Back To The Future: The Coin Crash Of 1990

[GoldFinger1969]

Came across some posts/articles/news pieces talking about the Coin Crash of 1990. I remember it was about the same time as baseball cards collapsed and the coin fall ensnared LA Kings hockey owner Bruce McNall (the guy who brought Wayne Gretzky over from Edmonton).

 

What struck me about this coin collapse were these recurring themes:

(1) Gold/precious metals really did not move during this time, it was the numismatic premiums that soared.

 

(2) There had been a huge move UP before the big downdraft (not unlike the stock market in 1987). Normally, that just resets the bar to where you started -- heck, the Dow Jones was actually up marginally for all of 1987 -- but the decline seemed to go much further than the rise.

 

(3) Both the up and down moves were concentrated in HIGHER graded (MS 65) coins.

 

(4) PCGS (and to a smaller extent, NGC) were BLAMED for the crash which seems ridiculous to me. The argument I see was that folks believed that with standard grading the market would be more liquid and more transparent and when things collapsed dealers got caught (which has NOTHING to do with liquidity or transparency, it has to do with inventory and supply vs. demand).

 

I would be very interested in hearing some of the veterans here, collectors or dealers, discuss this reminisces about what happened to the coin market after the Stock Market Crash of 1987 (that's when the big rise seemed to start).

[dimefreak]

What hurt the most was people were no longer able to put collectible coins into there IRA. At least locally.

[jom]

I'll toss this out to see what others think.

 

I liken this to what happened after the stock market crashed in 2001. All the money went into Real Estate. After that crashed money went into commodities (oil, rice etc)....and so on.

 

I just think that after a stock crash people need to put their dough somewhere and things run up too fast in too short a period of time and it all comes down. Something that can easily happen in a market as thin as the coin market....in 1989 there was a run up and crash in Sports Cards as well as I recall...

 

jom

[jom]

What hurt the most was people were no longer able to put collectible coins into there IRA. At least locally.

 

I'm not sure what you mean by "locally" but IRAs have never had the ability to put collectibles in them. That rule has been there in section 408 of the tax code since 1975.

 

jom

[Eric Hazen]

All markets crashes or suffers from major corrections. Enjoy them if you're into the hobby and load up!

[GoldFinger1969]

Something that can easily happen in a market as thin as the coin market....in 1989 there was a run up and crash in Sports Cards as well as I recall...jom

 

That's what made it strange.

 

The crash in the baseball card bubble was largely in the NEW stuff: you went from $100 MM in annual sales to $1 BB (all NEW) in about 5 years. There was simply too much supply being created. The vintage stuff got hurt -- but held its value. My Tom Seaver and Nolan Ryan Rookie cards from the 1960's got hurt, but not decimated.

 

The crash in coins as I understand it was concentrated in the higher-quality graded coins (MS 65 and above) for vintage stuff like Double Eagles, etc. This stuff had the biggest numismatic premium runups -- 500 - 1,000%. They came down the hardest, more so than less-expensive stuff that was (1) cheaper, or (2) bigger premium but popular with collectors (Mercs, Buffalo nickles, etc.) or (3) what the telemarketers did NOT push.

 

I think (3) was a big factor. These guys sold newly-graded PCGS/NCG gold (and silver) coins that had huge premiums and markups. I remember some of my clients getting calls at that time from Blanchard, Monex, etc. Good quality coins, but huge premiums/markups.

 

I think my clients may still not be even on some of those coins 25 years later, even with gold having tripled.

[GoldFinger1969]

A note about the stock market and the coin run-up: the market crashed in October 1987. The coin bubble inflated during 1988, 1989, and early-1990. So you can't really blame it on the Stock Market Crash because by the time the Coin Bubble was being inflated, the market had stabilized and begun to rise. By 1989 -- when coins were flying -- the market was EXCEEDING the 1987 highs.

 

I realize people take time to make decisions and you can't expect everyone to buy their coins in November and December of 1987. Things play out over time.

 

But I think the people who cashed out of stocks in 1987...sat on their cash for a few months or years...and then put it into coins....was very small. I know there were some (I had some as clients) but it wouldn't have been enough to pump up the bubble from the retail clients I saw at that time.

