How rare coins and bank notes appreciate in value
A lot of people ask me how coins and bank notes appreciate in value over time. There is an economic science involved in the appreciation of coins and notes. Investment in rare coins and notes may seem speculative from an outsider’s point of view, but seasoned investors and others within in the industry know that coin appreciation is a sure bet.
They know this because rare coins and notes exist in a collector’s market, which behaves differently from other markets.
There’s a big difference between coins, and let’s say, tulips in tulip mania. In tulip mania, the supply of tulip bulbs to the market while the fashion for buying those tulip bulbs existed for a short period creating a price bubble.
But and this is an important but… With tulips there was the ability to grow more tulips.
Once that happened, tulip bulbs flooded the market, the tulip price crashed, and that was it. However, the difference with coins is that there is a profound lack of supply of quality material, and there always has been, always will be.
In most markets, a rise in demand causes an initial rise in price, followed by a rise in supply as manufactures rush to fill the demand. Then there is an inevitable drop in price as the rising supply outstrips demand. These accepted market laws do not apply to rare coins and notes because there is limited supply. Price rises as demand rises, but there will never be a rise in supply, so prices never go down. This is the benefit of investing in rare coins and notes.
The value of rare coins and notes are usually set in auctions. There are several major auctions each year, and the market prices are essentially set in a true market environment.
Each time a coin is bought for investment, generally speaking they’re taken off the market anywhere from 5 to 10 years. You have an ever-shrinking pool of coins left to choose from. If you want some of those better (rare) coins, the only way you’re going to pry them from any kind of investor or collector is to pay a premium.
In an auction environment, something may have been worth $5,000 2 or 3 years ago, if a number of individuals that want a particular piece and it hasn’t been around for a while, they’ll easily have to pay $7,000 to $8,000.
The appreciation of coins is consistent throughout time. A rare coin that was minted today would appreciate in the same way that rare coins from a hundred years ago appreciate now.
Let’s say you’ve got something that’s 100 years old, they only minted 2,000 and it’s appreciated dramatically. The thought is that if they minted 2,000 of that coin today, it would appreciate the same way.
I have to stress that time alone does not make coins and notes appreciate in value. The coin has to be rare or high quality first then time will raise the premium.
To prove the point, I have Roman coins that I can sell you for five dollars. It’s not age, it’s the rarity and the quality that creates the value that people are willing to pay for.
Don’t ever forget that – Rarity and quality – then time does its magic.by