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Rare Coin Market Update

Rare Coin Market Update #7 (Archives)

Seeking Rare Coins Quality - "Buy the coin, not the holder"

by James DiGeorgia 2012-04-24 11:38:44

I took a quick three day trip to Chicago to attend the annual Central States Rare Coin Convention. Sales have been very strong for us the past few months and our inventory level has been steadily dropping, so I figured attending the show would give me an opportunity to stock up on some new purchases. What I discovered at the show was there were precious few of the high-end quality and truly rare coins that I routinely purchase available, and those that were on the market were priced at virtually the prices I would want to place them with clients.

High grade PCGS and NGC graded coins that have also been certified by CAC are trading between 5% and 35% above grey sheet ask. They are extremely liquid with literally dozens of national dealers willing to lay down their money to buy CAC certified coins.  CAC evaluates coins graded by both PCGS or NGC against extremely high quality criteria for a specific grade. Every coin that meets these criteria is awarded a bright-green CAC seal.

Why are CAC certified coins trading at such pricey premiums?

More often than not, MS64/PR64 and better copper through $20 Gold coins certified CAC coins are a half point to a full point better than the average quality coins graded solely grade by PCGS or NGC. They tend to be better struck, originally skinned and possess the proper color and look. Dealers, collectors and investors all seem to recognize this and thus the premium price. My visit with many dealers' inventories during the show confirmed this, and as a result there's clearly a premium being asked and paid for these coins. However this is also creating tremendous opportunities for bargain hunters and speculators.

I recommend CAC coins all the time. If you're looking for the best quality you can't go wrong focusing on CAC certified high-end quality rare coins. Yet, I have always lived by the credo "Buy the coin, not the holder". It's never been truer than now.

While I prefer CAC certified coins, the fact is there are many PCGS and NGC coins that don't pass CAC examination that should. The reality is that CAC is so strict in my opinion that many coins that should certify don't and these coins can be purchased for as much as 35% less than they could be obtained if they were CAC certified. Sometimes even coins that would pass both PCGS and NGC at the existing grade or even upgrade do not meet the approval of CAC. In essence, there are coins that are literally worth thousands of dollars more than the grade given by NGC or PCGS that may not have successfully passed CAC examination.

Case in point; I have in my personal collection an 1835 Bust Half Dollar graded Choice Uncirculated MS65 by NGC. The coin was graded over 15 years ago. This little gem is bright white with immaculate surfaces, a full strike and so mark free that when I submitted it, I was looking for a gold label (i.e. the way CAC labels coins it considers under graded). To my surprise the coin didn't even garnish a green label. Am I upset by the slight of CAC on one of my favorite personal coins?

Absolutely not!

The fact is I know from experience the coin will eventually re-grade MS66 and instead of being worth $6,500, it's very likely worth $14,500 to $16,000 in a PCGS or NGC MS66 holder.

Why am I so confident?

I've personally handled close to 100 MS65 and MS66 Bust Half dollars over the 37 years I have bought and sold rare coins. I know what they look like.

I've seen over a dozen I would grade MS65 "C" quality or MS64+, dozens I would grade solidly MS65 "B" quality and still others I would grade MS65+ or better "A" quality coins of which many would grade MS66 on re-submission.

Experience tells me that my 1835 Choice Uncirculated Bust Half would easily bring $10,000 raw in a national auction. Thus a perfect example of why I always preach -- buy the coin and not the holder.

While at the show in Chicago I examined many high end quality gold and silver rare coins in NGC and PCGS holders that were not certified by CAC that I think are accurately graded. These are wonderful rare coin investment/collection opportunities that can be bought for as much as 35% less than their CAC counterparts.

Recognizing the reality of this grading and pricing dynamic in the market today between NGC and PCGS rare coins that are not certified by CAC is not a knock on John Albanese, the head grader and founder of CAC.

The fact is I'm a huge fan of John and CAC. We speak a couple of times every week and it's always a pleasure. The fact is CAC is super strict and cautious; as a result many coins that should be certified by CAC aren't. And yes there are some CAC coins I consider over graded. A few examples included a couple of PCGS MS64 Lafayette Dollars and a couple of MS64 Trade Dollars at the show this past week that made me wince.

In many ways it's a very similar situation to the strictness of PCGS when submitting an NGC coin for cross over.

Many times over the past dozen years I have submitted coins in NGC holders to PCGS for crossover and they have not crossed, only to find that when I cracked the coins out and submitted them raw, they did grade the same grade determined by NGC.

Do I fault PCGS for the apparent trend of being super conservative when examining NGC coins for cross over?

Absolutely not!

Bottom line, PCGS and CAC are in the business of being as conservative as reasonably possible so that their product vies for the attention and loyalty of as many collector/investors as possible.

Being very conservative means a good 15% to 20% (in my opinion) of the NGC graded rare coins submitted to PCGS won't be crossed, and about the same number of NGC and PCGS coins examined by CAC will not pass that should.

I believe a good deal of money can be made arbitraging this dynamic. As a result, I intend to not only continue to buy CAC certified NGC and PCGS coins, but I also will be on the lookout for "A" quality coins graded by NGC and PCGS that have missed the cut with CAC.

Bottom line: Grading services are transitory. They exist now. In 20 years there may be three entirely new grading services in business. Focusing on the coins instead of the holders is the only smart rare coin investing strategy you can rely on to always work. Focusing on the coin and not the plastic holder will limit your losses and maximize your profits. It's just that simple.

When looking at NGC or PCGS coins not certified by CAC on Finest Known's website keep in mind that I go to great pains to make sure that the coins are "A" and at least "B" quality coins. I often sell wholesale to dealers the "C" and even "B" quality coins for their grades to make sure my clients get the best.

Why sell any "B" quality coins in the first place?

Sometimes a "B" quality coin is the absolute best that can be found on the market for that date, mint, and variety. If you're building a MS65 set of Barber quarters, you'll likely find the best 1913-S and 1896-S examples you can find are "B" quality coins for the grade.

The key to successfully navigating the rare coin market for profits - find a dealer that knows the market and is willing to share it with you.

Feel free to email me any questions you might have at JamesDiGeorgia@gmail.com

Best Wishes

James DiGeorgia