 

I didn't work in a Private Bank at that time so it's entirely possible that some HNW individuals moved a small portion of their net worth -- but big $$$ relative to the size of the coin market -- into numismatics. That could explain the concentration in higher-quality, higher-graded MS coins. Unlike retail, HNW clients wouldn't mind paying $5,000 for MS-65 coins as opposed to retail who would be more comfortable buying MS-61 or AU-58's at 25% the price.

[e1cnr]

silver was pushed up in 1987 to over $10/oz

 

coins / silver dollars followed

 

silver slid to $4-5 in 1990

 

coins / silver dollars followed

[MarkFeld]

Came across some posts/articles/news pieces talking about the Coin Crash of 1990. I remember it was about the same time as baseball cards collapsed and the coin fall ensnared LA Kings hockey owner Bruce McNall (the guy who brought Wayne Gretzky over from Edmonton).

 

What struck me about this coin collapse were these recurring themes:

(1) Gold/precious metals really did not move during this time, it was the numismatic premiums that soared.

 

(2) There had been a huge move UP before the big downdraft (not unlike the stock market in 1987). Normally, that just resets the bar to where you started -- heck, the Dow Jones was actually up marginally for all of 1987 -- but the decline seemed to go much further than the rise.

 

(3) Both the up and down moves were concentrated in HIGHER graded (MS 65) coins.

 

(4) PCGS (and to a smaller extent, NGC) were BLAMED for the crash which seems ridiculous to me. The argument I see was that folks believed that with standard grading the market would be more liquid and more transparent and when things collapsed dealers got caught (which has NOTHING to do with liquidity or transparency, it has to do with inventory and supply vs. demand).

 

I would be very interested in hearing some of the veterans here, collectors or dealers, discuss this reminisces about what happened to the coin market after the Stock Market Crash of 1987 (that's when the big rise seemed to start).

 

Where did you get 4) above? I don't remember hearing that PCGS and NGC were to blame. At least not to any meaningful extent. Thanks.

[BillJones]

As I remember it one the areas that got hit the worst was the "old" commemorative half dollar market. Prices on those coins had been driven up to an incredible degree by an "investment promotion." ** I can only remember the price of the Antietam in MS-65 because I was interested in buying an example. It was $1,600. The prices really evaporated on that series. While there has been a small run up in commemorative coin prices since then, they have never recovered.

 

As for the remark about PCGS, and to a less extent NGC, causing the crash, I think that remark overstates the case. The grading companies to a small degree contributed to it.

 

Over the years I have seen the following pattern. When markets are hot and really going crazy, it has been my informal observation that the TPGs tend to get more lax in their standards. During these periods it is easier to sell coins, and some buyers, especially the inexperienced ones, tend to be less fussy. When the bull market subsides it has been my observation that the TPGs tend to tighten their standards.

 

This would explain why so many collectors have this thing about green label PCGS holders. They came out around this period and ON AVERAGE the grading seemed to be a bit tighter. This observation DOES NOT apply to all green label holders, however. Some of them contain "C quality" coins, and a few of them contain coins that might not receive a grade today because of problems with cleaning and other defects. Once again, you have to know how to grade coins to really protect yourself.

 

** If you want to get a laugh go to the back of the Breen - Swiatek book on commemorative coins, published 1981, and check out the projected prices for commemorative coins. If those predictions had come pass, only millionaires could have afforded to collect that series. This book was published by the F.C.I. Press, Inc. / Arco Publishing, Inc. First Coin Investors (F.C.I.) was one of the really bad actors in the "coin investment" industry.

 

[CaptHenway]

Check your stats. I remember the coin market crashing during the 1989 ANA Convention in Pittsburgh, when it was announced that a large brokerage firm which had been planning to launch a mutual fund or whatever based on slabbed coins would NOT launch the fund after all. Prices of everything, especially commems, had been run up in anticipation of selling coins into this fund.

 

I am sure of the date because in 1986 I married a lady whose father had sold two bage of junk silver for a good price during the Hunt Brothers Bubble, and used the proceeds to buy coins, many of them classic commems, which of course then went down after that bubble collapsed. Naturally he had shown me the coins after I had married his daughter, and when prices shot up in 1989 I told him that now would be a good time to get out of them. I took the coins with me to the show, and literally sold them on the plane to a dealer friend I happened to sit next to. When the market crashed a few days later I patted myself on the back for guessing right.

 

TD

[GoldFinger1969]

Where did you get 4) above? I don't remember hearing that PCGS and NGC were to blame. At least not to any meaningful extent. Thanks.

