Coins

The year was 2002 and I was scouring downtown Boston for antique bargains.  After unsuccessfully looking elsewhere, I finally stopped in at my favorite coin shop, JJ Teaparty.  Before they abandoned their physical storefront and became an online only coin store, JJ Teaparty used to acquire random assortments of old, semi-numismatic gold coins.  I would gleefully comb through these accumulations, knowing they would sell me good pieces at modest premiums over bullion value.

It didn’t take me long before I found what I was looking for.  I requested that six different French 20 franc gold coins be pulled from the display case for closer inspection.  The dealer laid a glittering cornucopia of early 19th century French gold before me.  There was a fine Napoleonic 20 franc coin, a lovely Louis XVIII piece from the Bourbon Restoration and a nice specimen from the July Monarchy of Louis-Philippe.

But there was more!  Two different types of 20 gold franc coins from the short-lived Second Republic of the late 1840s lay in front of me – Genius writing and the head of Ceres.  The final cherry on top was a pristine example of a Second Empire 20 franc piece from the reign of Napoleon III.  It was a veritable parade of early 19th century French gold.  Not only were these 140 to 200 years old coins all in above average condition, but a couple of them were even uncirculated.  I coveted them all.

There was only one problem: money.  The coins themselves were not very expensive, just $70 each.  And with gold trading at a modest $325 a troy ounce at the time, the premium over bullion prices was as low as I could possibly have hoped for with coins of this caliber.  But the economy was in recession in 2002 due to the bursting of the internet bubble and my job wasn’t secure.  Investing during a recession made sense, but $420 for all six coins was too much money for me to easily part with.

Ultimately, I decided that I could only afford two out of the six gems and chose the Napoleon I piece and one of the Second Republic coins.  I paid the dealer his well deserved $140 and left the store almost in tears.  You only rarely come across deals that good, and I was distraught at having to leave some of them behind.

In hindsight, I had made a major mistake by not investing during a recession.  I should have dug deep into my wallet to find the extra $280 to purchase the remaining four gold coins.  I should have found a way to fit it into my budget.  I should have, barring any other possibility, just charged it to my credit card.  Basically, I should have found a way – any way – to make the deal work.

Why?  Because, those six gold coins that cost $420 back in 2002 would today, in 2017, conservatively sell for $1,800.  That translates into an annualized return of 10.19% over the last 15 years!  This investment performance is especially impressive in light of the fact that the S&P 500 stock index has barely managed more than 6% per annum over the same timeframe.

I believe there is a profound lesson in this story for both coin collectors and antique investors alike.  I am firmly convinced that this phenomenal deal was only available because of the deep recession the economy was experiencing at the time.  The recession suppressed the price of precious metals, including gold, and reduced the collector’s premium charged on the coins.  In short, those French 20 franc gold coins were such great long term investments specifically because of the recession.

This situation applies more broadly to the world of investment grade antiques too.  Regardless of what type of antique you are interested in buying, investing during a recession is likely to give you better future returns.  Assets are always more reasonably priced in the depths of a broad economic slowdown and this applies doubly to antiques.  Money, in general, is scarcer and there are fewer collectors bidding against you.

As a result, antique dealers are usually more willing to be flexible on their pricing in order to maintain business cashflow.  But, once the economy recovers, those same antiques will become dear again, resulting in higher prices.  For these reasons, investing during a recession often leads to out-sized gains over the long run.  Dig deep for the money if you must; your future investment performance depends on it.

Numismatics – the study of coins – is a massive field.  It spans thousands of different varieties of coins minted anytime during the last 2700 years, from the 7th century BC to the present day.  These coins were struck in empires, kingdoms, sultanates, provinces, colonies and nations all over the globe.  But there is a little known observation about coin prices and GDP that can be of tremendous importance to everyone from the casual collector to the most well-heeled investor.

The general price level of old and obsolete coinage from a country is directly related to that country’s GDP (gross domestic product).  GDP is defined as the value of all the goods and services produced in a country during one year.  In other words GDP is the size of a country’s economy, with richer nations having higher GDPs than less wealthy nations.

Interestingly, a country’s coin prices have a direct relationship to its GDP.  Simply put, the higher a country’s GDP, the higher the price of its antique coins.  This is due to the fact that a developed nation’s economy is able to support many collectors.  And more coin collectors translate directly into more demand, which naturally leads to higher prices.

But there’s a catch.  Coin collectors are most likely to collect coins from their native country.  Almost everyone is interested in their own country’s history, culture and art.  So U.S. collectors tend to collect U.S. coins, while British collectors are apt to collect British coins and Japanese collectors naturally gravitate towards Japanese coins.  This tendency isn’t ironclad of course.  Some collectors do branch out into “foreign” coins, foreign being relative to the collector’s home country.

