Expert: Joe Hylas - 1/30/2012

Question
QUESTION: Joe, first of all, thank you so much for providing this invaluable service. I have several questions, but one thing I'd like to know is whether or not the coin market is under-valued at present, perhaps due to many people liquidating as they need the cash? What I'd like to know is just what you would do, or what you'd advise your mother to do about selling vs holding if one doesn't have to sell right now? I realize that this may vary by the coin. My hunch is that, like myself, you've probably misplaced your crystal ball lol, but your pro opinion would be appreciated.  I live in the southeast so, if you would sell all or some, I would like to know the best places to sell each, or sets thereof.  I would also appreciate knowing the value of the coin(s) if sold to an individual, versus the dollar amount for replacement value on an insurance policy. Now, for the nitty-gritty:
1. PCGS MS63  1925  $20 Saint Gaudens
2. NGC  MS62 1893 $10 Gold Eagle
3  Proof  1990 Silver American Eagle (in box w/authentication)
4. NGC  Five (5) Proof Graded "Ultra Cameo" MS69 1999 The first five (5) quarters of the Statehood Quarters Program
5. Statehood Quarters Program Proof Sets - Blue & Red Boxes 1999 Proof Sets of each of the first five (5) quarters of the program
5. IGC  MS69  2001 Silver Eagle "World Trade Center Ground Zero Recovery"
6. NGC  MS69  3 Silver Eagles, one each from the years 1986, 1987, & 1988
7. Proof vs Mint Silver 1984 Los Angeles Olympics Commemorative coin
8. Proof  Silver  Dolley Madison Commemorative Dollar
9. Proof  Silver  Yellowstone National Park Commemorative Dollar
10.Ungraded  Gold $5 Indian Head  Unsure but think date=1925 & likely graded XF-AU (likely unhelpful, but in 2010 melt was $375). Will be more than happy to send a photo
11.Uncirculated but not graded:8 Silver Eagles dated in the 1990's

Joe, I can't begin to thank you enough, and hope that you don't view the volume of my questions as taking advantage of your service. Hopefully, this will help someone else, too.  However, if it's too much, please either comment on those that you care to, and if you could provide reference info about the others, that would be just fine. I've got the blue/red books but, as you know, unless you're an insider, one can't really tell about market conditions, private sale versus replacement insurance value, where to sell, etc.

Whatever the case may be, I do very much appreciate your time and attention in this matter...Bill

ANSWER: Hi Bill,

First off, let me say that you probably already know the answer to your questions.  These coins are all bullion based and trade for close to the bullion value with the exception of the statehood quarters.  The quarters are common and probably will not appreciate too much for the next 10 years.
The bullion based coins, including the $20 St. G., are all holds.  I expect metals to continue their rise and as a result these will all benefit.

If the coins were pieces that had high premiums over their metal content, I would say sell them and use the funds to buy bullion.  However that is not the case here.

A quick evaluation would be to figure the St. G at spot +$100, The $5 Indian is probably worth 1/4 of spot + about $50.  The eagles (uncirculated) at spot +$3; the proofs at about $50 each.

The modern commem. dollars are readily available and are worth about $20 (.715 oz. silver).  Do they carry a premium when you have to buy them?  Yes, but selling is another story.  Dealers only want to buy at melt plus a SMALL premium.

2 years ago, I advised my clients who were holding high end pieces to liquidate them and put the money into silver & gold bullion.  Needless to say, they are quite happy as the returns were greater than they would have been with the numismatic pieces.  When an economy tightens up, the first thing people do is limit what they buy with their disposable income (hobbies).  Then when the need money, those collectibles are the first thing they sell.  This suppresses the prices and it can take years for them to recover since they will only recover when disposable income rises again.

Certainly if you need to sell, finding a collector who will pay you between dealer price and retail is better than selling to a dealer at wholesale.

I hope this helped you.

Regards
Joe Hylas
www.AllCoins.US




---------- FOLLOW-UP ----------

QUESTION: Greetings Joe,

First of all, thank you for addressing my questions in such an informative manner and, "Yes", it did help.  Secondly, in response to your assumption that  "... you probably already know the answer to your questions", this was simply incorrect. Perhaps I'm the only one in the dark about such matters, but it's very difficult for me to get my mind around the apparent fact that relatively rare coins, as compared to the market as a whole, beautiful coins in very good condition are only worth the bullion of which they're made. That just "Ain't right!", as "they" say. When you said, "If the coins were pieces that had high premiums over their metal content, I would say sell them and use the funds to buy bullion.  However that is not the case here.".  This begs the question about just what kinds of coins do have high premiums over their metal content?!  I actually may know the answer to that one:  Those that are virtually uncirculated, and that had low mintages, correct? Whether I'm correct or not, I would really like to know some examples of such coins if you don't mind.  I mean, are coin dealers basically just selling bullion and very few coins, cherry picking the best of the best of what they purchase, then melting the rest, and either selling that bullion, squirreling it away, or selling those few coins that are worth much more than spot value?  In other words, are dealers now primarily simply buying bullion-based coins, and then selling bullion?  Great time to be a buyer, huh?!

