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All About Pricing Coins

Originally published on January 22 2017 and April 30 and May 9 2018

Are there too many Price Guides?

The topic dawned on me Tuesday afternoon while relaxing with a pre dinner scotch and quickly scanning through recent magazine arrivals. Can you list the number of numismatic price guides that are currently available? Let's try...

Coin World - Monthly Price Guide. GFRC advertises in this magazine though I don't pay attention to the prices.

PCGS - Rare Coin Market Report. This glitzy magazine is back with top end dealer advertising and captures online prices.

Whitman Redbooks - Regular and Mega versions. Whitman uses volunteer contributors to set prices.

CDN - The CPG Coin & Currency Market Review. A recent publication by John Feigenbaum that builds on the Coin Dealers Newsletter platform.

NumisMedia - Online Fair Market Value Price Guide. A decent guide for eBay purchases if spending most of your time online.

CAC Market Values - A new price guide exclusively for CAC coins by Mark Ferguson

NumisMaster Online. A steady guide published by Krause Publications.

Are we overwhelmed yet? Yes indeed, there are many numismatic price guides competing for collector attention and dealer advertising dollars. As an emerging coin dealer, my challenge is to decide where to carefully spend limited marketing funds. As a collector, the challenge is to determine which pricing guide is right for your special collecting interests.

Which pricing guide does GFRC use when setting retail prices? Actually, I use a combination of PCGS CoinFacts and the growing GFRC Sales Archives.

The reality is that major price guides are better tuned to high mintage and high sales volumes denominations which is driven by 20th century coinage. Lincolns, Buffaloes, Mercuries, Walkers and Morgans trade so frequently, that price guides can accurately reflect the current market. But when trading in early silver type coins including Draped and Capped Bust denominations and Liberty Seated coinage, the major price guides are not as reflective of the market due to lower transactional volumes. How many mint state Liberty Seated quarters trade in a month as compared to Standing Liberty quarters? I believe you can capture my point.

Pricing early silver type CAC approved coins is even more challenging as the transactional volume is tiny with respect to the entire numismatic market. This is why GFRC has constructed its own Sales Archive and CAC Price Research tools.

In summary, thinly traded denominations require much more sophisticated fair market value pricing research than high volume denominations. If a collector of 19th century silver coinage, then use auction and sales records with the major price guides as a sanity check.

How Does GFRC Price Coins?

Having the right tools is key to operating a differentiated and successful business. I well remember the early days of the computer mainframe and working for IBM in East Fishkill, New York starting in 1978. It was the dawn of the computer age and an amazing new frontier. There were no commercial vendors offering design software or test equipment for our high speed Emitter Coupled Logic chips. These chips, when linked together on a substrate, became the heart of the early mainframe computers. Since IBM was constantly breaking technology ground during the late 1970s, the company also spent much monies on building its own supporting software and manufacturing equipment. Many important lessons were learned from that experience that continue to be applied towards operating and enhancing the GFRC business.

Developing my own Sales Archive was paramount since I desired an efficient pricing tool. GFRC customers may believe that the Sales Archive was a copy of the current Heritage concept. On the surface, it may look that way. However, I needed a quick access pricing report by which to evaluate and set prices for choice early type coins. Until GFRC's Sales Archive came along, there was no such tool. Yes, CoinFacts provided access to a large amount of auction records but the interrogation process was much too slow for me. One had to click on each listing to see if the auction record was for a CAC approved coin and also to bring up an image for validating quality. If a casual user with time on your hands, then CoinFacts is fine. But not for an entrepreneur who must finds approaches to maximize efficiency and effectiveness. One individual can only work so many hours in a day.

The GFRC Sales Archive was the fast solution that I needed to make on the spot purchase decisions at coin shows and for efficiently setting retail asking prices for consignor coins on my own price lists. The cool aspect of the Sales Archive is that it power grows incrementally as more coins are sold and populate the database. Sometimes the best knowledge based tools are designed by the super users with the mass market users benefitting from those creations.

I invite you to visit the GFRC Sales Archives and play around with the tool if not already a fan. You will be surprised at the speed, the sorting capabilities and the simplistic approach to presenting a substantial amount of visual data for pricing your own early type coins or evaluating if my current asking prices are consistent with past sales.

Pricing Liberty Seated Coinage with CAC Approval; a Quality Tier Dilemma

It is becoming apparent to many serious Liberty Seated coinage collectors that the price guides are not reflective of market prices for CAC approved Seated coinage is the VF through AU grade levels. Please remember this last point. Commentary is for CAC approved coins in VF through AU grade levels. The dilemma is obvious to this dealer for multiple reasons. Let's review those: As GFRC volume of CAC approved Liberty Seated coins continues to ramp, the COIN sales archives are becoming the primary basis for price setting as I've given up on other information sources. Hopefully, in the next year, GFRC will provide access to its sales archive for customers to inspect historical sales records. The access and display method would be similar to that of Heritage Auctions but with simplicity. Stay tuned as I attempt to secure Matt's precious time for this project.

Retail vs. Wholesale Coin Pricing - Numismatic Market Demand Curves

In yesterday's Blog, I mentioned the following concerning the GFRC consignment business model and the reasons for structuring such a business with low commission rates.

GFRC business model is predicated on helping collectors sell their duplicates or entire collections on a consignment basis. I'm a firm believer that the highest quality coins are in collector rather than dealer hands. Moving quality coins from one collection to another at a reasonable commission allows collectors to avoid the uncertainties of working with a large auction house, the high fees and the possibility that one's coins end up in the Internet only back section of an auction catalog (dealer wholesale).

So far the business model has proven to be successful as nearly 2,200 coins have been sold and net proceeds of $1,400,000 have been returned to consignments since late 2013 [as of January 2017].

