Reason for the spike in coin prices in 1989?

[Desert Gold]

Hello everyone,

 

I've been wondering for some time what caused the spike in the PCGS 3000 index in 1989? A plot of the PCGS 3000 index can be found at http://www.pcgs.com/coinindex/indexallgraph.chtml

 

Was this spike caused by people getting over excited because of the start of PCGS grading? Maybe some of the old timers can shed some light on this issue. If this graph is accurate, then the average coin is selling for less than 1/2 the price today than in 1989? This is amazing!

 

On the other hand, the key dates have really done well, see

http://www.pcgs.com/coinindex/keysallgraph.chtml

 

These PCGS graphs have always fascinated me.

 

[jtryka]

I believe this was around the time that some of the big Wall Street firms were setting up coin investment funds since the advent of grading made coins more like stocks (not really, but they beleived it), and their interest drove prices to unsustainable levels. I believe most of it was driven by more common types, like MS-65 Morgans, etc, and it's true, for many of those coins, current prices are less than half of their peak in 1989. I am sure there are others that can share more first hand experience from the time.

[prudden]

There were a bunch of Self-Slabber/Investment brokers around then including INS, NCI and others. It's amazing to see those slabs come up for auction on Ebay. Typically they will have a "stated value" on the certificate that is 3x to 5x today's prices.

[World Colonial]

I believe that the replies here are correct. I specifically remember the brokerage "investment" funds as at least Kidder Peabody and Merrill Lynch had them. I also recall that the coins with the most speculation were Morgan and Peace Dollars, later Liberty gold, St Gaudens double eagles and Indian eagles and classic commemoratives.

 

Though this index may be at half peak levels, this in and of itself is not amazing. There are many other asset prices which did and still do sell for LESS than 50% of their peak price now. And given what is going on in the general economy, I expect coin prices to fall, many of them substantially.

[realone]

And then with stocks having the worst rep than ever, whose to say that the financials never take a second look at coins as a financial hedge against inflation, investment tool or product. Coins have a great track record, the only asset that hasn't tarnished in at least 15 years aside from that dealer Noe stealing funds (although I don't believe any money was actually lost, just mishandled). Heck I would invest in coins .

 

edited for a great many errors.

[RWB]

There are not enough "investment" coins to have any impact as a financial "hedge."

[BillJones]

Yep, speculators drove up the prices back then. When the promotion was over the market tanked like a stone, and the fish were separated from their money. That should be a lesson to non-collectors to stay out of the coin market, except for bullion related items, but the cycle keeps repeating itself every 10 to 15 years. We’ve got some of these people fooling around now.

[World Colonial]

There are not enough "investment" coins to have any impact as a financial "hedge."

 

My prior comment was directed to ALL coins at the current time but you are absolutely correct.

 

When anyone ever hears the terms "investment" coin by an "investment" firm, it will more often than not be generic high grade common material from the US. There are some exceptions, but not many.

 

This is an obvious and necessary outcome because only something which is common can be sold in sufficient quantity to get these firms to bother with the effort. Scarcer and more expensive coins can and have been acuumulated by select individuals, but it is impossible to have an "industry" exist to promote them. Otherwise, they would not actually be scarce or rare but in reality as common as the sand on the beach.

 

The biggest direct driver of coins as "investments" seems to be the bullion price of gold and silver. So I would concur that regardless of what the economy does, if metals prices increase, then the coin market will benefit. But with the economy deteriorating and almost certainly getting worse, it still will not do as well as it would otherwise do in a stronger economy because the numismatic premiums that people can and will pay will also likely be less.

 

 

[James_OldeTowne]

I remember the run-up in certified coins as well. That was the time when common Morgan dollars in MS-65 were fetching around $1000, I believe. Walkers were heavily promoted as well. I know for a fact that there are some people who have still not recovered from the outrageous premiums they threw away on such coins way back when. Some people literally lost 90% of their money.

[jtryka]

I remember the run-up in certified coins as well. That was the time when common Morgan dollars in MS-65 were fetching around $1000, I believe. Walkers were heavily promoted as well. I know for a fact that there are some people who have still not recovered from the outrageous premiums they threw away on such coins way back when. Some people literally lost 90% of their money.

 

That sounds a lot like some of the stocks that I own!

[WoodenJefferson]

After the “silver bubble” burst in 1980 (the stock market tanked also, declining 16% in just 6 weeks) it became difficult to sell coins as an investment vehicle. With the coin market bottoming out in 1983, there began a slow, steady rise in the coin industry. Speculators still laid low, but the collector market was on the rise.

 

As with most rising commodities, speculators will eventually step in and take advantage of untrained and the elderly. The spike you see is a steady rise in inflated coin prices along with a steady stock market growth. By 1987 the bubble burst once again and the stock market began to tumble. It was not long after that, the value of those so-called investment coins began their demise.

 

Following indicators, it appears the coin market goes through 10-15 year cycles. The numismatic portion does not fluctuate near as much as targeted speculator coins such as the Morgan Dollar. People are lured into thinking that by buying these rare (usually common dates) coins, there will be plenty of money in their future.

 

As it always turns out, it couldn’t be any further from the truth. When the coin market peak was attained and the realized value of those coins plummet to 10% of what speculators originally paid for their coins, it turns into a huge loss. Collectors do get caught up in some of the inflated values due to the supply and demand of certain coins, but realize just what is taking place and begrudgingly fork over the cash.

 

All in all, it’s a slow process and only looking back can you see trends with rare collectables. I don’t think any of the grading services were a major factor in the rise/decline of those collectables, it’s the people who broker these collectables that influence the market and ply on peoples sense of survival.

 

During this era, I knew a highly respected life insurance manager who was investing about $12,000 per year buying about 15 walkers a year for around $800 each. He did this for about 5 years and figured he had about $60,000 socked away…when push came to shove, he barley got $7,500 or about $100 per coin.

 

Not only did he buy over priced coins, he bought over graded and common date coins that where no where near the original value paid. Had he put the same amount back into the company he worked for, his investment would have been realized and then some.

 

There’s a bit of a gambler in all of us, this is why Las Vegas flourishes, some win while the majority loose.