How is Coin Value Determined?

How is the Value of Investment Coins Determined?

Like most investments, coins are driven by the forces of supply and demand. The demand, in this case, is generated not only from investors, but from collectors, too.

Coin investors generally do not have any “emotional attachment” to a given coin, regardless of how beautiful, historical, or rare it is. They simply view it as a commodity to be bought, held, and ultimately sold for a profit.

A Profit Factor that Few Investments Share...

Collectors, on the other hand, live to acquire the missing pieces or ever the best specimens of particular coin issues.

They will scour the market for years to locate that one coin in the right grade and price that allows them to complete a collection. Unlike investors, collectors typically hold onto a coin for the long term, generally surrendering it only if they uncover one like it that's in even better condition.

So the holding period of coins by collectors may extend over a “lifetime to many lifetimes” as these treasured heirloooms gets passed from descendent to descendent.

This “hoarding” of coins by collectors is a significant factor in their long term track record. And, as the number of true coin collectors grow, the availability of finer premium coins can be expected to diminish in inverse proportion.

Other Factors in Coin Valuation

Still, both investors and collectors alike do recognize the relative scarcity of a particular coin “although for differing motivations” and it's their bidding activity that drives up the price of this scarce commodity.

Other factors beside small coin populations affect price as well. There can be a particular historical significance attached to a coin or coin set that makes it especially attractive. For example, completing the 144-coin set of all pre-1980 silver commemorative half-dollar coins “coins struck to commemorate events and individuals in U.S. history” is a highly sought-after objective shared by both investors and collectors alike (such a set would have cost about $275 to complete when the coins first came out, while, in 1997 the entire set in uncirculated condition was worth upwards of $20,000).

"Coin Condition, Grading, and Attrition"

Another powerful factor that determines the value of a coin is its condition. Certainly, there were hundreds of thousands of coins put into circulation throughout America's history. What matters, however, is the number of these coins that have survived and in what kind of condition.

Most premium coins have been “graded”. That means a numerical value is assigned to them based on their condition. The “investment quality” coins are generally those rated in the eleven uncirculated grades, from a “MS60” to a theoretical “MS70”, which would be perfection in a coin. The higher a coin's grade, the better its condition!

The term “uncirculated” refers to coins that were minted for circulation... but simply never got there. These might have been coins stored in banks and kept in their original cloth bags from the Mint, never to be actually used. Once word of these unused coins got out, they were immediately purchased by collectors and then held. So they remained in their original “uncirculated condition”.

“Proof coins”, the other category of uncirculated coin, were double and triple struck on highly polished blanks (or planchets) for the express purpose of collecting. They received special handling and, so, are generally found today in the highest of grades.

The better condition a coin is found in, relative to it's survival rate, and “the nicer its strike and brilliance” the more visually attractive it appears. And the rarer it is in that condition. Which translates directly into greater coin value.

As the years go by, the overall population of coins can be affected by attrition and wear that can reduce a coin's grade. Fortunately, since the majority of uncirculated coins have been encased in protective plastic covers for more than ten years now, this attrition rate has been slowed. Slowed but not entirely halted.