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The Coin Article I Wish I Could Write

The Coin Article I Wish I Could Write

The year was 2000 and everyone was obsessed with technology stock…everyone except for me that is.  I was frantically researching another class of investments: ancient Greek gold coins.  You see, the ancient Greeks were renowned for minting remarkably beautiful coinage with images of rulers, deities, animals and mythical creatures.  Regardless of their subject, these coins were invariably struck in exceedingly fine style and with a three-dimensionality that was not mastered again in Europe until the late Renaissance.  And none of these ancient works of numismatic art are more desirable than those struck in gold.  They are the traditional apogee of fine coin collecting – the very same gems that were ravenously acquired by European nobility during the 17th and 18th centuries as they embraced all things Classical.

But in the year 2000 no one cared about ancient coins because they weren’t technology stocks.  Consequently, these miniature works of Classical art could be purchased dirt cheap at the time.  A mere $500 to $1000 per coin was sufficient to purchase a wide range of stunning examples in excellent condition.  I desperately wanted to own some.  There was only one problem.  I had just graduated college and although I had landed a white collar job in the financial services sector all my money was going towards rent and student loan payments with precious little left over for coins – regardless of how beautiful they might be.  But then my research took an interesting turn.

I had started thinking to myself, “What makes ancient Greek gold coins so desirable?”  In my opinion, it was a combination of their subject matter (the human form, animals, mythological creatures, etc.), their fabric (small and thick globular flans, hand-struck in gorgeous high relief) and their exceedingly fine, three-dimensional style.  I began feverishly researching the complete 2600-year history of global coinage until I stumbled upon a revelation: medieval gold coins from the native Hindu dynasties of South India.

These South Asian masterpieces are not ancient Greek coins, but they share almost all of the same characteristics.  Struck in captivatingly high relief, these coins feature gods and goddesses, rulers, animals and the occasional mythological creature.  The only difference is these coins draw on Hindu rather than Classical Western mythology for their subject matter.  The Indian pieces – every bit as alluring as their ancient Greek counterparts – are rendered in a distinctly curvaceous and seductive South Asian style.  Unlike Christianity in the West, medieval Hindu culture had no moralistic hang-ups surrounding the portrayal of the human form, whether man or anthropomorphic deity, and it showed.  Medieval southern India was a little bit of the ancient world that time forgot, complete with war elephants, grand stone temples and powerful empires and its coinage gloriously reflected this fact.

Almost unbelievably, these undiscovered jewels were only a tenth of the price of similar ancient Greek examples.  In the year 2000, $50 could buy you a gold 1/2 pagoda (1.7 to 1.8 grams) while $100 would get you a full gold pagoda (3.4 to 3.6 grams).  Even I, as a semi-starving former college student, could afford prices like that!

So why did I title this article “The Coin Article I Wish I Could Write”?  Because, unfortunately, the market supply of these wonderful little medieval South Indian gold coins has largely dried up.  eBay typically only has a handful of examples for sale at any point in time and they are usually overpriced, poor quality specimens.  Although prices are certainly higher than they were in 2000, Medieval South Indian gold coins are still beautiful little coins that provide an amazing opportunity for connoisseurship when you can find them in good condition for reasonable prices.  But good luck finding them.  My sincere hope is that one day more supply makes its way to the market so that others can come to appreciate these hidden gems.

The Sad Truth about Modern U.S. Commemorative Coins

The Sad Truth about Modern U.S. Commemorative Coins

For the last 35 years, give or take, many nations around the world have minted a variety of commemorative coins.  In this endeavor, the United States has been the first amount equals, minting dozens of different types of commemorative pieces.  These commemorative issues have celebrated such diverse organizations, people and events as the Girl Scouts, Dolley Madison and the World Cup of soccer, among others.

However, modern U.S. commemorative coins also share one common feature; they are all, without exception, terrible investments.

One of the primary rules of investing in art and antiques is that anything intentionally issued as a commemorative item is rarely a good investment.  This dictum applies not only to commemorative coins, but to any other commemorative souvenir as well.  There are a couple reasons for this.

First, the issuing company or agency is typically interested in making a profit – the larger the better.  This means they rarely put stringent limits on the number of commemoratives they release.

