My friend Van Simmons is, aside from one of the most honorable human beings you could ever hope to meet, is the man who co-created the Professional Coin Grading Service (PCGS) which is THE standard
today in rating rare coins.
When people think about gold, they usually think about bullion. Bars, eagles, etc. Few people think about rare coins. Yet rare coins have some unique benefits that you need to be aware of…
Aside from being highly liquid, they’re also easily transportable.
Below is a transcript of a recent interview I conducted on 8/01/2012 with Van Simmons on the topic-
Van, thanks for taking some time to give us your insights. In the rare coin business, you really require no introduction… you really revolutionized the industry. So let’s just skip to the business of gold—what do you think of the gold price right now?
Van Simmons: I remember asking Milton Friedman one time what he thought the price of gold was going to go to. He kind of looked at me funny. He goes, “Well, eventually the U.S. dollar will become nothing more than a museum relic piece and worthless, and based in dollars gold will be over a million dollars an ounce.”
I have another friend who’s one of the largest commodity traders in the world. I asked him one day, “What do you think gold’s going to go to long term?” He just started laughing, “Well, long term gold will be a billion dollars an ounce and bonds will be zero.”
So, essentially the same answer from two pretty smart people.
So, do I think it’s cheap currently? I think it’s getting to a more realistic value. But if you really look at the amount of dollars that are floating, and not just dollars, all currencies that are floating around the world––gold priced in U.S. dollars to me seems like a pretty good value. I own a lot of it that I bought over the last 3 decades so I don’t urgently need to add to my position, although I did add a little bit today in this price range.
But if I didn’t own any gold I would certainly start buying now.
I think a lot of readers will tend to agree with you. Of course, most people think about buying ETFs or physical bars and coins for bullion value. What do you think about these traditional gold investments?
If you bought gold bars, one ounce or kilo bars, and brought them in to a US coin dealer to sell them, he has to fill out a 1099 form and mail it to the IRS. If you sell Krugerrands or Maple Leaf coins it’s a similar type of trade, because both the Krugerrand and the Maple Leaf traded on the COMEX exchange back in the early ‘80s so they are reportable over a certain amount of coins.
VS: I don’t like bars.
The U.S. gold Eagle is not in that position yet. The old $20 gold pieces, minted prior to 1933, are different. When Roosevelt outlawed gold in 1933 he classified the U.S. gold coins as collectibles, not rare coins or bullion. So you have a case law in place, and it’s not from some judge, it’s from the President of the United States and it’s been there for 80 years.
So I think they’re going to be able to remain as a collectible and not a bullion product. If somebody comes in and sells me a bunch of $20 gold pieces it is a very anonymous investment. They have also been the most widely traded bullion coin worldwide for the last 100 years.
That’s a really interesting fact; do you think that would make a difference if gold confiscation ever comes back?
Without question. A lot of people call me and they say, “Do you think gold’s ever going to be outlawed?” Well, if they do outlaw gold you’re going to have to turn in your Krugerrands, your Maple Leafs, and everything else. But the old $20 gold pieces should be a different story.
I’m no legal expert and am not trying to give legal advice, but it looks like there’s a case law in place that you don’t have to, according to the President from 80 years ago. So, that’s one way to protect it.
More than that, in the beginning of the book Currency Wars it says something that really leveled me, which I wasn’t expecting. It talks about how when Nixon closed the gold window in the ‘70s-- he interrupted Bonanza, which was the most watched show on TV, and said, “These greedy currency traders and gold traders are threatening our gold in Fort Knox; therefore I’m going to close this window so people can’t come and take all of our gold out of Fort Knox.” The next day his popularity rating was 98%, because people thought: “Thank goodness he stopped the greedy bastards from stealing all of our gold.”
Today they may not outlaw gold but they may, at some point have to get on TV and say, “These greedy currency traders and gold traders of the world have ruined the value of the U.S. dollar and are threatening the most powerful nation on earth’s currency. So therefore we’re going to back the dollar, or a portion of the dollar, with what we have in Fort Knox. Now we are going to have to raise the price of gold to $5,000 or $10,000 an ounce.”
SB: Van, I just briefly want to go back to the bar vs. coin issue, we got off topic there. Do you think that bars are… less liquid than coins?
I think they are, if somebody called me and wanted to sell a gold bar I’d probably just tell them to go someplace else because I just don’t want all the hassles. I don’t have any clients who are calling looking for bars. I would say as high as 99% of the trading in gold today is done in one-ounce bullion coins and Pre 1933 $20 gold pieces.
SB: One of your primary areas of expertise is in collectibles; you’ve built a successful business on a unique knowledge. How well do collectibles fare in an inflationary environment?
You know, I have one client who’s worth billions who buys a lot of different collectibles, not just coins. I asked him one time, “You seem to spread it pretty well.” He said, “I am looking for something of value, and I realize I have to pay for it. But I’m looking for something that 50 years from now will have value.”
So, that’s one of the big things with collectibles, they’re a tremendous store of value. Collectibles are also a very anonymous, quiet way to pass wealth from one generation to the next generation. It’s off everybody’s radar, everybody’s books.
Some collectibles have gone up quite a bit in the last few years because they’re a small focused area. Antique guns, for example, you get five big guys going into the antique gun market and they’re going to run the prices to the sky, which they’ve done.
Antique knives are the same type of thing. There are certain art paintings that have gone up a lot.
