Investing in coins? Yes, but which ones?

Just to be clear: there are coins you can invest in. And I’m not talking about what we call investment coins today. These coins have established themselves as a kind of numismatic stock. That’s why they can rise in value. And—even if some buyers like to forget this—they can also fall. Buying a coin at a certain price is no guarantee that you will be able to sell it at the same price, or even at a higher price. Like the stock market, the coin market experiences booms and busts. Coin dealers are the banks and brokers of the stock markets. They make their living from the fees or profit margins they earn when they buy and resell a coin. In return, they not only offer their services, but in the best case also excellent advice and, in many cases, a guarantee of authenticity.
Even if many collectors don’t like to hear it, numismatically significant coins, just like gold or stocks, have established themselves as interesting tangible assets that fit well into a diversified portfolio. Because collecting and investing are not “either/or,” but “both/and.” However, not all coins are equally suitable as investments. In this article, we will show you the criteria that a collection must meet in order to qualify as an investment.

The great role model: the USA

To answer this question, let’s first take a look at a collecting area that has now been perfectly developed for investors: US coins. This was the first area to make the transition from collectible to investment. Even though every collector of US coins will vehemently deny that the idea of investment is at the forefront of their minds, they will at the same time do everything they can to buy only coins that offer a good chance of maintaining or, better still, increasing their initial price.

US coins are ideally suited for this purpose. This is because American coinage is, in terms of time, a blink of an eye in the several millennia of monetary history. This has the enormous advantage that an investor can be explained the criteria used to measure the value of a US coin in just under a quarter of an hour. The denomination, year, and mint are all clearly indicated on the coin itself. Anyone who then buys the Red Book has everything they need for their collection.

Investors do not have to worry about issues such as style, centering, or minting. Since US coins are minted exclusively by machine, there are no such things as style differences, off-center strikes, or poor minting. Anyone can outsource questions of condition and authenticity to an independent service provider for relatively little money. No wonder American coins are no longer traded “uncut” but exclusively in slabs. No collector takes the risk that their piece could achieve a lower grade at the next grading – and thus be worth significantly less from one moment to the next. (I don’t want to go into what this says about the reliability of grading at this point.)

Those who subscribe to the monthly Grey Sheet receive a free decision-making aid every month to help them decide whether they would rather buy or sell. If the investor decides to do one of these two things, they have a whole range of options open to them. Every day, auction houses auction off US coins. The selection is enormous. From common coins in more or less appealing condition to unique rarities, there is something for every budget.

No other collecting field has more loyal collectors than US coins, and countless dealers are involved in this field and maintain inventory. This is important for investors. Even when the environment causes investors to exit, collectors remain loyal to their field. They cushion the busts, and thus the coins retain their value, even if it may be lower than during a boom.

The criteria for an investment collection area

Let’s summarize the criteria that a collection area must meet in order to be of interest to investors:

• It must be manageable and easy to catalog so that even a novice can understand what coin they are holding within minutes.
• There must be a large number of relatively common coin types or years, as well as a few extremely rare ones, so that the area offers collectors a challenge that is not frustrating because it is unachievable.
• The area must be covered by a catalog, ideally not just a catalog that is published every three or four years, but a price index such as the Greysheet. This provides investors with an indication of whether prices are rising or falling.
• The catalog must be based on the Sheldon scale and focus on the highest grades, which are much more exciting for investors than the more common average grades.
• This requires that the coins of a particular type be absolutely identical, apart from their condition. And that is only the case for coins that were minted by machine from the 19th century onwards.
• Of course, it is essential that there is already a large community of collectors in the field. Investors come and go, depending on the current global situation. Collectors remain. They guarantee that the coins will continue to attract interest even if investors pull out.
• The larger the collector base, the better, because the investment is then more secure.
• It is important that a number of dealers are involved in the field. They also act as a kind of buffer against the biggest fluctuations. They buy when coin prices fall and sell when they rise.

German coinage: Does it have potential?

Let’s look at an example: German coinage. It is ideal for demonstrating that you have to look closely to recognize the potential of an area. Within German coinage, there are areas that are suitable for investment and others that are certainly not. The situation would be similar if we were talking about Italian coinage. The situation is slightly different for areas of collecting where a central authority emerged much earlier (e.g., France).

But let’s limit ourselves to German coinage. It began in the Middle Ages, and medieval coins are certainly not suitable as investments. Their purpose is too complex. Every single piece looks different. You need to know a lot to even come close to estimating the value of a coin. There is no standard catalog. Even for die-hard collectors, the German Middle Ages are an enormous challenge!

Medieval coinage was followed by that of the Holy Roman Empire of the German Nation. No, these coins are also only suitable as investments to a limited extent. The book that explains in broad terms which types and denominations of coins exist from which coin authorities is about 1,000 pages long. No investor is prepared to deal with their investment in such depth. For an international investor market, the coinage of the Holy Roman Empire is a nightmare!