The second problem is that when people buy commemorative issues the first thing they do is hide them in closets or bury them at the bottom of dresser drawers.  Consequently there is almost no natural attrition of the commemorative pieces in question.  If a million were originally produced, it is a fair bet that somewhere approaching a million are still around, and almost all of them will be in pristine condition too!

Modern U.S. commemorative coins illustrate this point perfectly.  Since the early 1980s, the U.S. mint has struck commemorative half dollars, silver dollars and $5 gold coins.  From the program’s inception in 1982 through 2014, there have been, in total, over 13 million uncirculated and 51 million proof specimens struck.  Although technically legal tender, none of these issues has circulated.

Instead, each one of them left the mint encapsulated in hard plastic for preservation purposes.  It is almost a guarantee that very close to all 64 million of these modern U.S. commemorative coins are still out there, lurking in ordinary peoples’ desk drawers and safety deposit boxes, patiently waiting for the day they can be sold at a big profit.

Unfortunately, that day is unlikely to ever arrive.  Recently I was browsing the website of the well-known bullion dealer APMEX.  They had mixed-type, modern U.S. commemorative $5 gold coins available in bulk.  These pieces are struck in 90% fine gold and contain 0.24187 troy ounces of pure gold each.

You can buy as many of these official U.S. government mint issued gold coins as you like for less than 8% over the spot price of bullion – about $23 per coin over spot.  That, my friends, is only half a step removed from the coins trading as pure bullion pieces, with absolutely no numismatic (collector’s) value whatsoever.

That isn’t the end of the bad news for modern U.S. commemorative issues, though.  With the exception of the very first commemorative half-dollar struck in 1982, all subsequent commemorative half-dollars issued by the U.S. mint are composed of an abominably cheap copper-nickel alloy.  Only commemorative silver dollars are struck from the traditional 90% silver alloy.  Of course, the U.S. mint still charges a premium price for these half-dollar issues, despite them being struck in base metal.

As if all this wasn’t bad enough, the coup de grace is that modern U.S. commemorative coins have – almost to a coin – universally poor designs.  So in addition to celebrating rather mundane or obscure topics, U.S. commemorative issues of the last few decades are also artistically uninspired, to put it kindly.  Stylistically the coins are unspeakably dull; it is obvious that the die engravers weren’t trying very hard.

It is possible that you may have received a modern U.S. commemorative coin as a gift or perhaps even purchased one for yourself or for a loved one.  I sincerely hope you do not believe that these pieces are good investments, because nothing could be further from the truth.  Possessing unattractive, lifeless designs and struck in massive quantities, these commemorative issues are best ignored and left to rot in attics and basements.

If you must speculate in them, then the deal that APMEX offers – less than 8% over spot for $5 gold commemoratives – is a great starting place.  If things end badly then all you could possibly lose would be the modest premium over bullion value.

Super-Size Your Art Buying

Super-Size Your Art Buying

One delightful art buying trick for the serious art connoisseur is to purchase works in bulk. I am aware that this might seem counterintuitive at first blush. Art – good art anyway – is not mass-produced. Instead, its one-of-a-kind, unique nature is part of its allure. But there are certain unusual situations where one is afforded the opportunity to buy in quantity. When those circumstances arise, don’t be afraid to be unconventional in your art buying.

I’ll use my own situation as an example. Way back in 2006 I was monitoring eBay for deals in an area of special interest to me – medieval South Indian gold coins. And I was in luck. A seller from Great Britain was looking to sell a small collection of six half pagodas from the South Indian Vijayanagara Empire.

These were highly collectible, intriguing little gold coins with Hindu gods and goddesses on the front and native script on the reverse. I don’t know where the seller acquired this collection, but it may have had to do with the fact that India was once a colony of the British Empire. This means there are a substantial number of cultural and commercial ties between the two nations.

Photos revealed the coins were very high quality pieces, with exceptionally strong striking and good centering. They were very close to what I wanted, although not perfect. The coins were unattributed as to ruler and the collection contained duplicates. In short, it was a generic lot.

I placed a bid of £168.99 British pounds which was duly accepted. When combined with shipping and handling and converted at the prevailing dollar-pound exchange rate my total cost was just over $58 U.S. dollars per coin. Quite a bargain for 500 year old gold coins in phenomenal condition!

Many years have passed since I purchased that lot of amazing medieval Indian gold coins and I still proudly own them. However, it is only recently that the true wisdom of buying these pieces in bulk has become apparent.