So where we are right now is we’ve had gold go up five or six times in price. We’ve had silver go up seven to ten times in price. Collectibles really haven’t moved up that much, but they tend to move up more in inflationary environments.
SB: What primarily drives the price in collectibles, particularly in rare coins? Is it—the bullion value? The scarcity? What’s your take on that?
I think in the rare coins, 100% of it is the rarity based on its collectability. The bullion has very little to do with it. I mean, when you see a 1913-nickel, sell for $4.5 million it obviously has nothing to do with the bullion price. Don’t get me wrong, when the price of gold goes up, my phone rings much more.
This makes the US rare coin market one of the purest markets there is, and one of the most efficient markets. Since we’ve started PCGS in 1986 it made the market very open, very transparent, very efficient for trading.
That’s the nice thing about coins over most collectibles—there are weekly price guides published every week. There are coin shows every week someplace in the US and around the world. All the coins are graded, certified, authenticated, guaranteed… as opposed to art and antiques.
Where do you think the rare coin market is right now in terms of pricing?
I’m talking about generic gold coins, which would be high grade St. Gaudens, high grade $20 Liberties, $10 Indians, things like that. Then those coins came down quite a bit. So to me they’re extremely undervalued.
VS: Coin prices moved up pretty steadily but only slightly until around 2010.
At some point the people that have made a bunch of money in gold, myself being included, go, “Okay, I bought this gold for $275 years ago. I can sell it for $1,600 or $1,700 an ounce. Wait a minute. This rare coin was $3,000 ten years ago when my gold was $275 and now the coin’s is only worth $3,500.”
So, it seems like a good time to reposition some of the wealth from one tangible asset into another tangible asset in a market that usually follows the other market. The coin market tends to always lag behind the bullion markets, but this lag has been ten years long.
SB: Can you tell us a little bit about the grading system for rare coins?
The grading standard goes from 1 to 70. So you start at 3 or 5 or 8, and that’s good. Then you get to very good. Then you get fine at 15 and very fine at 25 and extra fine at 35-45. When you get to 60 you have what’s called brilliant uncirculated MS60.
MS stands for mint state, or the original state that it came from the mint, brand new condition. But these coins would get shoved out of the dye, thrown into a bag and get banged around in the bag.
So coins are graded based on overall eye appeal, how well struck they are, how many marks they have and the overall luster on the coin. So every coin’s a little different depending on metal temperature, how banged up it got in the bag and things like that. So with uncirculated you have a grade from 60 to 70. You have 11 grades of uncirculated, and the higher the number the higher the grade.
When we originally wanted to start PCGS, we were trying to make a more level playing field for the collector and investor. We accomplished that.
A $20 liberty at MS64 is in the $2,500 price range. An MS65 is about $4,400. At MS66 it’s $13,000 and MS67 is probably a $70,000 or $80,000, maybe a $90,000 coin now.
So, the prices go up pretty dramatically based on the numbers. For coins struck after 1850, MS65 and higher are sort of like the magic collector grade( not including extremely rare dates like an 1875 $10 piece with a total mintage of only 100 coins).
When you’re talking about coins prior to 1850, then you’re talking about almost any grade that is nice, anything from extra fine, almost uncirculated, MS60, 61, 62, 63 or higher for rarer dates. But I would still strive to find the highest grades for the date. That may only be, extra fine or MS63.
SB: Can you give me a few ideas about pricing? We know what the premiums are for bullion coins, but give me a range on rare coins…
VS: The coin market that I deal in is usually coins from a few hundred dollars a coin on up to what ever you would like to spend. But you can buy a tremendous amount of really wonderful coins that are underpriced, and great values for a few thousand dollars. they may be $1500 a coin or $20,000 a coin.
There are a lot of really great coins to buy. I believe in just continuing to add to our portfolios when coins are at these low levels. I don’t have any concern if coins are going up in price. It is just a matter of when they make their move. It will be like other markets.
One day you look back and say to your self, “I cant believe that coin was ever that cheap, and it was only five years ago” similar to what people are saying every day to me about gold only being $275 an ounce 11 years ago.
Do you think there will be another runup in rare coins?
Sure there will be. There was in 1974 to 1975. There was from 1979 to 1980. There was from 1988 to 1990. We’ve been 20 years without a major bull market and we’ve seen the price of gold go up six to seven times. We will absolutely see a mania phase in the rare coin market again. Unless you think the US Dollar is going to strengthen long term.
US rare coins are the most liquid collectible there is… and the coin market is, without a doubt in my mind, the most efficient of any collectibles market.
Do you mind if we talk a bit about transporting rare coins abroad?
Sure. It’s one of the most amazing things you can imagine, you can stick a million dollar coin in your pocket, fly overseas, and nobody notices.
SB: Have you ever been stopped or hassled at airports anywhere?
VS: I go through airports every week with coins in briefcases. About once every ten times, a TSA guy will say, “What is this?” I say, “It’s rare coins.” Then they say, “Okay.” On rare occasions, one of them will say, “Well, can I see them?” It’s just some bozo who wants to look at them.
It’s not like they know what they’re looking at. They don’t know anything about bullion as is.
Yeah, they don’t know. They know even less about coins. I guarantee if you took a rare nickel out that was worth a couple million dollars, there’s nobody standing there who would think it’s worth seven figures.
Amazing. Van, would it be OK for SMC members to contact you if they want to buy rare coins?
Sure. They can email me at email@example.com Or call me at 1-800-759-7575 or 949-567-1325
SURVIVE AND THRIVE IN THE AGE OF TURMOIL