Market Insights from Behind-the-Scenes at a National RetailerPosted on — Leave a comment
By Mark Ferguson
Mark Ferguson is the editor and publisher of CAC Market Values. He has graded coins professionally for PCGS and served as the principal market analyst while managing updates for more than 65,000 price points for Coin World magazine. In other words, Mark knows his coins!
Demand for investment-grade rare coins has surged since the coronavirus pandemic and economic crisis began six months ago; and this demand has been strong for CAC coins. This month’s market report gives you a behind-the-scenes look at what the country’s oldest and largest precious metals and rare coin retailer is seeing in client activity: Blanchard and Company. It’s an eye-opening look at where demand is coming from, which will likely continue for the next several years. This new demand bodes very well if you own high-grade, rare CAC coins.
For more than an hour in late June, I discussed the rare coin market and CAC coins with David Zanca of Blanchard and Company. David is a senior portfolio manager at the firm and has been with Blanchard since 1993. Among other collections he’s helped build, over a span of 25 years Zanca built one single portfolio of ultra-rare coins totaling nearly $20 million, a portion of which recently came to auction.
From the launch of CAC in 2007, Blanchard and Company has partnered with CAC founder John Albanese and Certified Acceptance Corporation in establishing a market for CAC coins. Albanese and CAC are the primary suppliers of rare coins for the Blanchard firm. Certified Acceptance Corporation makes a market in CAC-approved coins by publishing buy prices for CAC coins in the dealer-to-dealer market.
Blanchard and Company was founded in 1975 by the late James U. Blanchard who began a nationwide movement in 1971 to legalize gold ownership, after it had been outlawed by the Franklin D. Roosevelt administration in 1933. Blanchard also founded the National Committee to Legalize Gold in 1971. Success was achieved in 1974 when President Ford legalized the private ownership of gold. The firm’s focus has been on the investment aspect of rare coins, but in doing so, has built advanced collections such as the one referred to above.
Motives for Private Investors Who Seek Rare Coins
Recent volatility in the stock market has caused many investors to seek alternative investments. Many of these people are of the age at which they don’t want to take on a lot of risk. According to David Zanca, the biggest concern of investors is the “printing” of money by the Federal Reserve and the stimulus that has been pumped into the U.S. economy, which may increase. The concern is rising inflation and the loss of purchasing power of the dollar. Low interest rates, with the possibility they could become negative rates, is another concern of investors. They view gold as an alternate currency that’s a safe haven investment and they seek to own tangible assets they can control. Similarly, rare coins serve this purpose.
Investors who are not collectors get introduced to rare coins through buying precious metals from a firm like Blanchard that handles both. Other investors are referred by friends or family who have purchased coins. After buying a few coins, some take an interest in the history of the coins and become collectors. According to Zanca, what’s changed in the last six months is that many of these new collectors are putting investment money into their collections, rather than just excess “play money” they have sitting around. He said every portfolio manager at Blanchard is seeing this. He added that the market is moving from a long-term collector mindset to an investor mindset. We saw this same change during the inflationary 1970s. Then, after the coin market peaked in 1989, we experienced a return from an investor-based market to a collector-based market over the next 10 to 12 years. Dealers generally refer to these phases as “cycles.”
Over the past six months, Zanca has been seeing investors put a higher percentage of their assets into rare coins. Again, people are putting investment money into rare coins. The pandemic has introduced uncertainty into our financial lives and investors realize that stocks can go to zero, whereas gold and rare coins act like a safety net in that they maintain value, they won’t go to zero, and owners have custody of the assets. Zanca said this is similar to what he saw in the 2003 to 2004 period when demand for rare coins picked up and accelerated into a bull market that lasted until the financial crisis began in the 2007 to 2008 period. Because many investors are buying coins with investment money, he sees demand for higher-valued coins increasing.
Zanca stated that high-net-worth individuals and ultra-high-net-worth individuals want high-grade coins. They seek perfection and are drawn to CAC coins. They feel comfortable with CAC-approved coins and see the benefits of owning them. CAC coins “level the playing field.” Zanca said helping buyers feel comfortable with CAC coins is an educational process. But it’s become much easier with the internet. Pictures, data and history are readily available, allowing people to educate themselves about coins. The internet has opened the market and is bringing more people to coins.
Early gold coins are popular among these investors – they’re easy to understand and have an interesting history. Humbert $50 “slugs” and branch mint gold coins are especially popular, but these investors are also looking for guidance on what to buy. In addition to gold coins, these buyers find early silver coins appealing. One big problem Zanca sees is that CAC gold coins are getting increasingly difficult to find, as are true rarities. Owners are not selling because they don’t have good places to go with the proceeds. This is a classic scenario that puts upward pressure on market values.
Zanca brought up an interesting concept. He said that CAC coins have not been through a bull market yet, so we don’t know the true power they hold. CAC was launched in November 2007, as the financial crisis was developing. The crisis sparked a temporary correction in the coin market, but it experienced a strong market between 2011 and 2014. Even so, that period could not be described as a true bull market.
Zanca sees premiums for CAC coins over non-CAC coins growing even more than they have already, adding that the possibilities for movement in prices for CAC coins are far greater now than at any time in the past. When CAC coins first came to market, it was difficult for the investor to understand the price premiums they were selling for. Now, almost fourteen years later, CAC coins have a proven and solid track record of pricing in both public and private sales. CAC coins have established themselves as the preferred coins investors want to own.
Zanca added that prices for non-CAC coins are irrelevant; CAC coins make up their own market. In conclusion, he said he believes Americans are beginning to realize the value of holding tangible assets, not just paper investments. Europeans have practiced this financial strategy through the ages, and he believes Americans are beginning to realize the benefits of owning tangibles that they control. It’s a new mindset that he sees developing in America.
This is a telling look at how demand for rare coins has increased during the past six months. In an atmosphere where seasoned collector-investors and dealers have been concerned about the graying of the hobby and a diminishing market for their coins, this is new evidence that investors will be buying our coins in the near term, not just a younger generation of collectors. Additionally, Americans are not the only people who share the same economic worries. I’ve recently been contacted by a group of investors from outside the U.S. who are looking to buy high-end U.S. coins, for many of the same reasons – they fear inflation.
I’ve read professional wealth studies by large multi-national firms that conclude high-net-worth and ultra-high-net-worth individuals put, on average, approximately ten percent of their investible assets into “treasure assets.” This could be fine art, antique cars, rare wines or rare coins, for example. The percentage varies slightly around the globe and for different cultures, but the average hovers around 10 percent. U.S. coins are appealing to many of these investors because of the standing the U.S. has in the world and the well-organized numismatic market we have in the U.S.
Lastly, this new demand and the scarcity of some CAC coins, such as early gold coins, has to put upward pressure on their market values over time. Additionally, demand for rare coins has been shown over time to run parallel to trends for the price of gold. The huge economic stimuli that’s been injected into economies around the world during the past six months, and which will probably expand, has raised inflation fears. Some experts in precious metals and economics predict the price of gold price will soar into the thousands of dollars per ounce during the coming years. That will help propel market values for rare coins to new record highs.
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