 

Mark, I saw a few posts/articles/newspaper pieces keep repeating the 'high-grade' market, which was basically created by PCGS/NCG.

 

And silver guru Burton Blumert wrote a few pieces specifically zeroing in on this factor.

 

I DON'T agree with this myself, but it could make counter-intuitive sense, sort of like blaming portfolio insurance for the 1987 Stock Market Crash.

 

I can probably re-find the Blumert piece (I never heard of the guy before I scoured the web) if you want to see it.

[GoldFinger1969]

Check your stats. I remember the coin market crashing during the 1989 ANA Convention in Pittsburgh, when it was announced that a large brokerage firm which had been planning to launch a mutual fund or whatever based on slabbed coins would NOT launch the fund after all. Prices of everything, especially commems, had been run up in anticipation of selling coins into this fund.

I am sure of the date because in 1986 I married a lady whose father had sold two bage of junk silver for a good price during the Hunt Brothers Bubble, and used the proceeds to buy coins, many of them classic commems, which of course then went down after that bubble collapsed. Naturally he had shown me the coins after I had married his daughter, and when prices shot up in 1989 I told him that now would be a good time to get out of them. I took the coins with me to the show, and literally sold them on the plane to a dealer friend I happened to sit next to. When the market crashed a few days later I patted myself on the back for guessing right.TD

 

Wow, great story. (thumbs u

 

Everything I have read keeps repeating 1990 for the Coin Crash but maybe there was a tremor a year earlier. I have no recollection myself so you guys know more than me. I'm just going by what I read off the Internet, trying to use actual stories from those times.

 

Between January 1990 and January 1991 common Saint-Gaudens MS-64's fell in price by 50%.

 

For MS-65's, I see a chart showing the premiums went from 900% to bullion to about 500% in 1989...but then rebounded....and then collapsed to 250-300% by mid-1990.

 

It's possible some grades/coins/sectors fell earlier or maybe that was just the initial shock that you referenced in 1989.

 

Dunno.....

[BillJones]

Everything I have read keeps repeating 1990 for the Coin Crash but maybe there was a tremor a year earlier. I have no recollection myself so you guys know more than me. I'm just going by what I read off the Internet, trying to use actual stories from those times.

 

 

The big ANA convention is held in August. If the flight downward started there, it may not have become totally evident until the following winter. If you look at the history of the October 1929 New York Stock Market crash, the October date is one that everyone mentions, but as I recall there was a minor recovery followed by the big crash to hit a short time later. Given the nature of the coin market, which does not have a central exchange like the stock markets, it takes longer for the collapse to move forward.

[thebeav]

I remember, in the late 80's-early 90's, it was also boiler room operations that were responsible for some high prices. I remember selling to dealers that claimed to be feeding these people. Common Saints were triple melt, or better.....

 

Paul

[BillJones]

I remember, in the late 80's-early 90's, it was also boiler room operations that were responsible for some high prices. I remember selling to dealers that claimed to be feeding these people. Common Saints were triple melt, or better.....

 

Paul

 

Yes, there were rumors that some of the legitimate dealers were selling AUs to the boiler room low-lifes who were marketing those coins as "Uncirculated" to non-collectors as "investments." If only some of those people had gotten AUs for their money, they would have been better off. Some of the "investment portfolios" included coins that had be whizzed or plated with rhodium.

 

During a coin collecting class I taught at a local junior college we had a "bring in your collection night." One of the students brought in a group of coins that he had bought from First Coin Investors (F.C.I.). The prices he had paid were consistent with what Uncirculated coins were priced at the time ... if only he had gotten Uncirculated coins. What he gotten were cleaned and plated coins that were called "Uncirculated." Despite the fact that he had held them for several years, and the prices had gone up, what he had was worth a fraction of what he had paid.

 

[GoldFinger1969]

The big ANA convention is held in August. If the flight downward started there, it may not have become totally evident until the following winter. If you look at the history of the October 1929 New York Stock Market crash, the October date is one that everyone mentions, but as I recall there was a minor recovery followed by the big crash to hit a short time later. Given the nature of the coin market, which does not have a central exchange like the stock markets, it takes longer for the collapse to move forward.

 

Exactly....great post and historical reference.

