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The Importance of Premium Storage for Antiques and Valuables

The Importance of Premium Storage for Antiques and Valuables

One of the things I find most puzzling about valuables is how many people insist on storing them in the cheapest containers possible.  For example, my grandmother used to keep her old silver coins in leftover plastic pill bottles.  A lot of women store their best jewelry in the same cheap Wal-Mart jewelry box that they use for their nastiest costume jewelry.  Other people have no compunctions about tossing their treasured family heirlooms into cardboard shoeboxes.

Sure, I understand the reasoning behind the phenomenon.  A lot of people keep their valuables in non-premium storage because it is convenient (and cheap) to use whatever is on hand.  However, the Tupperware containers, plywood boxes and cardboard cartons most of us have lying around are rarely appropriate for the long-term storage of high value items.

As you can probably guess, I believe that valuables like antiques, jewelry and other precious items should be kept in premium storage.  Now, this very much reflects my personal opinion.  But it also makes a certain amount of sense.  After all, an item that costs hundreds or even thousands of dollars deserves to be housed in a container befitting its price tag.

Is it reasonable to bury your grandmother’s antique cameo brooch in your sock drawer?  Is it sensible to store your treasured Rolex watch in a cardboard box at the bottom of your closet?  Is it appropriate to dump your engagement ring into a plastic tray on top of your dresser at the end of a long day at work?

Sure, you can store valuables this way, but should you?  Is it logical to treat rare, high-value or sentimentally-important valuables as if they were common, everyday items that aren’t meaningful and can easily be replaced?

For many hundreds of years, the wealthiest members of society kept their very finest items in premium storage.  When European nobility became obsessed with collecting ancient Greek coins in the 16th and 17th centuries, they naturally gravitated towards a storage solution that was as regal as the coins themselves – mahogany coin cabinets.  Not only did cabinets made from mahogany look amazingly beautiful, but the wood was also chemically neutral.  This ensured that any coins stored in a mahogany coin case didn’t corrode or tarnish due to resins or oils exuded by the wood.

Of course, these days we have third-party certified coins, which are held in chemically inert, sonically-sealed, clear plastic holders.  And while these slabs are certainly practical from a handling and preservation standpoint, many collectors feel they are clinical and impersonal.

I tend to agree with these assessments, which is why I bought myself a real Honduran mahogany coin cabinet by a skilled British woodworker, Peter Nichols.  Peter Nichol’s mahogany coin cabinets might be expensive, but they really are the ultimate premium storage solution for uncertified rare coins.  I feel it was money well spent; so do most people who see it.

Of course, other valuables besides coins can benefit from the right premium storage too.  This is one of the reasons I’m obsessed with fine hardwood boxes.  The very best hardwood boxes are typically hand-crafted from the finest woods known to man.  They can be made from either deciduous or tropical hardwoods, including walnut, mahogany, cherry, rosewood and ebony.  These beautiful hardwood boxes are the perfect premium storage pieces for high-end jewelry, wristwatches or objets d’art.  The best of the best are even signed by their makers; they transcend being mere boxes and become works of art in their own right.

I’m also a fan of antiques that come with their original cases.  These can be tough to find, but they are a real treat when you do come across them.  Vintage fountain pens, cigarette holders and estate jewelry are among the most likely antiques to come with their original (sometimes fitted) cases.  Original cases not only provide stylish premium storage, but they also raise the value of the antiques in question, provided they are still in good condition.

However, an item doesn’t have to be old to come with a great original case.  In 2008, the U.S. Mint decided to update the packaging for its 1 troy ounce proof American Buffalo gold coin.  These coins are the collector’s version of the popular American Buffalo gold bullion coin.  The mint ended up going with an aesthetically-striking, leatherette-trimmed hardwood display case that evokes images of the Old West.  It perfectly captured the rugged zeitgeist of the American Buffalo gold coin.

I have no doubt that in the future coin collectors will ardently seek out these proof gold coins in their original mint packaging.  And they may not be as easy to find as you think either.  Many of these coins are removed from their original cases and sent to third-party grading services shortly after leaving the U.S. Mint.  In 40 or 50 years, these masterpiece proof coins in their original issue packaging may be quite scarce.

