Some Coins Don't Ride Precious Metals' Coattails

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5/15/2006

By Mark Ferguson
COIN VALUES Market Analyst

This year's soaring precious metals prices have caused great excitement within the already enthusiastic numismatic community, which has been riding a long-term bull market during the past three years. While significant rises in gold and silver prices bring widespread optimism throughout the entire market, falling prices cause disillusionment, even though some coins are directly affected by precious metals' price changes.

A $25 per ounce increase in the gold price, for example, does not make a $10,000 rare gold coin worth $10,025. There's just a little less than one ounce of gold in a $20 gold coin, 96.75 percent of an ounce, and the balance of the $10,000 value is its numismatic or collectors' premium.

Conversely, a $20 gold coin in circulated condition or a low Mint State grade that's worth, say $750, will be affected by the $25 increase in the price of gold bullion. The same is true for silver coins.

Circulated, common-date silver coins are often traded by a $1,000 face value bag of coins, whether they're dimes, quarter dollars or half dollars. The 90 percent silver coins minted prior to and including 1964 contain approximately 715 ounces of silver in a $1,000 face value bag. So their melt value can be calculated by multiplying the price of silver by 715. As an example, if the spot price of silver is $12.50 per ounce, a $1,000 face value bag of 1964 or earlier circulated silver coins is worth a melt value of about $8,937.50 or about 8.9 times face value.

A bag of the 40 percent silver Kennedy half dollars, minted for circulation from 1965 through 1969, contains about 285 ounces of silver, so at a bullion price of $12.50 their melt value is worth about 3.56 times face value, or about $3,562.50 per $1,000 face value bag. The 40 percent silver 1970-D Kennedy half dollars are only found in Uncirculated Mint sets and are worth a large collectors' premium.

While the above formulas won't change, be aware that the premiums bulk silver coins trade at compared to their melt values does change. Near the beginning of the year, when silver was around $6.50 per ounce, bags were trading wholesale right around the melt price. But as the price climbed, quickly doubling over several weeks, bags of silver coins began trading below their melt value!

Prior to the introduction of the American Eagle bullion coins in 1986, a common way to purchase raw silver was by the 100-ounce bar. Today, the American Eagles are preferred, and the bars are selling for a discount below melt. The once popular South African 1-ounce gold Krugerrand bullion coins, which were temporarily banned from import into the United States and other countries, trade at small discounts off the gold price. The American Eagle gold bullion coins are now preferred instead.

Another good example of numismatic values that are unaffected by the change in the price of their bullion content are the Proof 65 1993-P, 1994-P and 1995-P American Eagle silver bullion coins that we have valued at $200 to $250 each. Even though these American Eagles were coined for the purpose of enabling Americans to invest in precious metals, some of the scarcer American Eagles, such as these Proofs, haven't changed in value along with the rising price of silver.




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