Today gold half pagodas from the Vijayanagara Empire cost anywhere from two to three times as much as I originally paid. This equates to an approximately 8% to 13% return per annum (in U.S. dollars) over my holding period. However, due to the weakness of the British currency over the last several years, if calculated in pounds my return would be 11% to 17% per annum!

It can be difficult to predict how well specific segments of the art or antique market will perform in the future. But art buying in quantity allows you to effectively leverage your collecting knowledge. It takes almost the same amount of time to evaluate a lot of a half dozen similar coins as it does one.

The same idea applies to many other areas of the art market as well. So, provided you have done your due diligence first, it makes sense to opportunistically buy interesting specimens in bulk if you are presented the chance. Although it may take many years for such a move to pay off, in the end you’ll be very glad you did it.

The Optionality of Old Gold Coins

The Optionality of Old Gold Coins

Sometimes I’m asked why I buy old gold coins instead of gold bullion bars or modern bullion coins. For me, it all comes down to optionality. Optionality refers to the option-like attribute possessed by certain investments.

A call option, also sometimes called a warrant, is the right – but not the obligation – to purchase an underlying security at a predetermined price (the strike price) until the option’s expiration. Basically, a call option gives the buyer levered exposure to the underlying security via a fixed, upfront investment known as the premium. The premium is the purchase price of the option.

This might seem very esoteric, but I guarantee you that it is one of the most powerful concepts in the investment universe. Optionality is an idea that is regularly underestimated in the financial community – to the continual benefit of long term investors in the know.

Stocks are perhaps one of the best examples of optionality in action. The stock of a company that is not profitable today still has a market value above zero. This is because the stock does not expire (unless the company goes bankrupt), giving the owner a perpetual call option on any future earnings from the underlying company.

Regardless of whether those future earnings occur next year or ten years from now, the fact that the stock holder will benefit from these potential future earnings gives the stock value today. This concept of optionality also applies to some investments other than just stocks – for example, antique gold coins.

Years ago when I still lived in Boston, I used to frequent a coin shop called J.J. Teaparty in the financial district. I would peruse the available offerings – usually a mix of gold bullion and collector’s (numismatic) gold coins. When given the choice, I always bought 19th and early 20th century European fractional gold coins. These were pieces that actually circulated when the world still operated under the gold standard.

I usually paid about $10 over the spot price of gold per coin. Because each gold coin contained about 1/5 of a troy ounce of pure gold, the total premium usually amounted to around $50 per ounce. At the time, gold was trading around $500 a troy ounce. So the premium for these 100 year old coins was usually around 10% of spot gold, versus 2% or 3% for modern bullion.

The obvious question is why would I willingly pay more for the same amount of gold? The answer is because that extra $35 or $40 premium over bullion also bought me a perpetual call option on the potential numismatic value of those fractional European gold coins. Sure, the coins were minted by the million and are still relatively common. That is why the additional premium over straight gold bullion was so low.

But in exchange for such a minuscule amount of extra money, I received an entirely new vector for future returns. European fractional gold coins are sensitive not only to the price of gold, but also to changes in their value to collectors. They are an overlooked investment double play in a world that rarely gives anything away for free.

Another example is a 16th century Persian gold 1/2 mithqal that I’m considering purchasing. The price is $110 and the bullion value is around $76.50. This gives us a premium over bullion value of about 44%.

Now this might seem high at first, but this is no common 20th century coin. This 450 year old gold 1/2 mithqal has wonderfully bold Persian calligraphy and a lot of eye appeal. No, the coin isn’t perfect – as evidenced by its somewhat flat strike. If it didn’t have this defect, it would be a much, much more expensive coin.

In any case, I would happily pay an extra $33.50 over bullion value for a very collectible 16th century Persian gold coin in the hopes that its numismatic value increases in the future. The numismatic optionality of this coin seems like a very good risk-reward ratio to me at the quoted price.

And, as I mentioned before, optionality turbo-charges your potential returns. With the Persian gold coin above, if the numismatic premium on the coin increases from 44% to 100% you experience a return of 39% – all without the price of gold moving one dollar. But if the price of gold doubles and the numismatic premium increase to 100% simultaneously, then the multiplicative effect magnifies your return to 178%!

This is the power of optionality in action. So yes, if given the choice between plain bullion and old gold coins, I will almost always choose the undervalued optionality offered by the latter.