I believe that plastic and cardboard are acceptable for some applications.  I expect my kitchen appliances to make liberal use of plastic, for instance.  I expect the items I order from Amazon to arrive entombed in (a multitude) of cardboard containers.  But I don’t think the most monetarily valuable objects that I own should be wrapped in cheap plastics, chipboard and cardboard.

Luckily, premium storage made from high end materials, like hardwoods, velvet and leather, offers a great solution.  Yes, buying a fine hardwood valet or jewelry box will cost more than a few dollars.  But I think it is worth it to avoid having yet another cheap, mass produced, “made in China” box floating around the house.

 

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The Obscure Certified Coin Bubble of the Late 1980s

The Obscure Certified Coin Bubble of the Late 1980s
Photo Credit: PCGS

In today’s age of serial asset bubbles, it is easy to believe that financial history began in the late 1990s.  But this is not the case.  Few investors know this, but the U.S. rare coin market experienced a truly gargantuan certified coin bubble in the late 1980s.

I had my own, personal experience with this certified coin bubble.  In the late 1980s, I was subscribed to COINage magazine, a nationally distributed industry periodical.  Among its pages I found an advertisement for a coin I desperately wanted – an 1872 U.S. three-cent nickel that was certified MS-62 by PCGS.  This eccentric coin was available for the princely sum of $795, an amount that a 13 year old boy in 1989 could never hope to afford.  In the end, that was probably for the best.

The U.S. mint struck the three-cent nickel from 1865 to 1889.  This small, odd-denomination coin was a reaction to a shortage of small change that arose during the U.S. Civil War.  During the war, the U.S. government issued “shinplasters” – cheaply-made, legal tender fractional notes meant to temporarily satisfy demand for low denomination cash.  Once the war ended, the U.S. mint flooded the economy with small-denomination coins to replace the hated shinplasters.  The three-cent nickel was one of these new, post-Civil War denominations.

The three-cent nickel that I badly coveted wasn’t in a particularly high condition.  MS-62, otherwise known as Mint State-62, is much closer to the lowest mint-state grade of MS-60 than the perfection of MS-70.  An MS-64 or MS-65 example really would have been much better (and more expensive).  But a mitigating factor was that 1872 was a somewhat less common date for the three-cent nickel series.  The mintage was only 862,000 versus 11 million plus for the most common date in the series.

 

MS-64 & MS65 Certified U.S. Three Cent Nickels for Sale on eBay

(This is an affiliate link for which I may be compensated)

 

That scarcity didn’t stop the coin from plummeting in value when the certified coin bubble burst.  Even today, nearly 30 years later, you can still buy a slabbed MS-62 three-cent nickel for only $200.  That is a stunningly high cumulative loss of nearly 75%.  If you measure the decline in inflation-adjusted terms, the situation is even worse, with a loss of over 88%!

There were several root causes of the massive certified coin bubble of the late 1980s.  First, memories of the 1970s and its dreaded inflation still lingered in the minds of many investors.  In early 1987 the price of silver spiked to more than $10 a troy ounce, almost double its normal price at the time.  Many people thought inflation might be making a comeback and rare coins seemed to be the perfect way to hedge this risk.

Another contributing factor to the late 1980s certified coin bubble was the 1987 stock market crash, widely known as Black Monday.  On October 19th 1987, the Dow Jones Industrial Average collapsed by 22.61%.  It was the largest one day percentage loss in the index’s history.  Even though the resulting bear market in stocks was over within a few months, many disillusioned equity investors looked for alternative investments.  Numismatically valuable U.S. coins seemed to offer a good substitute to the treacherous stock market.

But the most important factor in the certified coin bubble was undoubtedly the development of slabbing itself.  Third-party certification was an attempt to impose grading standards on an industry that was famous for its inconsistency.  In 1985, PCGS became the first third-party coin grading company.  PCGS found immediate success in the numismatic industry and soon spawned a close competitor, NGC, in 1987.