One of the challenges with the business model is managing consignor expectations since there are varying degrees of consignment quality and pricing aspirations. My solution for this matter is ongoing education in the Daily Blog concerning the consignment process and the numismatic marketplace. Today's Featured Article is an attempt to explain the demand side of the consignment equation at retail and wholesale asking prices. Demand directly impacts the rate at which consigned coins sell. Pricing is also an important parameter but not as important as demand.

In Saturday's Blog, I briefly mentioned the term "elastic" with respect to demand for coins. Before going much further on this topic, let's define the term Elasticity from Investopedia.com.

Elasticity is a measure of a variable's sensitivity to a change in another variable. In business and economics, elasticity refers the degree to which individuals, consumers or producers change their demand or the amount supplied in response to price or income changes. It is predominantly used to assess the change in consumer demand as a result of a change in a good or service's price.

The opposite of elastic is inelastic. When a good or service is inelastic, sellers and buyers are not as likely to adjust their demand for a good or service when its price changes.

Next let's examine the concept of a demand curve.

The Demand Curve is a graphical representation of the relationship between the price of a good or service and the quantity demanded for a given period of time. In a typical representation, the price will appear on the left vertical axis, the quantity demanded on the horizontal axis.

Now let's look at an Elastic Demand Curve and compare with an Inelastic Demand Curve. The Elastic demand curve suggest a strong relationship between product pricing and subsequent demand. In numismatics, this may be the case for silver bullion items or other commodity products. The Inelastic Demand Curve indicates a weak relationship between product pricing and demand. In most cases, the demand is limited and adjusting pricing levels has minimal impact on creating more near term demand.

Let's return to the typical lifecycle of an advanced collection if the owner wishes to purchase and sell his coins at retail prices. Selling early type coins like Capped Bust and Liberty Seated at retail prices means confronting a market that is best modeled with an inelastic demand curve. Let's assume that Retail Demand for early type coins originates from other collectors rather than dealers as dealers must buy coins at wholesale levels. To sell coins at full retail, a collector must have a long horizon and wait for collector demand to appear. If a series is hot, then demand is higher with the probability of near term sales. If a series is quiet, then demand will be a function of collectors deciding to upgrade a set or new collectors entering the market. Therefore demand for specialty numismatics can be view as being somewhat inelastic at the full retail level. Collector should plan the same amount of time to sell a collection as to build it! This is where GFRC enters into the picture with its collector to collector Trading Desk whereby collectors can trade quality coins at fair market values.

I believe one more graph is necessary to accurately capture the full scope of rare coin divestment. This graph is essentially a hybrid between the Inelastic Demand Curve (rare coins sold or traded at retail levels) and the Elastic Demand Curve (rare coins sold at wholesale levels to other collectors, dealers or at major auction). Please consider the following graph as a model for the current marketplace for Capped Bust and Liberty Seated coins. Essentially collectors are dealing with mostly an Inelastic Demand curve when attempting to secure full retail pricing and, an improved Elastic Demand curve when willing to sell at wholesale levels. Dealer and collector demand at decreasing wholesale prices will increase much faster than collector demand at decreasing retail prices. Why? Everyone dreams of buying coins at wholesale bargain levels!

The Motto to the Story...if wishing to divest a substantial collection at retail prices with small commission rates, then a collector faces a mostly Inelastic Pricing vs. Demand curve and time will be necessary to local other collectors who have the disposable income to purchase quality collector coins at retail levels. Anyone can exit a collection at wholesale prices and enjoy a quick sale due to Elastic Pricing demand from both dealers and collectors. Conversely, sophisticated collectors have a deep respect for their accomplishment and believe they are entitled to retail market value when divesting.

Customer Feedback

Feedback on the numismatic demand curve and pricing article arrived during Sunday and the overnight. The article's goal was that of aiding collectors understand the pricing and demand relationships at retail and wholesale levels when consigning coins to GFRC along with other marketplace options. Following are some feedback excerpts.

Denver Consignor writes:

LOVED the price elasticity of demand discussion and elaboration on the blog. For those of us who are collectors and not regular dealers, or even collectors who are able to attend shows more frequently than, say, I do here in Denver, it is enlightening to reinforce those factors that I recall from my economics/business school days and have some appreciation for but lack one decisive metric that is provided more consistently to others--information.

Placing quality pieces across a spectrum of series with GFRC has yielded strong results for this consignor. Some pieces within that consignment are, however, not among the more active series, at least at the moment. That long horizon you suggest conforms to personal experiences here.

Alternatively, some exposure to the selling side as well as to the buying side of the hobby gives one a better sense of the interplay between retail and wholesale levels. Items I've procured at strong retail prices have performed well as have items I managed to secure at wholesale in a smaller market (my state) that are more attractive at the larger national market level.

Tenafly Consignor commented:

I sort of knew going in that my small consignment would (mostly) take awhile to sell; that's just market reaction. For instance, if they were put on a major auction house or eBay for sale I'd get $ faster, but far less of it! Those buyer/seller fees are awful - only slightly better than taking one's coins to the local pawn shop. The Liberty Seated coins have a limited market, but a very astute one. Just like houses...

Ft. Lauderdale Consignor wrote after reading the preview post on Saturday:

I read the first part of your series on demand today. It's interesting because coins, like many specialized items, have multiple levels of demand. First the intrinsic metal value, then the value as a generic antique, then as a coin specifically, type, date, mm, die pair, die state, etc etc. This is even excluding factors such as grade, toning, problem coins, etc. At each level demand becomes more inelastic. The curve must look very complex! Probably with multiple rounded step functions. I agree many collectors (and some dealers) underestimate the inelastic nature of the market, especially for varieties or problem coins. A variety may be r7 but if only 2 people want it, it's going to be a long marketing process indeed.