Coin Dealer Ethics - Out-Of-Date Prices
Wednesday May 28, 2008
This week's Coin Dealer Ethics column focuses on the buyer's ethics rather than the seller's. Most coin collectors have seen the sorts of dealers who charge way too much for their coins, but what happens when you run across a dealer who is charging way too little? Should customers be held to the same level of ethical integrity that they expect dealers to be held to?
The events that prompted me to propose this scenario have all been recent. Due to the wild fluctuations in the precious metals markets, some dealers have inventory that is priced below bullion value, especially for silver coins. The first time I saw a really big example of this kind of thing was at the Chicago International Coin Fair (CICF) several weeks ago. There was a world coins dealer who had several large, thick books of plastic sheets full of 2x2s, the sort of sheets that can hold 20 coins per page. He had books of coins for many different countries, and each coin was individually priced. In addition to these prices, there was a sign that said everything was 50% off the lowest marked price. Before even touching anything, I asked the woman who was behind the table if everything was 50% off the marked price, or if this only applied to some coins. She said everything they had was half off the lowest marked price. (Some of their coins had 4 or 5 prices on them, each one crossed out with a lower price written beneath it.)
I opened one of the big, heavy books and found my way to the Mexico section. Mexico has many big, beautiful silver coins that trade at bullion value in the AU/BU grades. One of my goals for this show was to load up on silver since the price per ounce had retreated to the mid $16 range after reaching more than $20 a few weeks earlier. Silver was expected to recover in the coming weeks, and I like to buy Uncirculated world silver coins that are 75 years old or older since I just don't see how you can go wrong when you pay bullion value or less for BU coins this old. However, I was quite surprised to see that this dealer had prices ranging from $3 to $12 each on Mexican silver 1 Peso coins from the late 1800s and early 1900s, mostly in F through EF grades, and this was before the 50% discount was applied! Although the grades were a little lower than I wanted, the price was right - these coins each have more than 3/4 ounce of solid silver in them.
I began pulling coins out of the album and making a pile. Once again, I asked the woman if she was sure the prices were correct, half off the lowest marked price. She assured me they were, and at this point my poor honest conscience just couldn't bear it anymore! I told her flat out that I would be paying, in some cases, $1.50 for $11 worth of silver, was she sure these prices were correct. (I had a little bit of doubt because there was also a man behind the table who seemed to be the dealer who owned the coins. The woman didn't know anything about coins at all, and was referring all coin-related questions to this man. I wondered if he he knew she was planning to sell his bullion at ten cents on the dollar!) I proffered the coin on the top of my growing pile, and asked her to please check with him to verify the price. She held up the coin in his direction and said, "This coin is marked $3, it goes for $1.50, right?" and he said "right, is there a problem?" I said that the silver in the coin was worth more than that and he just shrugged and said, "take it or leave it."
So, I spent a couple of hours picking out all of the silver I could find in his many books of 2x2s, as long as I could get it under $12 an ounce (which was $4.50 below spot price that day.) As is typical for world silver these days, most of the 2x2s were conveniently marked with the ASW (actual silver weight) figure. When I got home, I added up my purchase from this dealer and found that I had paid $487 for 59.73 ounces of ASW. Now, before anybody starts thinking that maybe his coins were stolen or something, this dealer is known by most of the coin show circuit dealers as a "local" (read "little") guy who shows up from time to time. In this case, (so the story goes) he had just purchased a very large collection and needed to recover some cash quickly to pay off the high-interest loan he took out to buy the collection with, so he was unloading all the junk cheaply. I'm still not sure why I got all that silver, rather than a melting pot somewhere, but this was only the first of several "silver scores" I've made since then!
Later that day, at the same show, I was pawing through a junk bowl that was priced at 10 cents per coin. There were probably 700 to 800 uncarded (loose) world coins in this bowl, and near the bottom I started finding silver dimes and twenty-cent pieces from WWII-era Philippines. These coins were struck by the U.S. Mint and are 75% silver. They were low-grade, but certainly worth 8 to 10 times what I paid for them just in bullion value! I found 7 dimes and 9 twenty-cent coins. My next silver score came from another dealer who had old prices on his world silver coins, which were in boxes of 2x2s. The dealer said he would sell the coins at bullion value based on the ASW, which was really a bargain for some of these beautiful, large, BU, crown-sized silver coins. When I got home and looked them up, the catalog values ranged from $24 to $120, but I didn't pay any more than $14 each, and that was for the largest, purest ones that had 4/5 of an ounce of pure silver. Most of them were under $10 each.