 

MS-65 & MS66 Certified U.S. Morgan Silver Dollars for Sale on eBay

(This is an affiliate link for which I may be compensated)

 

The advent of independent, third-party certification had a seismic impact on the rare coin industry.  Before slabbing, numismatics was overrun with fly-by-night companies and boiler-room operations that sold severely over-priced, grade-inflated coins as investments to unsuspecting consumers.  The arrival of PCGS and NGC changed the industry nearly overnight.  Now dealers, collectors and investors could buy or sell slabbed coins “sight unseen” because they all trusted the grades given by the major grading services.

This situation is typical of all great bubbles.  A legitimate innovation or discovery takes place that promises the future creation of tremendous wealth.  In this case, the certified coin bubble was driven by the almost religious belief that slabbing would transform the numismatic market.  It was widely thought that certified coins would enjoy greatly improved liquidity generated via massive institutional demand from financial firms.  Proponents at the time felt these factors justified perpetually rising rare coin prices.

As the late 1980s unfolded, the enthusiasm for slabbed coins reached a fevered pitch.  As with so many other bubbles, it didn’t take long for Wall Street to join the certified coin bubble.  In February 1989 the respected financial firm of Kidder, Peabody & Co. started a limited partnership, the American Rare Coin Fund.  A year later Merrill Lynch launched a similar fund called the NFA World Coin Fund Limited Partnership.  UBS, another Wall Street firm, created an internal rare coin division dedicated to advising its high net worth clients on numismatics.  The potential for certified coins seemed almost limitless at the time.

 

MS-64 & MS65 Certified U.S. Liberty Head $5 Gold Coins for Sale on eBay

(This is an affiliate link for which I may be compensated)

 

And then it all came crashing down.  The U.S. certified coin bubble peaked sometime in mid 1989 and slowly – almost imperceptibly at first – began to weaken.  By late 1989 some categories of high-grade, common date coins, like Morgan silver dollars, were clearly in decline.  But the real, gut-wrenching carnage didn’t hit numismatic dealers and coin shows until the 1990 – 1991 timeframe.

The PCGS3000 Index, a key indicator of the rare U.S. coin market, peaked at $181,088 in May 1989.  The index bottomed out in December 1994 at $46,819 – a vicious 74% loss.  Even now in January 2018, the PCGS3000 index rests at $57,076 – a loss of more than 68% since the 1989 peak.

I think it is important to learn the right lessons from the late 1980s certified coin bubble.  It isn’t that tangibles are bad investments – far from it, in fact.  I think that tangible assets are, generally speaking, great buys at the moment.  After all, some high-grade, certified U.S. coins are available today for the exact same prices they sold for in the mid 1980s!

Instead, you should be wary of any asset class that is over-hyped by the financial media and Wall Street.  Avoid investing in that hot stock or index fund that all your friends, co-workers or relatives can’t stop talking about.  Right now these dangerously overvalued assets include high-flying tech stocks, like Netflix, Amazon and Tesla, along with virtual crypto-currencies like Bitcoin.  Ironically, some certified U.S. rare coins are a great investment at today’s prices; it just took nearly 30 years to get there.

 

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The Long Overdue Death of the Penny

The Long Overdue Death of the Penny

The penny is dying.  I don’t use them in cash transactions anymore and I am far from alone in that regard.  Most people think of them as nuisances, fouling cash registers, wallets and purses across the nation with a coin that long ago lost is raison d’être.  Let’s face it; one (cent) is the loneliest number.

I first conceived of this article when I was helping to clean out my grandmother-in-law’s house.  She owned a beautiful American penny eagle – a wall-hung, decorative heraldic eagle made from hundreds of individual pennies skillfully glued onto a pine-wood backer.  Now, primitive, country-style antiques are not my forte, but this was a magnificent piece of American folk art.  I felt compelled to take it home.

But this unusual piece of Americana also got me thinking about the fate of the humble one cent coin.  The penny was the very first coin officially struck by the U.S. mint, along with its little brother, the half cent in 1793.  At that time, the over-sized, 13.48 gram (0.48 ounce) coin was known as the large cent because its diameter was only slightly smaller than a modern half-dollar.  By the early 19th century, the iconic large cent had evolved into a slightly smaller, but still hefty 10.89 grams (0.38 ounces) slug struck in almost pure copper.

