is a buying opportunity, when everyone else is selling, running in circles and crying that the sky is falling. My dad was a firm and successful believer in Contrarian stock market theory. The stock market will recover, the coin market strength will regress somewhat and then the pendulum swing will start back all over again. What else is new?

[World Colonial]

Most of what you write has little or no relation to coin prices, or if it does, you can let me know what it is.

 

But what I can tell you is that coins are a luxury item which no one needs for any purpose. People buy them because they want them and they can afford them and we all rationalize what they are worth based upon our ability to pay. During the credit mania which I believe is now over, the expansion of credit made it possible for people to push up the price of all financial assets. That is the best explanation why supposedly unrelated assets such as stocks, bonds, real estate, foreign currency, commodities and (yes) coins all went up in nominal terms at the same time.

 

Now that the rate of credit growth is slowing if not outright contracting, there is less purchasing power available. To date, the shrinkage of credit has reflected itself in lower prices for real estate and the corresponding debt used to finance it along with other weak credits.

 

My expectation is that this credit turmoil will get worse which will spread the losses in the markets that I just mentioned to most or all others. Coins are a niche market with a pint sized capitalization versus the larger more liquid markets, so it is impossible to predict in advance whether a decline in the larger markets will also affect it.

 

However, if the metals fall in price (even if temporarily after a nine year bull market) then coins will almost certainly follow. Even if the metals do not fall, many coins could or still will lose value because the financial capacity of people to pay current prices will decrease if what I describe happens. Now exactly which coins will do well, badly or the worst, I do not know. I would expect that US generics and generic conditional rarities to do the worst and selective US classics and world coins to perform best, primarily by falling the least in value.

 

The primary reason for this expectation is because of who I think owns what type of coins. My opinion is that the more affluent collectors who are "strong hands" own the better and scarcer US classics and world coins.

 

On balance, I believe that the less affluent "weak hands" own the others or even if not, they will still fall the most because they are common and the most overpriced relatively.

 

To put it into perspective, the balance sheet of the typical American more closely resembles a stable rag than an accounting ledger. Now I am guessing (and that is all it is), that the typical collector is SOMEWHAT better off but how much I do not know,

 

At the current time, the median US household has a net worth in the vicinity of $100,000 and a median income of about $45,000. This net worth primarily consists of home equity (which is declining or collapsing) and personal belongings such as cars and household furnishings which are likely to be worth less than stated value; the value of many SUVs (which many people own) has reportedly fallen $6,000 in recent months due to rising gas prices. So many more people are probably also upside down on their car note in addition to their mortgage.

 

Most Americans have few liquid assets to fall back on as a contingency plan and many of them are up to their eyeballs in debt. The "rainy" day fund for many of them is the credit card and their HELOC if they are a homeowner. Well, in case no one has noticed, banks are closing or reducing both of them which is exposing the financial vulnerability of many.

 

With few financial resources, most Americans are vulnerable to even a temporary job loss. And the credit problems we have experienced in the United States will almost cerainly lead to more job losses. And if this does happen, then it is certainly possible, likely and not out of the realm of possibility that many coin collectors will be forced to sell their coins to pay their bills while others will do so pre-emptively.

 

The point of my long winded narrative is not to "prove" that coin prices will fall, even though I expect that they will. It is merely to demonstrate that it is entirely within the realm of possibility that they could do so and depending upon the circumstances, they could fall substantially.

 

To whoever is reading this post, if you are a collector and not a speculator and can afford to keep your coins, then why would it matter if coin prices fall or not? It should be preferred because then more can be bought with the resources available. On the other hand, the collector who is overweighted and would be adversely impacted by a coin bear market combined with an adverse personal event probably needs to reconsider their current exposure.

 

 

[Oldtrader3]

Pardon me, but I did go (with you) off topic a little. My references to orderly market behavior is directly related to a broadly based coin market with well founded, base investment wealth in order to sustain the behavior patterns of a broadly based orderly market endowed with sufficient operating capital. No one knows what the coin market is going to do in this economy. Probably, it will correct, although collectables have been fairly resilient to date. My crystal ball is no better than yours.

 

I'm not sure why you seem to want to discredit my opinions fairly often. I am just expressing my opinion, not writing an machine operator's technical manual or text book. Have I offended you in some way? If so, I apologize.

[murty]

Oldtrader3&WorldColonial,

Both your observations have merit and a lot of truth to them. Coins,stocks,real estate,etc are all investment vehicles(to some degree). Not guessing the direction of these investments it is safe to say many many of us have stocks(via ira,401k,mutual funds), agood deal live in their real estate, and coins are there as either a hobby or investment.

If any of us had a crystal ball we would be posting from some luxurious location.

[Jeffrey Cardona]

Most of what you write has little or no relation to coin prices, or if it does, you can let me know what it is.

