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I INTRODUCTION
Before the coinage of money, most trading took place either by direct
exchange of actual goods, or by the practice of exchanging metals of known
weight and purity. Because this system was unreliable and
inconvenient, it prevented widespread expansion of commerce. The
practice of coinage, or minting, was invented as a solution to this
problem. Sometime around 600BC, the system began of stamping alloy
lumps of fixed weight and purity with official symbols. By 550BC,
the practice of minting coins was established in all the important trading
cities throughout the known world. Coins did not
appear in the New World until 1535 in Mexico City, after the Spanish
conquest. Although the American colonists used primarily British
money, they also used French, Dutch, German, and Spanish coins.
Machine-minting of uniform circular coins was not practiced until 1870 in
Japan, and 1889 in China.
II PROPERTIES
For centuries, all but the very lowest denominations of coins had
intrinsic value; that is, they contained gold or silver equal to their
face value. Most nations, however, have replaced their
precious-metal coins with coins made from inexpensive metals, having face
value only. Metallic coins may be either standard coins or token
coins. Standard coins are made of standard monetary metal and are
worth as much as or slightly more than the metal they contain. Token
coins are those that have far greater nominal than metallic or intrinsic
value; in this respect they are analogous to paper money.
III MARKETS
The coin market is a hard asset market in which supply can only decrease.
While other hard asset supplies can depend on how much is produced, or
mined, etc., minted coin supplies can only be reduced. Coins are
limited in supply at minting, and as the coins become more scarce, they
also become more demanded.
Amateur collectors, often called numismatists, enjoy coins for their
beauty, their rarity, and the hope that coins in a collection will in time
increase in value The market value of any coin—that
is, the price a dealer would charge for it—is determined by supply and
demand. Once a coin becomes recognized as a rarity, its value
frequently increases as it changes hands. A key element in the value
of any coin is its state of preservation. A specimen in perfect
condition, just as it left the mint, may be worth many times as much as
the same coin in average used condition. Mutilation or damage
greatly reduces the value of a coin. Coin investors
and dealers use a point system as well as a set of terms to describe the
condition of coins: uncirculated or mint state (MS 70-60), about
uncirculated (AU 55-50), extremely fine (EF 45-40), very fine (VF 30-20),
fine (F 12), very good (VG 8), and good (G 4).
IV INVESTING
In almost every instance, rare coins have performed better as hard asset
investments than other forms of the same metal. Many investors begin
collecting coins of their own countries because of their availability.
With this kind of portfolio, every date, mint mark, and variation in
design is counted as a different category of coin; the goal is not only to
acquire one of every variety issued, but also to continually upgrade the
condition of the coins already found. Since the number of coins to
be found is usually restricted, investors usually resort to trading or
buying to fill in such a series.
Another popular form of investing is
assembling types of older coins. Rather than trying to collect a
specimen of every variety in a series, the investor collects a single coin
to represent each "face different" series. This kind of collection
is popular because each coin is unique. This approach is often
applied to coins of other countries. Many numismatists try
putting together a collection of one coin from each of many different
countries, or only commemorative coins. Collections of any country
that interests the collector can be formed. Specific dates and
varieties of foreign coins are much generally harder to find.
Thematic investing has also become popular.
In this kind of portfolio, the coins are related to one another on the
topic matter of their design . States, animals, plants, ships,
maps, buildings, and religious motifs are all such topics represented on
coins. Thematic investors make additions to a topical collection by
watching for the new issues for appropriate designs.
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How are coins
assayed?
The value of coins is determined primarily by four criteria:
Rarity
A coin's rarity is a function of the limited quantity of the minting
and the numbers of examples in any given grade rating which have
survived.
Grade
The Sheldon Grading System was developed in the 1950s by Dr. Sheldon
to numerically describe the condition of coins. This
universally accepted system begins at 1, which describes a barely
recognizable coin and proceeds to 70, which describes a
theoretically perfect coin.
Quality
Quality is determined by four criteria: minting, execution, survival
condition, and overall eye appeal.
Popularity
Popularity tends to influence demand. Popular coins hold value well.
Conversely, some very rare coins, such as three-cent silver pieces
and half-dimes are not very popular. Consequently, they have
less liquidity, which means, they tend to have lower market values. |
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When contemplating the purchase of
certified coins, investors must do the same basic research necessary for
any other investment. The current liquidity of the market, and the
appreciation potential must be determined. Most importantly, the
investor must know how to evaluate coins or must have confidence that a
trusted dealer is knowledgeable enough to make such an evaluation. |
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