Finally, I want to share one more recent "silver score." It was on the Web site of a coin dealer who runs a one-man shop. This dealer has an extensive Web site, the kind of thing that would take years for one person to develop, and some of the prices were years out of date! On one page, he had various silver coins listed for sale, including 100 Franc, 37 mm silver coins of New Hebrides minted in 1966, that had an ASW of .6712 (a little more than 2/3 ounce of pure silver.) His price was $7.50 each, which is a fair bit below bullion value. When I placed my order for 3 of these coins (along with a couple dozen other very good buys from his site) I pointed out the below bullion price. He said he'd honor the price anyway and when I got the coins, they were gorgeous BU specimens. A couple of weeks later, I checked his Web site again, and he still had those New Hebrides coins for sale for $7.50 each, even though I had alerted him to the extraordinarily low price. So I emailed him and told him that I'd like to buy out the rest of his stock in these coins, if he really is determined to sell them below bullion value. But if he merely forgot to update the price, I understood, and to please take this email as a reminder. He emailed back to say that he'd sell me the rest of the stock at the $7.50 price! So I bought him out!
Judging from these experiences, it is obvious that there are some great deals to be had out there in world silver coinage. The reason the dealers don't mind selling below spot price is because oftentimes they bought those coins months, even years before silver reached the heights it has reached today. Even if they sell at, say, $4 below bullion value, they're still making a profit because they might have paid $6 or $8 below current spot price. Many dealers can get into a cash crunch when people are lining up to sell their bullion, so they'll price their coins aggressively to recover some badly-needed cash. Also, most dealers don't actually pay full spot price for bullion; they pay a few percentage points under spot so that they can make some profit when they sell (usually a few points above spot, causing their "spread," or profit margin, to be typically 8% to 15%.) But every so often, if you keep your eyes open, you can find the sorts of deals I found a string of recently.
Now for the ethics question: Do you feel that buyers have a responsibility to point out prices where dealers might have made a mistake, or where the prices are obviously old and out of date? Or is it perfectly okay to take advantage of a coin dealer's mistakes, after all, he probably wouldn't return the favor if the tables were turned, right? Share your thoughts about this subject via the "comments" link below, and next week we'll have a look at your responses. And if you've made a great score lately, come tell us about it in the About.com Coin Collectors Forum!
Update - Read the follow-up column about out-of-date coin prices.
The events that prompted me to propose this scenario have all been recent. Due to the wild fluctuations in the precious metals markets, some dealers have inventory that is priced below bullion value, especially for silver coins. The first time I saw a really big example of this kind of thing was at the Chicago International Coin Fair (CICF) several weeks ago. There was a world coins dealer who had several large, thick books of plastic sheets full of 2x2s, the sort of sheets that can hold 20 coins per page. He had books of coins for many different countries, and each coin was individually priced. In addition to these prices, there was a sign that said everything was 50% off the lowest marked price. Before even touching anything, I asked the woman who was behind the table if everything was 50% off the marked price, or if this only applied to some coins. She said everything they had was half off the lowest marked price. (Some of their coins had 4 or 5 prices on them, each one crossed out with a lower price written beneath it.)
I opened one of the big, heavy books and found my way to the Mexico section. Mexico has many big, beautiful silver coins that trade at bullion value in the AU/BU grades. One of my goals for this show was to load up on silver since the price per ounce had retreated to the mid $16 range after reaching more than $20 a few weeks earlier. Silver was expected to recover in the coming weeks, and I like to buy Uncirculated world silver coins that are 75 years old or older since I just don't see how you can go wrong when you pay bullion value or less for BU coins this old. However, I was quite surprised to see that this dealer had prices ranging from $3 to $12 each on Mexican silver 1 Peso coins from the late 1800s and early 1900s, mostly in F through EF grades, and this was before the 50% discount was applied! Although the grades were a little lower than I wanted, the price was right - these coins each have more than 3/4 ounce of solid silver in them.