This only changed in 1871, when the German states united under Prussian leadership to form the German Empire. Now things become manageable, just like with US coins: few denominations, which are easily recognizable by the year and a mint mark. This can be explained to any investor (even non-German ones) within fifteen minutes. All coins are machine-minted, so they are comparable. There are enough coins to serve a large market. At the same time, the different states with their different obverse designs and different minting quotas offer an interesting challenge, which is further enhanced by the great rarity of individual coins with great designs and stories. All minting figures are known. And there is already a huge collectors’ market for coins from the German Empire. One wonders why more international investors have not yet turned their attention to this area of collecting.

Why do so few people worldwide invest in coins from the German Empire?

The solution is quite simple: German collectors are conservative. For decades, they have been using a catalog called Jaeger, in which prices are listed in only four categories. The focus is on coins in poor condition and cheap pieces.

Expensive coins, which are much more interesting to investors, are neglected. For example, the rarest coin, “Friedrich der Weise” (Frederick the Wise), is listed at a rather unrealistic price of 100,000 euros, regardless of its condition.

The second reason is the German market’s resistance to grading. It would take too long to summarize the many reasons why this is the case in Germany. But as a result, collectors have to rely on their own knowledge and trust in dealers to decide which coins to buy based on their condition. This is not a problem for experienced collectors, but it is for investors.

The potential of German coins after 1871

In other words, for experienced investors who are prepared to live with these uncertainties, German coinage from 1871 onwards represents an interesting area with potential. All that is needed is a new catalog and the ability to grade coins within Europe—preferably Germany—within a reasonable time frame, and interest in this coinage could increase significantly. The same applies to coins from the Weimar Republic, i.e., from 1918 to 1933.

However, one must be cautious with coins from the Nazi era. Many German coin dealers and even more German collectors want nothing to do with them. In addition, there are a number of legal requirements when selling them.

A certain amount of skepticism is also appropriate when it comes to coins from the FRG and the GDR. Yes, there are some rare types, but most were minted in such large quantities that there are more coins in circulation than collectors. This is not a good prerequisite for maintaining and/or increasing value.

Falling and rising collector popularity

Please do not confuse the rising or falling prices that occur when an area rises or falls in popularity among collectors with how an investment area works. Collector prices depend on too many coincidences. Even two well-heeled collectors can drive up the price of a coin.

Legendary is the story of two feuding brothers from an Arab emirate who refused to allow each other to make a purchase. Anyone who offered a rare Islamic coin at that time could rub their hands with glee. High prices were achieved at auctions, especially when the two brothers were present in person. However, this only lasted until they reconciled, agreed on prices before auctions, and prices plummeted accordingly.

Taler vs. Gold-Multiple

Illustrieren wir die wechselnde Sammlergunst an zwei klassischen Gebieten der deutschen Numismatik, die viele Anhänger im Ausland haben.

Als John S. Davenport seinen genial vereinfachenden Katalog zur Talerprägung publizierte, schuf er ein Sammelgebiet, das Jahrzehnte hervorragend lief und seltenen deutschen Talern in perfekter Erhaltung Höchstpreise bescherte.

Heute kommen viele Kunden aus Asien; dort bevorzugt man Münzen aus Gold. So sind die Preise für Taler in den letzten Jahren nur leicht gestiegen, während die für seltene und schwere Goldmultipla geradezu explodierten. Der “Friedberg”, jener Katalog, der dieses Gebiet so überschaubar macht und regelmäßig neu aufgelegt wird, tut ein Übriges, um das Sammelgebiet zu fördern.

Ob deutsche Gold-Multipla bereits die Grenze zum neuen Investitionsobjekt überschritten haben? Das werden wir erst sehen, wenn die ersten Investoren aussteigen und mehr Gold-Multipla auf den Markt kommen. Nutzen dann andere Investoren die Gelegenheit, um sich damit einzudecken, können wir sicher sein, dass sich dieses Gebiet bei Investoren etabliert hat. Ist das nicht der Fall, müssen wir es weiterhin als Sammelgebiet behandeln.

What does it mean when a collecting field becomes an investment object?

Let’s briefly summarize what it means for a collecting field when investors enter the market. Of course, prices rise because the circle of buyers increases dramatically. Many collectors will no longer be able to afford the quality they are accustomed to. And this is where opinions differ. Collectors who insist on quality will be annoyed by the investors. Flexible collectors will rub their hands together, sell off their collection at a favorable time, and look for a new area that is not suitable for investors or has not yet been developed.

But one thing must be clear to us: only the investor market offers the human potential that guarantees the long-term survival of coin collecting as a hobby. Where knowledge of history and coins is dwindling, other incentives are needed to ensure that as many people as possible continue to collect coins.

Text by Ursula Kampmann