In those days, a large cent’s bullion value as copper was nearly equal to its face value.  By the 1850s, rising cost pressures caused the U.S. mint to abandon the large cent for the small cent format we are all familiar with today.  The last large cents were struck at the Philadelphia mint in 1857.

The new small cent served the American public well until the late 1970s.  By that time, raging inflation, coupled with skyrocketing copper prices, made the U.S. penny’s future existence an open question.  After exploring various options, the U.S. mint finally decided to change the traditional 95% copper/5% alloy composition of the penny to a new and cheaper copper-coated zinc core.  Since 1982, U.S. pennies have been, ironically, made from 97.5% zinc and just 2.5% copper.  The penny has devolved into a small, ugly, debased monstrosity that reflects our modern coinage dark age.

Pre-1982 copper pennies, however, are actually worth more than their face value as copper bullion.  It only takes about $1.54 in pre-1982 pennies to equal one pound, but #1 scrap copper currently goes for about $2.50 per pound, leaving sizable room for profit.  Unfortunately, it isn’t legal to melt copper pennies (or nickels) for profit; the Federal government banned the practice in 2006.  Even so, some people stockpile and trade pre-1982 pennies because they are a widely recognized form of copper bullion.

And that brings us to today.  It may have been a long time coming, but the death of the penny is imminent.  This lowliest of denominations has finally, after decades of uninterrupted inflation, become almost worthless.  This wasn’t always the case, though.  According to the U.S. CPI inflation calculator, a penny in 1950 had the same purchasing power as a dime does in 2017.

I can actually remember the last time I bought an item that was priced at one cent.  It was 1986 and I was vacationing with a friend in the Appalachian Mountains.  We stopped in at a general store (yes, there were actually a few general stores left back then – usually in remote areas) and I picked out a handful of individually-wrapped candies that were priced at only one penny each!  But even at that time, penny-priced merchandise was an unusual situation.

Since the 1980s, the penny has collapsed into complete monetary irrelevance.  Inflation has continued unabated for the last 30 plus years, leading to the terminal decline of the penny’s real value.  In 1986 the penny was worth an already questionable 2.24 cents in today’s purchasing power.  By 1996, it was worth a mere 1.56 cents.  By 2006, that number had shrunk to a derisive 1.20 cents.

The death of the penny as a medium of exchange has already taken place.  Vending machines don’t take pennies.  Parking meters don’t take pennies.  Toll booths don’t take pennies.  Only Coinstar machines still accept pennies, undoubtedly because Coinstar’s parent company enjoys skimming 11.9% of the face value of your (and everyone else’s) useless penny stash.

The death of the penny isn’t just an American phenomenon either.  New Zealand ceased minting pennies for circulation in 1988.  Australia wisely abandoned its penny in 1991.  Even the United State’s northern neighbor, Canada, finally gave up the penny in 2013.

There are good reasons why the death of the penny is spreading throughout the Anglo-American world.  In addition to its miniscule buying power, rising commodity prices have rendered penny production a losing proposition.  In 2016, it cost the U.S. mint 1.5 cents for every penny struck.  These elevated mintage costs aren’t temporary either.  The last year the U.S. mint actually made a profit on the striking and distribution of pennies was back in 2005!

In a rational world, the U.S. would have withdrawn the penny from circulation sometime during the 1990s.  Unfortunately, this didn’t happen for two different reasons.  One is good old-fashioned pork-barrel politics.  Zinc producers have a lot to lose from the death of the penny.  Over 9.1 billion pennies were struck in 2016 alone, using more than 22,000 metric tons of zinc worth an estimated $70 million.  Unsurprisingly, one particularly vocal supporter of the U.S. penny is Jarden Zinc Products, the sole supplier of the copper-coated zinc planchets the mint uses to strike the coins.