Are These Coin Prices Correct?
I began pulling coins out of the album and making a pile. Once again, I asked the woman if she was sure the prices were correct, half off the lowest marked price. She assured me they were, and at this point my poor honest conscience just couldn't bear it anymore! I told her flat out that I would be paying, in some cases, $1.50 for $11 worth of silver, was she sure these prices were correct. (I had a little bit of doubt because there was also a man behind the table who seemed to be the dealer who owned the coins. The woman didn't know anything about coins at all, and was referring all coin-related questions to this man. I wondered if he he knew she was planning to sell his bullion at ten cents on the dollar!) I proffered the coin on the top of my growing pile, and asked her to please check with him to verify the price. She held up the coin in his direction and said, "This coin is marked $3, it goes for $1.50, right?" and he said "right, is there a problem?" I said that the silver in the coin was worth more than that and he just shrugged and said, "take it or leave it."
So, I spent a couple of hours picking out all of the silver I could find in his many books of 2x2s, as long as I could get it under $12 an ounce (which was $4.50 below spot price that day.) As is typical for world silver these days, most of the 2x2s were conveniently marked with the ASW (actual silver weight) figure. When I got home, I added up my purchase from this dealer and found that I had paid $487 for 59.73 ounces of ASW. Now, before anybody starts thinking that maybe his coins were stolen or something, this dealer is known by most of the coin show circuit dealers as a "local" (read "little") guy who shows up from time to time. In this case, (so the story goes) he had just purchased a very large collection and needed to recover some cash quickly to pay off the high-interest loan he took out to buy the collection with, so he was unloading all the junk cheaply. I'm still not sure why I got all that silver, rather than a melting pot somewhere, but this was only the first of several "silver scores" I've made since then!
More Silver Coins Priced Below Bullion Value
Later that day, at the same show, I was pawing through a junk bowl that was priced at 10 cents per coin. There were probably 700 to 800 uncarded (loose) world coins in this bowl, and near the bottom I started finding silver dimes and twenty-cent pieces from WWII-era Philippines. These coins were struck by the U.S. Mint and are 75% silver. They were low-grade, but certainly worth 8 to 10 times what I paid for them just in bullion value! I found 7 dimes and 9 twenty-cent coins. My next silver score came from another dealer who had old prices on his world silver coins, which were in boxes of 2x2s. The dealer said he would sell the coins at bullion value based on the ASW, which was really a bargain for some of these beautiful, large, BU, crown-sized silver coins. When I got home and looked them up, the catalog values ranged from $24 to $120, but I didn't pay any more than $14 each, and that was for the largest, purest ones that had 4/5 of an ounce of pure silver. Most of them were under $10 each.
Silver Coins Below Spot Price on the Web
Finally, I want to share one more recent "silver score." It was on the Web site of a coin dealer who runs a one-man shop. This dealer has an extensive Web site, the kind of thing that would take years for one person to develop, and some of the prices were years out of date! On one page, he had various silver coins listed for sale, including 100 Franc, 37 mm silver coins of New Hebrides minted in 1966, that had an ASW of .6712 (a little more than 2/3 ounce of pure silver.) His price was $7.50 each, which is a fair bit below bullion value. When I placed my order for 3 of these coins (along with a couple dozen other very good buys from his site) I pointed out the below bullion price. He said he'd honor the price anyway and when I got the coins, they were gorgeous BU specimens. A couple of weeks later, I checked his Web site again, and he still had those New Hebrides coins for sale for $7.50 each, even though I had alerted him to the extraordinarily low price. So I emailed him and told him that I'd like to buy out the rest of his stock in these coins, if he really is determined to sell them below bullion value. But if he merely forgot to update the price, I understood, and to please take this email as a reminder. He emailed back to say that he'd sell me the rest of the stock at the $7.50 price! So I bought him out!