Given your response, it appears that the old adage involving supply and demand is, as always, the driving force here.  Maybe I'm slow, but what does one do with a pound of gold?  Are people assuming that our monetary system will totally collapse, and people will use pieces of gold to pay for things?  Or, perhaps more likely, is it that they will be able to command much more money than they paid when they do decide to sell? Is such a scenario what is meant when people advertise the "hedge against inflation" that is so bandied about these days?  

You also said, "Certainly if you need to sell, finding a collector who will pay you between dealer price and retail is better than selling to a dealer at wholesale" and, while I certainly agree, just where might I find such individuals?  Should I put coins on Ebay with a minimum, and see what happens?  I've no idea where such rare animals nest.

Lastly, you indicated that you "... expect metals to continue their rise and as a result these will all benefit.".  I don't want to go too far afield here but, at least to me, it's all related.  Namely, are you still advising people who may be able to withdraw some IRA money to then buy bullion with that money at today's prices?  If so, do you think that silver will continue to rise right along with gold and, since it is much more affordable, might you advise those with more meager funds to buy silver? Or is this primarily for "gold-diggers"?   Do you see an end to the meteoric rise of bullion and, if so, what might trigger a drop in prices, what should one look for?  Lastly, and as I alluded to previously, if I read it correctly, your overall response seems to reflect your belief that bullion will continue its rise that is best assessed in years (plural), rather than in months, correct?

In closing, I could cut and paste the end of my previous email to this one since I remain most appreciative of your very helpful, valuable input. In that vein, given your statement that "2 years ago, I advised my clients who were holding high end pieces to liquidate them and put the money into silver & gold bullion", I must have missed that memo.  So, if you're allowed to say, just how does one become one of your clients?--A free ad is the least I can do! Thank you again and, if you're not already the expert of the month, (s)he'd better watch out.

Gratefully,
Bill

PS  Regarding the quarters, the ones I mentioned are bullion, or have a high silver content, do they not?  Had you not factored that in, do you still believe it will be a decade before I could realize how much gain?

Answer
Hi Bill,

First off, I define high premium coins as those that trade for big percentages over their melt value.  For example, $20 St Gaudens in MS-66.  

What I saw happening a few years back has happened before in 1980.  

When the economy tightens up, collectors stop buying collectibles, no matter what they are, art, coins, stamps, antiques;  Supply and demand plays a big part in this.  However, as the economy tightens and there is less disposable income, not only do people stop buying but they start selling to maintain their living standards or pay for whatever.  This adds more supply to the market and prices tend to drop more.

Back in 1980 when gold hit $800, Soon after, $20 St. Gaudens in MS65 were selling for $4,000+.
When gold backed off, they wee selling for under $1,000.  Now with gold at about $1750, they are available for around $2,000-2,200.  these are GEM coins, but they are not rare with the exception of certain dates.

The collectibles markets are quite interesting.  Often these collectibles rise to great levels but when an item gets truly costly, how many buyers can afford it?  It's an inverted pyramid in that inexpensive items appeal to more people merely because more can afford them.  As the price rises, fewer can afford them and liquidity comes into play.

I don't know if I answered all your questions, but I hope I did.  As for metals continuing to rise, I believe they will.  In times of economic uncertainty, people flock to hard assets such as gold and silver.  Gold is no rarer today than it was when it was trading for $800; the purchasing power of the US Dollar has diminished.  It simply takes more dollars to buy an ounce of gold.  That is inflation.   As we print more money, we are inflating it.  We are mortgaging our future as a country.  It isn't just a matter of turning on the printing presses, the US Government must borrow those funds, and pay interest on them.  They borrow from the Federal Reserve, which by the way is not a government agency.  I believe that our government pays 6% or 7% for those funds. But then we bail out the big banks and loan them the money at little of no interest.  So who ends up eating the 6% or 7%?  The American public!

Based on that, I believe that gold and silver will continue to rise.  Up until 1933, our currency was based on gold, it was the gold standard.  When we went off this standard, inflation became an everyday thing.  No longer did we have to own enough gold to back the currency, we could simply print more paper by borrowing from the Federal Reserve.  It's a vicious cycle.

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Regards
Joe Hylas
www.OmegaPM.com