US Coins

Collectibles and Law: Rarity one of many investment factors

The coin business, like most retail businesses in the United States, is generally described as being "unregulated."

This means that few, if any, federal, state or local regulations relate to the purchase and sale of coins. It also means that, in effect, no barriers block entry to the profession — anyone can put up a shingle (or a website) and start selling coins.

However, certain principles are in effect regarding what is and is not ethical when selling coins, particularly as investments, and a dealers application of these principles tells you whether or not the dealer is worthy of your business.

In this column I'll address how dealers discuss a coins rarity.

Rarity seems like a simple enough concept. All else being equal, scarcer collectible items are worth more than common ones.

But rarity is only one of many factors when looking at collectibles as an investment, the most important being the markets demand for the item now and at some future date when the investor might want to sell.

Are all "rare" coins valuable? Value depends upon why theyre rare and whether rarity matters for that particular type of coin.

Some items such as "colorized" or private commemorative coins are made in small numbers (often with individual serial numbers from the mint who produces them), but lack a secondary market that would support resale by investors.

Other items seem rare because of a relatively low mintage, but are actually sufficiently available to dealers and collectors who actually want them, so theres no pent-up demand that could increase their value over time. 

Then there are the "condition rarities," coins that may be common in lower grades but that appear in only a relatively small number in the highest grades in "population reports" by the major grading services.

These coins, of course, can command spectacular prices if the coins are truly rare to begin with, but with very common coins that remain low-priced in higher grades, the smallish certified populations sometimes reflects only the markets conclusion that the coins are not worth enough to justify the grading fees.

With modern coins such as American Eagle silver bullion coins, the "condition rarity" concept sometimes works in reverse.

For certain common dates, graded examples of silver American Eagles are more or less limited to Mint State 69 and MS-70 grades, because the premium over bullion doesnt justify the cost of grading lower-grade coins.

Im aware of one example where the population report shows one example in the Mint State 68 grade (none lower) and more than 14,000 examples in Mint State 70.

Is that one Mint State 68 coin rare?

Dealers must avoid false statements to customers, but they must also avoid misleading customers through their omissions.

In other words, a dealer who offers the MS-68 coin with a statement that it is "the only one" graded by that particular grading service with that "extremely high investment level grade" is telling the truth.

Sort of.

But thats not what Id consider an ethical approach, because it implies a rarity that simply does not exist for that coin.

Of course, the price the dealer is charging matters, and if the coin is a good deal I might forgive some hyperbole.

But someone who singles out such a coin for such treatment is, most likely, not offering good deals.

Stick with dealers whose "rare" coins are actually rare.

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