Wednesday, June 23, 2010

Truly Rare Coins Never Go Down in Price . . . Do They?

A rare coin broker once told me that "great rarities never go down in price."

There is no doubt that the 1856-O $20 gold double eagle is considered a great rarity.

A little over 3 years ago, Greg Reynolds wrote an article explaining why the 1856-O is considered a great rarity.

The gist of it is that as the rarest of the Type 1 double eagles (1850-1866, no motto on reverse), there are estimated to be only about 25 examples in existence.  This means no more than 25 people can ever have a complete set of Type 1 double eagles at any one time.  It was not too long ago that I was privileged to be a member of this small group. (Image of my 1856-O)

Shortly before completing my set of Type 1 double eagles, a rare coin broker told me that "great rarities NEVER go down in price."  Headlines in major coin publications touting the latest auction results would lead you to believe that this is true. After all, if there is only 25 of something but more than 25 people want it, the price is going to go up. The belief is that as more and more millionaires are created each year, more of them will come into the rare coin market.

I've also heard it said "never say never."  What happens when financial turmoil takes some of those millionaires and returns them to the middle class?  What happens when, although there are only 25 examples of something, only 24 are willing to pay any price to have one?

One 1856-O double eagle allowed us to see just that.

In an October 23, 2008 Heritage Auction, an 1856-O graded AU58 was sold for $576,150 (Lot No. 3018). This coin was not only a great rarity, but it was also condition census with only one other example known to grade higher.

Less than one year later, on July 30, 2009, this exact same coin showed up in another Heritage Auction (Lot No. 1316).  This time the coin sold for a mere $460,000.  Assuming that Heritage's typical buyer's premium of 15% was subtracted from the sale, the owner only received about $391,000.

That's a loss of over $185,000 after only 9 months! 

Ouch!!!

I don't care how rich you are, a loss that size and that quick has to hurt.

So the next time a dealer tells you that "great rarities never go down in price," just point to the 1856-O double eagle and ask if they are willing to guarantee that fact . . . and eat the loss if they are wrong.

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