Judging from these experiences, it is obvious that there are some great deals to be had out there in world silver coinage. The reason the dealers don't mind selling below spot price is because oftentimes they bought those coins months, even years before silver reached the heights it has reached today. Even if they sell at, say, $4 below bullion value, they're still making a profit because they might have paid $6 or $8 below current spot price. Many dealers can get into a cash crunch when people are lining up to sell their bullion, so they'll price their coins aggressively to recover some badly-needed cash. Also, most dealers don't actually pay full spot price for bullion; they pay a few percentage points under spot so that they can make some profit when they sell (usually a few points above spot, causing their "spread," or profit margin, to be typically 8% to 15%.) But every so often, if you keep your eyes open, you can find the sorts of deals I found a string of recently.
The Ethics of Out-Of-Date Coin Prices
Now for the ethics question: Do you feel that buyers have a responsibility to point out prices where dealers might have made a mistake, or where the prices are obviously old and out of date? Or is it perfectly okay to take advantage of a coin dealer's mistakes, after all, he probably wouldn't return the favor if the tables were turned, right? Share your thoughts about this subject via the "comments" link below, and next week we'll have a look at your responses. And if you've made a great score lately, come tell us about it in the About.com Coin Collectors Forum!
Update - Read the follow-up column about out-of-date coin prices.
Comments
Reminds me of the gas price wars. Every gas staition owner was under selling his/her competitors out of the market place. Barely getting by on the profit margin. I don’t ever remember anyone asking the attendent if the prices were correct. The lines was proof enough. I’d say they know what their doing, they are businessmen. If it’s a sale or a bargan, by all means. Enjoy your new found wealth. No one gives away something for nothing. It’s the knowledeable that usually take advantage of the unsuspecting. Your honesty is duley noted.
Now! Who is selling gold coins like that??
coiny
The coins currently are a bargain based upon their bullion value .. only if you sold them now. What’s to say in 1 year the price of silver will be back at $10 or $12. I personally don’t think that will happen, but one never really knows what the price of silver will be in the future.
I don’t know that I would stop and consider the bullion content. I usually pay attention to the numismatic value of a coin, since I’m not really a metals person. In that sense, I would point out a glaring price error of a collectible coin to my local dealer because she’s given me some pretty good deals in the past.
This is not an ETHICS question at all. This about an inexperienced young buyer with a total lack of real life experience in the market place.
Why all these strange, variant thoughts should go through someone’s mind while shopping for a commodity item is puzzling.
Every dealer placing merchandise on the bourse table for sale has, by this very action, established exactly what price they want for their merchandise. They settled on these prices well before they arrived at the show.
An experienced buyer would have ASKED the dealer for a BETTER price if a large quantity of his inventory were to be purchased. And would never had any second thoughts about doing so.
This young buyer finally realized that these dealers were trying to reduce long-held inventory or were generating cash flow. None, of which, are any concern to the buyer. This buyer has now learned some valuable BUYERS experience, at least concerning commodities. Seize the moment while it preents itself; it might not repeat!
That’s funny Robert, but I agree with you. I guess she’s “young” to you!!
Thanks to everyone who posted comments. I see this topic hasn’t resonated with readers nearly as well as most of my other Coin Dealer Ethics columns. Perhaps I wrote just a little too much drivel about what I was thinking rather than simply presenting a more concise and clear ethical question, but I like to try experimenting with different things to see what works. =)
I have been buying and selling coins for almost 40 years, so I could hardly be called a novice in that regard. As for the things that go through my mind when considering a purchase, well, I have to admit that seeing all those .7860 asw Mexican silver coins for $1.50 each did have me thinking about these pricing issues, and then finding the 10 cent junk box silver coins a half hour later really brought the notion forward. After that, I paid more attention to the prices being asked, and found a lot of dealers aren’t really trying to keep up with coins they consider to be “junk.” This creates a lot of opportunity for bargain hunters like myself, but I still think that buyers who expect to be treated ethically by dealers when they sell their collections should also extend the same ethical courtesies when they are buying coins and see obviously questionable prices.