[GoldFinger1969]

I remember, in the late 80's-early 90's, it was also boiler room operations that were responsible for some high prices. I remember selling to dealers that claimed to be feeding these people. Common Saints were triple melt, or better.....Paul

 

The telemarketers and boiler room operators would seem likely participants. They also had the legitimacy of the graded coins from PCGS and NGC.

 

It's that aspect that I think Blumert and others referenced. Before, folks were naturally cautious about some guy cold-calling them out of the blue trying to sell them gold and/or coins. Now, you had this grading system and protected coins in slabs to give it legitimacy.

 

I know the markups relative to what honest dealers would charge could be an extra 50-100%. The higher the grade and the rarer the coin, the more of that markup.

[physics-fan3.14]

Anyone got links to more detailed stories, or some of these charts/figures/numbers? I'd be interested in seeing them.

 

This is the sort of thing that I would really like to see more info on (maybe a book).

[DaveG]

I didn't get back into coin collecting until late 1992, so I can only give my perspective of the aftermath and reading various articles at the time.

 

From what I recall, following the birth of PCGS and NGC, there was a bit of a boom in numismatics as various coin market participants publicized the idea that coins could now be traded like stocks - sight unseen, one coin just like another, etc.

 

And then, following the 1987 stock market crash, there was a "rush" to put money into tangible assets, including collectibles like coins. As I recall, Salomon Brothers (the Wall Street brokerage firm) started a "coin index" and E.F. Hutton (another Wall Street firm) started a fund to invest in coins.

 

I don't recall if there was any particular event in the financial markets in Summer 1989 that would have shaken the coin market, but I do recall that the fall-out from the stock market crash (layoffs, etc.) took a year or so to start and by late-1988 and early-1989 it had hit the real estate market, which, in the New York City area was pretty dead by late 1989.

 

When I re-entered the coin market in late 1992, the collectors who had hung on were getting out of coins. I recall visiting a coin shop where the owner had a stack of Whitman albums that he was emptying. Coin shows were lonely affairs; at the now very popular Parsippany show, you could throw a bowling ball down the aisle without hitting more than one person.

[GoldFinger1969]

Anyone got links to more detailed stories, or some of these charts/figures/numbers? I'd be interested in seeing them. This is the sort of thing that I would really like to see more info on (maybe a book).

 

I have posts, some charts, and some articles...a mish-mash I am saving for reference....can post some of them if you'd like. Most of you guys/gals probably saw these at one time or another over the years.

[physics-fan3.14]

In 1990, I was 5.... so I don't know a whole lot about it.

[RWB]

The coin crash was a speculative "bubble" like those that have hit other hobby/collectable categories. They are similar to the larger bubbles that cause national or international economic disruption, but the scale is so small that there is no economic impact. Small bubbles occur in cycles but the time between nodes becomes longer as the market size becomes smaller. Also, since there are few truly “generic” coins (by type/grade), the numismatic market is fractured – like ice floes in a river.

 

(Economic bubbles progress in a series of waves of increasing amplitude. The trend is geometric. At a critical point there is not enough money/activity to support a wave and the entire thing breaks as sellers try to protect themselves and dump inventory.)

 

[GoldFinger1969]

The coin crash was a speculative "bubble" like those that have hit other hobby/collectable categories.

 

RWB, what made the Coin Bubble very unique was that the damage and speculation was done in the HIGHEST QUALITY coins, the highest-graded, the ones with the most relative silver/gold bullion content. That's what set it apart from stock bubbles where junk stocks fly the highest (i.e., the Internet/Tech Bubble of 1999-2000).

 

And that's why I think the blame sometimes falls -- incorrectly, I must add -- to PCGS/NGC. They came on the scene right before the bubble inflated and their activity helped make the bubble bigger.

 

But you can't blame them anymore than you could blame the telephone or the internet for the Tech Bubble by letting mass retail participation inflate it upwards.

[CaptHenway]

PCGS and NGC created products that were perceived at the time as fungible, i.e., one MS-65 common date Morgan dollar was exactly the same as any other MS-65 common date Morgan dollar, just as any common share of GE was exactly the same as any other common share of GE.

 

The talk of a mutual fund buying slabbed coins as commodities made people think that millions if not tens of millions if not hundreds of mullions of investor dollars would be chasing these slabbed coins.However, aAs I recall, the brokerage that was thinking about starting the fund decided in the end that there was simply not enough product available to support the market, and it would not be worth their time and trouble to create it. The bubble popped.

