I've read in several different places that the rising precious metals prices are reducing the numismatic premiums that modern coins have. As metal prices rise the bullion coins get reduced to spot metal prices, and if the metal prices continue to rise the proof coins will eventually be reduced to spot prices. Why is that? Can someone explain that to me? Thanks.
I hope someone else will have a better answer than I do, but I think you raised a good question and I want to at least try to give an explanation for the situation you described. Generally speaking, the lower/smaller the bullion content/value of a item, the greater the % premium that people are willing to pay for it. For example, the price premium that you have to pay over the "spot" price of gold for a 1/4 or 1/10 oz. bullion gold coin is larger on a percentage basis than that which you would have to pay on a 1 oz. piece. Often, as the bullion value of an item increases in price, the numismatic premium declines, since the buyer is paying a higher price for the item, due to its bullion content. Also, when the precious metals get hot, extra attention is focused in that area, sometimes at the expense of the numismatic aspects. I hope that helps.
The numismatic premium would be the value above the bullin price, if the bullion values rise, common date gold and silver coins are now worth more as bullion than as a colletor coin. if bullion prices fall the price of the coin will again fall untill the price is back at the numismatic level. Most washington quarters and Roosevelt dimes are good examples.
IMO, as metal prices rise, the mint prematurely stops (withdraws) selling the proof and uncirculated coins as we have seen in 2007 AGEs, APEs, and Gold Proof Buffalo's. In addition, if the metal prices continue to increase, and as 2008 coins are released, the mintage and sales figures of 2007 will be smaller relative to prior/coming years, increasing the demand for the above products. Hence, maintaining the premiums.
I think Mark Feld and Viper hit it on the head. @ Mark: I would just like to thank you for all the great responses and threads of yours I've read over the years in the CU Forums, Sleepy Hollow, and now here. Never had a chance to thank you - keep up the great work.
I have tried [unsuccessfully] to make the point on several occasions that when the price of precious metals increased, the largest percentage gains would be in the common coins and bullion coins selling close to melt value, not the rare and high valued coins. The coins with high numismatic premiums would have smaller percentage gains. This makes perfect sense. If silver doubles in price from $10 to $20 per ounce, a coin selling for bullion value will also probably about double [or maybe do a bit better due to the excitement]. However, a morgan dollar already selling for $150 will probably not go up to $300 because of a $10 increase in the price of silver. As others have pointed out, they can even go down as money is attracted to the bullion area.
Thank you all for your informative responses. From what I've read, it appears that I should not be in any rush to buy a coin with a high numismatic premium if I believe the spot price of metals will continue to rise. If that is correct, then it appears that I should sell some common date moderns (i.e. 2005 ASE BU) to buy a less common modern (i.e. 1995 ASE proof) as metal prices rally. If the price of metals drops, then I can buy back common moderns. Of course if metal prices continue to rise, then I should have held onto the common moderns, but since they're "common" I won't be paying too much of a premium over spot for them if I still want them. ....but as we all know, the decision we make will turn out to be the wrong decision.