 

But what I can tell you is that coins are a luxury item which no one needs for any purpose. People buy them because they want them and they can afford them and we all rationalize what they are worth based upon our ability to pay. During the credit mania which I believe is now over, the expansion of credit made it possible for people to push up the price of all financial assets. That is the best explanation why supposedly unrelated assets such as stocks, bonds, real estate, foreign currency, commodities and (yes) coins all went up in nominal terms at the same time.

 

Now that the rate of credit growth is slowing if not outright contracting, there is less purchasing power available. To date, the shrinkage of credit has reflected itself in lower prices for real estate and the corresponding debt used to finance it along with other weak credits.

 

My expectation is that this credit turmoil will get worse which will spread the losses in the markets that I just mentioned to most or all others. Coins are a niche market with a pint sized capitalization versus the larger more liquid markets, so it is impossible to predict in advance whether a decline in the larger markets will also affect it.

 

However, if the metals fall in price (even if temporarily after a nine year bull market) then coins will almost certainly follow. Even if the metals do not fall, many coins could or still will lose value because the financial capacity of people to pay current prices will decrease if what I describe happens. Now exactly which coins will do well, badly or the worst, I do not know. I would expect that US generics and generic conditional rarities to do the worst and selective US classics and world coins to perform best, primarily by falling the least in value.

 

The primary reason for this expectation is because of who I think owns what type of coins. My opinion is that the more affluent collectors who are "strong hands" own the better and scarcer US classics and world coins.

 

On balance, I believe that the less affluent "weak hands" own the others or even if not, they will still fall the most because they are common and the most overpriced relatively.

 

To put it into perspective, the balance sheet of the typical American more closely resembles a stable rag than an accounting ledger. Now I am guessing (and that is all it is), that the typical collector is SOMEWHAT better off but how much I do not know,

 

At the current time, the median US household has a net worth in the vicinity of $100,000 and a median income of about $45,000. This net worth primarily consists of home equity (which is declining or collapsing) and personal belongings such as cars and household furnishings which are likely to be worth less than stated value; the value of many SUVs (which many people own) has reportedly fallen $6,000 in recent months due to rising gas prices. So many more people are probably also upside down on their car note in addition to their mortgage.

 

Most Americans have few liquid assets to fall back on as a contingency plan and many of them are up to their eyeballs in debt. The "rainy" day fund for many of them is the credit card and their HELOC if they are a homeowner. Well, in case no one has noticed, banks are closing or reducing both of them which is exposing the financial vulnerability of many.

 

With few financial resources, most Americans are vulnerable to even a temporary job loss. And the credit problems we have experienced in the United States will almost cerainly lead to more job losses. And if this does happen, then it is certainly possible, likely and not out of the realm of possibility that many coin collectors will be forced to sell their coins to pay their bills while others will do so pre-emptively.

 

The point of my long winded narrative is not to "prove" that coin prices will fall, even though I expect that they will. It is merely to demonstrate that it is entirely within the realm of possibility that they could do so and depending upon the circumstances, they could fall substantially.

 

To whoever is reading this post, if you are a collector and not a speculator and can afford to keep your coins, then why would it matter if coin prices fall or not? It should be preferred because then more can be bought with the resources available. On the other hand, the collector who is overweighted and would be adversely impacted by a coin bear market combined with an adverse personal event probably needs to reconsider their current exposure.

 

 

WHAT?? I needs to go back and gets me a college edjamacation to follow along!! How about this one....coins values/prices are based on supply and demand. High demand....High price. Low demand...Low Price. And with availability and/or mintage levels also affecting the price. IMHuneducatedO.

[astrostu]

Okay folks, this really doesn't have much to do with my question. Take the arguing elsewhere.

[just-john]

just as well the world ends this thursday

[World Colonial]

No, I'm not trying to discredit your opinion and I have no idea by what you mean by fairly often, as I do not remember having this type of exchange with you before. With others yes, but not you.

[Jeffrey Cardona]

just as well the world ends this thursday

 

It's going to end in December 2012.....that's why I don't worry much....price/value of coins....freaky people runnin' our government...big oil...mortgage crisis...doesn't matter anymore!

 

Strip naked and run through the streets....its all over in 4 years!!

 

Depending on your point of view...it's or or

[World Colonial]

Yes, you are correct, but I actually was not trying to be argumentative. Its just my writing style and sometimes I forget that people might take my comments as directed to them when in actuality, I was not addressing these comments at anyone. It was intended to be an informative analysis. And when I try to explain myself, I try to be thorough when I am able to do so.

[BankNote1]

The world ends on Dec. 21st 2012. I don't know what time though.

 

There is one big thing that controls coin values or at least the values of moderns and that is the registry!

[Houston Investor]

My favorite explanation is what a willing buyer and seller will agree on.