[RWB]

"RWB, what made the Coin Bubble very unique was that the damage and speculation was done in the HIGHEST QUALITY coins, the highest-graded, the ones with the most relative silver/gold bullion content."

 

Actually, nope....the "highest quality" coins of generic types (commemoratives, Morgans, etc.) were lumped with what are now thought of a lower end uncirculated (Unc 63) coins. Very high quality coins and very rare ones did not experience as much of a run-up as generic pieces. Much of this was fueled by attempts to establish uniformity so that coins could be traded much like stocks. Some investment agents bought into this and the tiny rare coin market was badly "bubbleized" due to the speculation. Further, unlike stock markets, there was (and is) no independent supervisory body and no assignment of market makers to support thinly-traded coins.

 

What many see as a “unique market” is unique only from our own short-term perception and the limitations we place on observation.

 

As to the “…ones with the most relative silver/gold bullion content.” Those increases and decreases were driven by commodities markets outside of numismatics and separate from coin collecting.

 

The “Ponzi-like” behavior was not unique and neither was the result.

 

[GoldFinger1969]

PCGS and NGC created products that were perceived at the time as fungible, i.e., one MS-65 common date Morgan dollar was exactly the same as any other MS-65 common date Morgan dollar, just as any common share of GE was exactly the same as any other common share of GE.

 

The talk of a mutual fund buying slabbed coins as commodities made people think that millions if not tens of millions if not hundreds of mullions of investor dollars would be chasing these slabbed coins.However, aAs I recall, the brokerage that was thinking about starting the fund decided in the end that there was simply not enough product available to support the market, and it would not be worth their time and trouble to create it. The bubble popped.

 

I remember that. Today, you see the same thing when someone proposes an ETF for a small or illiquid asset class.

 

The prospect of tens of thousands of coins being purchases, maybe hundreds of thousands of Saint-Gaudens and others, no doubt led to the buy-before-the-fact.

 

I work (and job search) in the sector and have numerous contacts, I'll ask around to see if anybody worked at the firms or recalls the specifics at that time.

[GoldFinger1969]

Actually, nope....the "highest quality" coins of generic types (commemoratives, Morgans, etc.) were lumped with what are now thought of a lower end uncirculated (Unc 63) coins. Very high quality coins and very rare ones did not experience as much of a run-up as generic pieces. Much of this was fueled by attempts to establish uniformity so that coins could be traded much like stocks. Some investment agents bought into this and the tiny rare coin market was badly "bubbleized" due to the speculation. Further, unlike stock markets, there was (and is) no independent supervisory body and no assignment of market makers to support thinly-traded coins.

 

For common Saint Gaudens, what I have read indicates that the biggest spike was in the MS-graded coins, specifically MS-65 and above.

 

The Big Picture being: MS-gradeds were the coin of choice, not AU's in the 50's.

 

Agree or disagre?

 

What many see as a “unique market” is unique only from our own short-term perception and the limitations we place on observation. As to the “…ones with the most relative silver/gold bullion content.” Those increases and decreases were driven by commodities markets outside of numismatics and separate from coin collecting. The “Ponzi-like” behavior was not unique and neither was the result.

 

But the mega-premiums for Lincoln Pennies and Mercury Dimes and Franklin Halfs and stuff like that, selling at bigger premiums relative to their face value and/or bullion (if any) did NOT get hit as much from what I see.

 

I saw one old newspaper report that said that the OVERALL coin market suffered less than the high end. I realize that this isn't an easily comparable situation where we can compare the technology-laden NASDAQ to an industrial Dow Jones index. There is no 'high-end' coin index and 'broad' coin index.

 

But from what I have read, high-quality Saint Gaudens and coins like that (other Double Eagles, etc.) saw the biggest drop. Charts I have seen on MS-64 and MS-65 premiums from 1985-2013 seem to confirm it.

[BROADSTRUCK]

I have a commem in a NGC MS66 holder that's pedigreed from a auction that occurred just before the crash. I pulled the catalog off my bookshelf recently and just about fell out of my seat as it sold raw for 4 times today's pricing.

[GoldFinger1969]

I have a commem in a NGC MS66 holder that's pedigreed from a auction that occurred just before the crash. I pulled the catalog off my bookshelf recently and just about fell out of my seat as it sold raw for 4 times today's pricing.

 

Wow...can I ask what coin, which auction, and what you paid for it ?