Susan Headley
About.com Guide to Coins
I agree there is a two way street. And i believe that more collectors are more honest than “some” dealers. Both sides need to treat each other fairly & with due respect. As we discussed this issue with unscrupulous dealers before, as i remember it was the more knowledgable person — [the dealer] that is responsable for knowing what they are doing. It’s a given that they do when either novice, or seasoned investor/collector approach them in any capacity. Be it to buy, sell, or inquerys. I think you did your part. you made them aware. That’s all you had to do. i don’t think that your 40 plus years of coin collecting experiance is an advantage over that of the dealer. I think i see where you are going with this, but not sure exactly what it is you’re trying to say. Is it you felt guilty for taking advantage? Because of your knowledge?
Being a little confusd with the issue at hand. To me i think you did your best to point this out to the delers selling under melt value. Apparently, that didn’t seem to phase them at all. Funny as this sounds, i almost feel you wanted to grab them by their collars & shake some sense into them. Look what your doing!!! Don’t you realise your loseing money??? I guess if they knew it, the sale was still on. Also you explained how the dealers buy in large quanitys, junk silver at much lower prices. Their still making a profit buy selling under the melt value. I personally have no problem with this.
Warmly
coiny
I know what it’s like to feel guilty about getting too good of a deal. It just means you have a good heart.
I’m not sure why that dealer didn’t take those coins and have them melted for a profit. Perhaps as someone who loves and appreciates coins, he couldn’t stand the idea of knowing they were being melted and being taken away from collectors forever.
Question: If a dealer buys silver coins at $2 an ounce when silver is worth $8 an ounce, and then the value of silver goes to $16 an ounce, how much profit has he made?
Answer: None. He makes no profit until the coins are sold. What he has is what Wall Street calls an unrealized gain.
So he may be perfectly willing to sell those coins to you for $4 an ounce because it allows him to realize at 100% gain on his investment. Theoretically, he could collect them all together and sell them to a bullion dealer at a higher profit, but the extra time this would take might not be worth the extra money.
I see no ethical problem in buying these coins. They are likely priced more than the dealer paid.
If you think this is a problem, what would you do if you were at a dealer table looking at 2008 silver eagles, and discovered one with the reverse of 2007? Or a cheerios Sac dollar at regular 2000 dollar prices? Or a VAM or double die? I think most of us would snap it up, thank our luck and keen eyes, and not give it a second thought. If the dealer is selling it a low price, chances are he paid a low price.
Susan:
If you have been buying coins for forty years, is your personal photo on your site accurate? If not, it would be most ethical to post a current day photo so as to not mislead your readers.
JJ,
Thank you for the wonderful compliment about my age! =) The photo of me on my site was taken by the About.com folks just about a year ago, so it is reasonably current. I am 49 years old, and started buying coins and stamps from the local dealer when I was about 9 or 10. By the time I was 12, I was working for him, sorting and grading the vast number of Wheat Pennies that passed through his shop. I’d pull out the keys and semi-keys and then batch the rest of the stuff into 4 or 5 groups (pre-1920’s, S-mints, better than average grade for the date, etc.) He paid me in the form of coins rather than cash, and I couldn’t wait to run over there after school on the days I could go.
Anyway, I guess I’m digressing a bit, but the point is that yes, I have been buying, selling, trading, and handling coins for nearly 40 years. If you go to any of the major coin shows near the Chicago area, or the annual ANA World’s Fair of Money, I’ll be happy to meet up with you in the bourse to prove it’s really a current photo of myself! =)
Susan
If a deal comes your way why not
just go with it. It is just business.
At the February 2008 Long Beach Show, I saw a couple of Victoria sovereigns and a Napoleon I 20 francs at below melt. The dealer saw me calculating the melt price, and yet sold me them at the marked price. I suggested that he reprice all of his gold. He seemed to resent my suggestion. He said that he made a profit of $50 on the Napoleon and that was fine with him.
I also bought to exjewelry 2.50 liberties for below melt from someone who was selling both numismatic items and bullion items.
As for the silver coins that you mentioned, don’t forget that most people interested in holding bullion for investment will not want to hold it in the form of those coins. There is a charge to smelt them and there is the effort involved. if that isn’t a part of the sellers regular business, he may not think it worth his effort.