Is "It" Supply or Demand That Drives Value?

I've been applying my economics degree to some serious thinking about a subject that came up recently on another thread. Clearly, both supply and demand have an impact on the value of any given coin. The general opinion seems to be that demand is king. I have decided that we have to define our terms before we can say whether rarity or demand is actually the king. What are we talking about? A series, or a given coin with in a series?
Where demand is indisputably the king is when were analyzing whether a given series has high values are not. However, within a given series, it is rarity that determines the relative value of coins within that series.
Michael correctly points out that 3 cent nickel series is very low valued compared to its rarity, and that effect is due to lack of demand. But I submit to all of you that within a particular series it is rarity and rarity alone that drives the value of coins within the series, especially eventually.
So what do you think?

 

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I agree, but would go a bit further to say that it is the demand of the rarest pieces within a series and how popular the series is to collectors. How much do you think an 1885 3cn would cost if there were as many collectors if the three cent series as there are Lincoln cent collectors?

 

Interesting points here. So here comes the Devil's Advocate: Can supply and demand really be separated, at least over the long term?

 

I tend to mostly agree with this. No matter how popular something is there would come a point where it just seemed to common and hold back the value. ASEs are actually a pretty good example of the rarity vs demand. They're a wildly popular series where some have little to no premium while the more rare lower mintages can command a huge premium.

I would also that that the reverse is true as well. No matter how rare something is if the demand isn't there prices stay flat. It seems we always want to say rarity or demand is the key force but really they work together and neither has much impact on value if the other isn't present.

 

Demand.

If there is no demand, the supply is irrelevant.

If there is demand, then the supply is relevant.


(Probably should have stayed awake in Econ101?)

 

No offense intended to some of our more learned Lincoln collectors, but don't you think that is a poor comparison when we have so many people searching pennies for "gold mines" before they even know the difference between mechanical doubling and "double" dies.

Chris

 

And what would happen to values if there were twice as many 1883 3cns with the same number of current collectors?

 

I think they are intricately linked and both contribute to valuation in some way. Rarity whether true rarity or simply 'perceived rarity' as in some key dates, in a way does drive both the demand and value. In other cases though certain issues are true rarities but since no ones cares or is interested there's no demand and values reflect that.

 

You make good points, Kurt. When it comes to rarity, I think perception of permanence of rarity plays a role. We see this in several areas in numismatics. One is the possibility of discovery of a hoard; this is probably a bigger factor for ancient coins, but certainly has happened for U.S coins. GSA and SS Central America come to mind. Another concern is conditional rarity. If a Morgan dollar of a particular year and mint has only a few certified MS67s, it's possible that in a few years, there may be dozens. A last example is MS70 modern coins. Who knows how many thousands are in drawers and closets waiting to be certified?

Yup, there are folks who don't consider these factors and who may or may not regret it. But a lot of serious collectors do consider these factors and put their money in coins with documented low mintages where a substantial proportion have appeared in the market. That way you know there never were very many and a new hoard is unlikely to appear.

Cal

 

Exactly, I think not. Over the long haul, lack of supply of a key coin ALWAYS hyper-drives demand for it. If the whole series, or type, is a snorefest for collector interest, then rarity can only help if someone uses a clever marketing scheme to drive demand. Example? I know I'll have to metaphorically duck to evade flying rotten fruit, but I'd say the way VAM fans pump up demand for boring Morgans.

 

Tell that to the guy whose Lincoln cent collection is short only the 09-S VDB and the 14-D, or whose Buff set lacks only a 13-S Type II.
Rarity counts, umm, bigly.

 

As sale prices of coins and banknotes go up and down over time, I do not believe it has much at all to do with their supply going up and down (new issues aside of course). It is because people "want them" more or less, or that more or less people want them. That's demand, to me.

 

Holy mackerel! That is brilliance! You're absolutely right! It IS the "perception of permanence of rarity" that is the 800lb. gorilla. The demise of the 1903-O Morgan after the Treasury vault bags were released is an excellent illustration. Nobody imagined those existed, even though the mintage numbers hinted so. Everyone figured they found a furnace under the Pittman Act.

After all, if the pereception is that there is another shoe to drop, that should inhibit demand of a rarity. But then again, look at the 2017-P proof ASE. They've already said there's another shoe to drop but the bidiots persist.

 

I see that as a classic example of what I'm saying. If you're into an esoteric area, like Russian banknotes issued between the Revolutions, those notes are going to be affordable because so few care. But if you're talking about a ultra-rare National Bank note from a tiny town in a large state, those collectors will move heaven and earth to get those examples, until those collectors die away. Then the scavengers get bargains. Thin markets are volatile.

 

If there was double the supply and everything else was the same... the price would go down,

however if US mint never stopped making them.... more people would look to put together a whole set and drive the price of the old ones up..

 

Quite simple..........if more folks want it that don't have it, the price goes up.......if more folks don't give a 'bum'........it don't happen.

 

Kurt, price is the intersection of the supply and demand curves.

 

I think if there wasn't lack of supply, demand wouldn't exist. i think that's why I hear about one person owning every example of the double header coins. Get the supplies off the streets, demands start to get bigger and bigger over time. People will pay massive amounts of money because it's recorded that its supposed to be this way, but it's not what it is supposed to be. So I think it starts with lack of supply, then demand. Or you take that first dime sanfran minted in the late 1800s. Forgot the year. But there are 25 recorded, 16 accounted for. And pcgs will pay 10,000 to look at it. And it's worth whatever someone is willing to pay for it, probably in the 100,000 range if not more. Uniqueness and condition play a role too, can't always boil it down to supply and demand. If I had a 1955 s double die that got road rash like it barely legible, I don't think it will be even worth 1,000 dollars

 

You make my point for me. Why is the 31-S less valuable than the 14-D or the 31-D when it has lower mintage? Demand...

1909 VDB S 484,000
1931 S 866,000
1914 D 1,193,000
1909 S 1,825,000
1924 D 2,520,000
1911 S 4,026,000
1914 S 4,137,000
1912 S 4,431,000
1931 D 4,480,000

 

Mintage doesn't = supply