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All the many different types of precious metal coins fit into one of two descriptions: bullion and numismatics. Bullion coins are minted in large numbers for circulation as legal tender or for investment purposes. Numismatic coins have a premium attached to them, and are considered rare for one reason or another.
What makes a coin rare, and why do some coins have premiums, while others do not?
One of the main reasons for coins attracting large premiums is their being minted in small numbers, making them “rare”. However, because something is rare doesn’t mean that it’s valuable. It must be desirable. It needs a market. This is where supply and demand comes in because, like anything else, if there are more people buying an item than there are items to sell, the price rises and perhaps may even go through the roof.
As an example, imagine that a special edition coin is minted by a popular mint for a popular series. Only 1,000 coins are struck but, because of the popularity of the mint and the attention that this particular coin receives, it might have 50,000 potential buyers. As soon as those 1,000 coins are sold, there are still 49,000 other people wanting them. Almost immediately the price goes up, because there are no longer any coins in circulation and the only way a buyer can get one is by offering owners more than they paid for it.
Add a few years, and the number of people waiting to buy will increase. Many sales will have already occurred, because time increases exposure and desire. Older coins attract higher margins, so value will continue to rise.
Imagine you buy an Xbox One and there is no disc tray or hard drive. It’s a faulty machine. You’d probably be one of the few people in the world that has an Xbox like that, making it, in a way, “rare”. Unfortunately it doesn’t add value because it remains useless. This is not the case with coins, because such rare faults are valued more than anything else.
Occasionally, coins are minted with typos, with portraits facing the wrong way, or with the wrong year stamped on them. As far as the mint is concerned, flawed coins are like that damaged Xbox and they will do their best to ensure they don’t circulate. From the perspective of a coin collector though, these are incredibly rare and therefore incredibly valuable. They’ll do their best to get their hands on them, should they slip into circulation.
The best coin collectors spend years learning their trade. Finding rare coins and holding or selling them might seem like an easy thing to do, but the truth is there are a lot of complexities involved. For instance, just because a coin is a “special edition” minted by a popular mint doesn’t make it valuable. Factors such as mint number, quality of the coin and the etching, the occasion it celebrates, the designer, the packaging, and the material are also important. While coins may be desirable because they are rare and carry a value that has nothing to do with their precious metal content, seldom will you find a non-precious metal coin with a high premium. A coin can be worth $10,000 due to its rarity and only $10 for its silver content, but if that coin was minted in cupronickel, its value will be a fraction of that $10,000, guaranteed.