So this little tidbit of information allows us to draw some broad conclusions about coin prices and GDP.  Old U.S. coins usually have the highest prices and largest market share in global numismatics because of the United State’s massive GDP (estimated at over 18 trillion dollars for 2016).  Coins from other developed nations – aka high GDP countries – like Japan, Great Britain, France and Germany also have relatively high prices.

On the other hand, emerging market countries with much smaller GDPs are only able to support relatively small collector bases.  Predictably, prices for coins from these emerging economies concentrated in Africa, the Middle East, South America and South Asia are, as a general rule, much lower than for developed nations’ coinage.

Exceptions always exist of course.  China is one of them.  Its GDP has grown so large, so quickly that it still has a relatively underdeveloped middle class and, by extension, collector base.  Therefore, prices for Chinese coins are still lower than its prodigious GDP would initially indicate.  As time goes on and its native collecting community grows, however, that is likely to change.

Another quirk of the relationship between coin prices and GDP is that it only applies to modern coins.  Modern, in this case, means coins struck anytime after circa 1700 AD.  The reason for this is simple.  Many people from all over the world are interested in ancient and medieval history, mythology and lore.  Legends, myths and archetypes are usually cross-cultural.  This interest ultimately manifests itself as broad-based, international collector demand.  Therefore, ancient and medieval coins, being tangible repositories of this mythos, are attractive to a broad swath of collectors, regardless of country of citizenship or nationality.

Let’s look at ancient Greek coins as an example.  Where does the collector demand for these coins originate?  Well, ancient Greek coins are widely considered to be numismatic masterpieces.  These impressive coins are held in prestigious private collections and fine museums all over the world.  Demand for them is truly international.  In fact, I would wager that most ancient Greek coin collectors today are (non-Greek) Europeans or Americans.  Contemporary Greeks may love their heritage, including their country’s ancient coinage, but their purchases make up only a tiny portion of the total demand for ancient Greek coins.

I should note that the year 1700 is not a decisive dividing line between medieval and modern coinage either.  It is really more of a general rule, with lots of gray area on either side.  It does help that most countries struck coins by hand before 1700 while converting to more mechanized production methods afterwards.  But 1700 is still a rather imperfect date, subject to a great deal of variation.

Japanese coinage is a good example of this.  Japan was ruled by the Tokugawa shogunate from 1603 to 1867.  While Europe was rapidly industrializing, Japan pursued an isolationist foreign policy.  Because of this, Japan during the Tokugawa shogunate was really structured like a medieval kingdom with a classically feudal society.  This means that Japanese coins struck during the Tokugawa shogunate – the era of the samurai – have broad appeal outside of Japan and, by extension, a widespread foreign collector base.  Demand and prices aren’t tied directly to Japan’s GDP as it is with Japan’s more modern, post-Tokugawa coinage.

The relationship between coin prices and GDP has two major implications.  First, it should be obvious that a savvy investor can exploit this situation to lay bets on individual national economies.  For example, if you think India’s economy is going to do exceptionally well over the next decade or two, then assembling a collection of high quality, modern (post 1700 AD) Indian coins makes a lot of sense.

The corollary to this theory of coin prices and GDP is that ancient and medieval coins are the blue chips of the numismatic market.  Their prices don’t rely upon good economic performance in any one country.  Instead, ancient and medieval coinage is more of a wager on the growth of global GDP.  Under this scenario, it doesn’t matter who is prosperous or where they live.  All that is important is that a certain portion of that global prosperity will predictably materialize as demand for ancient and medieval coinage.

Hand striking, sometimes referred to as hand hammering, was the primary means of minting coins in the ancient and medieval periods.  This process involved affixing the lower die to an anvil, placing a heated flan (blank coin) on top of that die and then placing the upper or hammer die on top of the flan.  This left the flan sandwiched between the two dies.  A heavy hammer was then used to forcefully strike the upper die, forcing the impressions from both dies into the surface of the flan.  The result, if everything went well, was a hand struck coin of bold strike and incomparable beauty.

Hand striking was the dominant minting technique for the first 2,200 years after coinage was invented – from about 650 BC to 1550 AD.  There are good reasons why this was the case.  It was relatively cheap and required little technology to achieve good results.  However, as any connoisseur of ancient or medieval coins can tell you, it had many drawbacks as well.

For one, it was easy to botch a strike.  Making a mistake when hand striking could result in the coin being off center, weakly struck or double struck.  In addition, flans were manually prepared as well, often resulting in cracked, undersized or otherwise flawed coin blanks.  The final problem was the dies themselves.  Because a coin’s design was hand engraved directly into either bronze or iron dies, the artistic style of motifs and lettering, along with other important aesthetic qualities, could vary considerably from one set of dies to the next.