But I personally feel that the real reason for the agonizingly slow death of the penny is that killing the smallest U.S. denomination would be a tacit admission of inflation by our political overlords.  After all, the penny is the United State’s longest running denomination, having been used by Americans more or less continuously for 225 years.  Being the politician under whose watch the penny finally dies sends all the wrong messages to your constituents.

It would be tantamount to announcing to every middle-class, voting American that inflation is alive and well and their money isn’t worth what it used to be.  These are not the themes that successful re-election campaigns are made of.  So instead we put on a happy face with talk of low inflation and ever rising stock prices.  And the inevitable death of the penny is deferred for yet another day.

In many ways the looming death of the penny is just a symptom of much deeper monetary problems facing both the United States and the entire developed world.  Global central banks have been recklessly expanding their balance sheets for years now, ostensibly to fight non-existent “deflation”.  The total aggregate assets of the U.S., European and Japanese central banks have increased from around $4 trillion in 2008 to about $14 trillion in late 2017.  This represents an almost 15% annualized expansion of the base money supply over the last 9 years.

While the negative monetary and social consequences of these actions have been largely deferred, they will come due at some point.  This is one of the reasons I advocate the purchase of fine art, antiques and other tangible assets for investment purposes.  The penny may be dying, but that doesn’t mean your financial dreams have to die with it.

Should You Invest in Proof American Gold Eagles?

Should You Invest in Proof American Gold Eagles?

The American Gold Eagle coin is one of the world’s most successful bullion issues, but are proof American Gold Eagles a good investment?

Since the inception of the U.S. Mint’s Gold Eagle program in 1986, over 25 million ounces of these bullion coins have been released to precious metal investors.  However, there are important questions regarding these beautiful coins that surface repeatedly.  Are modern gold bullion coins – even proof versions – truly collectible?  Should you invest in Proof American Gold Eagles?

Proof coins are carefully struck collector’s versions of existing “business strike” coins.  In the case of American Gold Eagle coins, the vast majority of pieces minted are intended for the bullion market.  These bullion business strike coins are struck quickly in a highly automated fashion in order to satisfy the considerable quantities demanded by precious metal investors.

In contrast, proof American Gold Eagles receive special care.  The actual minting process is very involved and occurs exclusively at the U.S. Mint’s specialized West Point facility located in the Hudson River Valley of New York state.  Specially selected, hand-polished coin blanks are individually hand-fed into a press fitted with the best coin dies available.  The coins are then struck a minimum of two times at low speed to ensure the best impression possible.

The resulting gold coins are then hand-inspected, one-at-a-time, by white-gloved mint employees.  Any coins showing even the slightest imperfection are immediately rejected and condemned to be melted down.  Proof coins that pass this rigorous inspection process are sealed in plastic capsules for preservation purposes before being mounted in a satin-lined, luxury presentation case that includes a certificate of authenticity.

Proof American Gold Eagles are a sight to behold.  The exacting production steps adhered to by the U.S. Mint create a coin with a mirror-like field – the flat “background” area – and highly frosted devices – the raised design portion.  This highly desirable effect, a mirrored field with contrasting frosted devices, is known by coin collectors as a cameo proof.  Third-party grading services, like PCGS and NGC, will note the cameo effect on proof coins they certify with the designation CAM (for cameo) or DCAM (for deep cameo).  While the highly desirable cameo effect is normal on proof coins today, it was rare before the invention of highly advanced minting technology in the late 1970s.

In addition to proof coins, the U.S. Mint’s West Point branch also strikes another variety of collector’s coin, called burnished American Gold Eagles.  These burnished uncirculated coins are specially struck using many of the same exacting procedures as proof coins, including individual handling.  However, the resulting burnished American Gold Eagles are not proof issues and do not have the mirror-like, cameo finish of proof coins.  Instead, burnished American Gold Eagles look similar to matte proof coins, with both the fields and devices possessing a softly frosted appearance.  For the purposes of this article, proof American Gold Eagles and burnished American Gold Eagles have very similar attributes and can be viewed interchangeably.

