If A Hypothetical $1,000 Morgan Vs Price Of Silver

nss-52, this is an issue receiving much attention lately with the dramatic increase in metal prices. I've been trying to address it (in my mind at least) in an analytical way. This has probably been done by an expert prior to me (no expert).
Assume the Price (P) of a coin has two components: the Metal value (M) and the Numismatic premium (N).
P = M + N
Possible outcomes to consider when M increases:
a) P decreases (not likely)
b) P remains constant (N decreases)
c) P increases - most likely, with several things to consider:
i) N remains constant
ii) N increases proportionately to M
iii) N decreases proportionately to M
Because M has increased so drastically so quickly in the last year, and remains in flux, it's hard to make determinations now. If M would remain constant for a while we would be able to build a data base of sold prices to compare with a year or two ago. Then it would be possible to formulate the possibilities of c.

It is Hypothetical #2 that got me wondering.

I think we can all agree that a coin containing silver will have a minimum price of the value of that silver, no matter the rarity of the coin.

The $85 coin was previously commanding a $65 premium over the silver value ($20). When silver rises to $50, will buyers still be willing to pay that $65 premium?

I am wondering how to price coins that have a premium over silver value as the value of its silver fluctuates.

Hondo Boguss: P decreases. I have observed it with many gold coins recently. Could get some good ones I wanted but had been too expensive.

There were people collecting for the price. Not the interest in the coins. When metal prices increased they redirected their money to bullion coins. Or numismatic coins near bullion price.

Demand for the most expensive coins decreased. Prices have to be lower for those coins to sell now. The price, not only the premium. Numismatic premium in those fell more than the rise in the price of the metal.

The same thing can happen to the silver coins now.

I don't view it as a static question, M+N. I think the folks who want a coin for a numismatic value have an idea of the price that has the metal value baked in. The people who want coins for the metal alone will track melt. In the short term, if everyone knows that metal prices are volatile, the numismatic value won't change that much because the metal component of the value isn't perceived as stable. If melt reached a stable plateau for a year or two, that adjustment would probably get baked into the numismatic + metal price as a consideration.

That thought isn't based on observation, though. One tough factor to making a determination on the cause of price increases is that the market isn't isolated. If currency falls, the metal price might rise, but so will the price of art, antiquities, and so forth. So if a numismatic coin rises in price, is it because metal climbed or because rarities climbed?

Let me counter with this:
is a $100.00 note worth $100.00 but is only printed on a (for example) 30¢ piece of paper?

and:


I agree with Slider completely, and with coins that are way above spot, will not increase in value just because the spot price went up - eventually the price of silver will remove any intrinsic value of the coin and will only be worth the cost of the metal content.

AMEN!

I am in the middle of this problem, I am bidding on a local on line auction, they are selling 18 morgans, the bid on all,regardless of grade, is about $60 with 2 weeks to go. not sure where we will end up and I need most of them to fill out my books

I'm not sure about Morgans, but I've been buying up a bunch of silver that had numismatic premiums before the run up for the same cost as before silver increased. The difference is the numismatic premium completely evaporated on these items, with some selling below melt. I would imagine that once silver stabilizes for some time, the premiums may return on these items, but may not be as high as before. I can't see premium coins selling the same as culls or common 90% over the long term. I think there is a big difference in collecting gold at $4500 o higher and silver even if it hit triple digits. Many collectors could still afford some silver coins and pay a premium for interesting items, but many can't afford any gold.