All of these factors combine to make ancient and medieval coinage both incredibly exhilarating and unbelievably frustrating.  It is exhilarating to hold a millennia old ancient coin of impossibly high relief and superlative style in the palm of your hand.  It is simultaneously both a work of art and a piece of living history.  It is equally frustrating when searching for a particular pre-modern coin to only find sub-par specimens with poor style and bad striking again and again.

It also means that ancient or medieval coins from the same series with the same design can look dramatically different.  One example may be a masterpiece while another, ostensibly identical coin, may be a dog.  Coin investors should take note; eye appeal and pricing can vary greatly due to striking and style.  And that is before considering the condition of a coin!

There are a few guidelines when collecting ancient and medieval hand struck coins.  First, greater care in the striking process was invariably taken with coins of higher intrinsic value.  So, generally speaking, ancient and medieval gold coins tend to exhibit good striking characteristics, well prepared flans and finely engraved dies.  Bronze coins, in contrast, are the ugly ducklings of pre-modern coinage.  They are often poorly struck, minted on irregular, dumpy flans and possess little eye appeal.

Exceptions do exist however, like the stately bronze Sestertius and Dupondius of the Roman Empire, along with the magnificent, huge bronze coins of ancient Ptolemaic Egypt.  Silver coins fall in between gold and copper in terms of average striking characteristics.  Sometimes quality is excellent, like on ancient Greek silver staters and tetradrachms.  Other times it is bad, as on some of the early medieval silver issues from the kingdoms of the Indian subcontinent.

Even though some ancient coins were minted in very large quantities by the standards of the day, they are still exceedingly rare compared to modern issues.  A set of ancient coin dies might have only lasted 15,000 to 30,000 strikes before wearing out.  For example, it is estimated that about 17 million silver denarii were minted every year in the 2nd century AD during the height of the Roman Empire.  This might seem like a lot until you consider that many modern issues from the United States exceed one billion minted per year!  And ancient and medieval coins have suffered severe attrition over the centuries as well.  Only a tiny fraction of their original mintages survive – and an even smaller fraction if you want a nice example with a fine strike in good condition.

In the mid 16th century, German silversmith Max Schwab invented the screw press.  Coins created via the screw press are known as milled coinage.  The screw press was a machine that, as the name implies, used a screw to maximize mechanical leverage in the striking process.  It could be powered by either humans or animals, as required.  The screw press, with its higher striking pressure, brought much needed consistency to the art of coining.  Milled coinage, in sharp contrast to hand struck coinage, would be recognizable by today’s man on the street as effectively modern.

The development of the screw press was also accompanied by the invention of mechanical rolling mills and punches.  Together, these machines heralded a new era of coin production.  Flans were now far more regular in thickness and roundness than ever before.  The screw press could even mint coins with reeded or lettered edges – an important safeguard in a world overrun with clipped, underweight coins.  And die impressions were generally far stronger compared to hand hammered coinage, although weak strikes still occasionally occurred.  Perhaps most importantly, as the mechanized screw press was refined, coins could be minted more quickly than with hand striking, leading to significantly larger volumes of coinage to facilitate burgeoning commerce.

Milled coinage was first adopted in France during the reign of Henri II (1547 to 1559) and in England during the reign of Elizabeth I (in the 1560s).  Although technically superior to hand hammered coinage, milled coinage was soon abandoned by both France and England because of opposition from long-standing mint employees who were used to hand striking coins.  They perceived the new screw press method as a threat to their continued employment as coiners. It wasn’t until almost a century later, in the 1630s and 1640s that milled coinage was readopted in France and England on a more permanent basis.

The rest of Europe adopted these new mechanical minting technologies piecemeal during the 16th and 17th centuries.  By 1700 the vast majority of European coinage was minted via the screw press or its derivatives.  I find this date – 1700 AD – to be a useful way to roughly delineate older, hand struck coinage from newer, mechanically struck coinage. However, I should note that some parts of the world – primarily India, Southeast Asia, parts of the Middle East and Japan’s Tokugawa shogunate – still struck coins by hand for many decades after 1700 AD.

Hand struck ancient and medieval coins have a unique charm all their own.  But if you are interested in collecting them, it is important to understand the different technologies used in their manufacture.  This maxim applies doubly if you are looking to invest in pre-modern coinage.  Search for specimens that have well-centered, strong strikes on broad flans.  Also be sure to choose coins rendered in fine style, as this attribute varied based on the skill of the die engraver.  And above all, always buy coins with the best eye appeal you can find.  It is a major indicator of desirability and, by extension, future price appreciation for ancient and medieval coins.