In spite of the incomparable beauty and technological triumph of proof American Gold Eagles, there are some people in the bullion industry who don’t like them.  If you search the internet for information on these paragons of modern Americana, one of the first results you will see is an article titled “Hidden Dangers in Buying Proof American Gold and Silver Eagle Coins“.

This article contends that many bullion dealers selling proof American Gold Eagles mark up the coins excessively, leaving clients with overpriced collector’s coins that are actually worth only a modest premium above their spot values.  There is an element of truth to this charge.  Some unscrupulous gold dealers, especially fly-by-night companies that advertise aggressively on television or talk radio, do charge far too much for these coins.  But, of course, all industries have their share of morally questionable business people who wish to take advantage of the ignorant.  An informed coin investor buying proof American Gold Eagles from a reputable dealer will have nothing to fear.

Proof American Gold Eagles are aesthetic gems that echo the golden age of American coinage.  The obverse design of the American Gold Eagle was borrowed from one of the most iconic U.S. coins ever produced – the Saint Gaudens double eagle gold coin.  In the early 20th century, President Theodore Roosevelt strongly believed that a great nation deserved great coins.  Therefore, he commissioned renowned sculpture Augustus Saint-Gaudens to create a circulating gold coin modeled on the Greek numismatic masterpieces of ancient times.  The result, minted from 1907 to 1933, was the incomparably beautiful Saint Gaudens $20 gold coin.  Its front displays the personification of Liberty boldly striding forward as the rays of the sun burst forth around her.

In addition to their rich history and meticulous striking process, both proof American Gold Eagles and burnished American Gold Eagles have mintages that are far lower than their bullion counterparts.  With the exception of its first two years of production when mintages were higher, 1 troy ounce proof American Gold Eagles have averaged fewer than 40,000 specimens issued per annum from 1988 through 2016.  After 1987, no year had a proof mintage greater than 100,000 pieces and over half of the series sports mintages of fewer than 40,000 examples.  And the fractional 1/2, 1/4 and 1/10 troy ounce coins often have even lower mintages than the 1 troy ounce pieces.

These low mintage numbers for proof American Gold Eagles are in sharp contrast to the business strike, bullion version of the coin.  The average mintage of bullion 1 troy ounce American Gold Eagles is over 600,000 pieces struck annually (from inception through 2016) with several individual years exceeding 1,000,000 coins.  The proof versions, on the other hand, have dramatically lower mintages – often 1/10 or less of the bullion coins.

Burnished American Gold Eagles, like their proof cousins, also have shockingly low mintages.  Mintages for 1 troy ounce burnished American Gold Eagles have averaged a scant 13,000 examples per annum through 2016.  These modest mintage numbers are absolutely dwarfed when compared to those for circulating U.S. coins, which generally vary between millions and billions of examples.  Simply put, burnished and proof American Gold Eagles are some of the rarest modern U.S. coins in existence.

Another little known advantage of proof American Gold Eagles is that they are the only type of proof gold coin eligible for ownership in a precious metal IRA account.  While collectibles and antiques are specifically prohibited in U.S. retirement accounts, a carve-out was made for holding physical bullion bars and coins in a precious metal IRA.  Luckily for the savvy tangible asset investor, the U.S. Congress overlooked the numismatic potential offered by gold bullion coins held in a precious metal IRA.

With premiums generally ranging from a modest 10% to 40% over spot for common date coins, burnished and proof American Gold Eagles have a lot of hidden investment potential.  Despite possessing little numismatic potential, regular bullion American Gold Eagles have premiums that aren’t much lower, ranging from around 4% to 20%.  Paying a slightly higher premium for the aesthetically desirable proof or burnished versions makes a lot of sense when you consider their inherent numismatic optionality.

Now there are situations where burnished or proof American Gold Eagles don’t make sense.  If you are simply interested in buying the most gold bullion possible for your money and don’t have any interest in generating higher investment returns via numismatic potential, then you should pass on these coins.  But, provided you pay a reasonable premium above their bullion value, burnished or proof American Gold Eagles represent a wonderfully low-risk, high-return investment.  Not only that, but they are some of the only collector-oriented coins that can be legally purchased in a precious metal IRA.