By Dana Samuelson and Dr. Bill Musgrave
It pays to be informed!
Coins from the S.S. Central America shipwreck
on the ocean floor off the Virginia coast.
The recent discoveries of shipwrecks such as the S.S. Republic, S.S. Central America, and the Brother Jonathan have proven once again that the recovery of a gold coin hoard, a treasure trove of historic riches lost and forgotten, is one of the most exciting events in coin collecting.
Before the recent Brother Jonathan and S.S. Central America hoards of $20 Liberty gold double eagles captivated the attention of rare coin collectors and investors, earlier gold and silver coin hoards were equally enthralling. The Redfield hoard of silver dollar, the Continental-Illinois Central Bank silver dollar hoard, the 1901-P Type 3 $20 Liberty gold coin hoard, and the "Wells Fargo Hoard" of 1908 No Motto $20 Saint Gaudens gold double eagles-all of these discoveries thrilled and altered the rare coin market. Unfortunately, many investors lost a lot of money by purchasing coins from some of these hoards. This article will help to explain why, and how you can avoid a similar fate.
The impact of these coin hoards is certainly understandable. The feeling you get seeing these recovered gold and silver pieces of history is one of pure excitement. Your imagination absolutely runs wild and you can't help but ask yourself, what stories could these coins tell? Who held them? For what purposes were they intended? And what of the human stories of courage and disaster, love and loss, that surrounded their fate? Frozen in time beneath the sea, shipwrecked coins especially seem like a direct link to the romantic past, a different time, when money was still worth its metal.
Successful and unsuccessful hoard dispersals
In the last 20 years we’ve seen a number of gold and silver coin hoards come to market. Their discovery is always newsworthy, and their dispersal into the national market is often a fascinating process. Some hoards announce themselves like a sudden trumpet blast, with great fanfare and ceremony. Others arrive silently, like a gentle breeze in the dark of night.
The successful dispersal into the market of a coin hoard is dependent upon many factors, including the type, number, and condition of the coins contained in the hoard, the populations of those coins before the dispersal, the story surrounding their discovery, and the general market conditions at the time of their arrival into the market. It is also dependent, to a degree, upon the channels by which the hoard coins are distributed to customers. We define a successful hoard dispersal as one that increases the coins’ popularity with collectors and investors, enhances the hobby of coin collecting in general, and boosts and maintains the subsequent values of the hoard coins in the market after all the excitement has passed. When these things happen, everyone benefits.
In many instances, however, the dispersal of coin hoards has been less than successful. Historically, one of the dangers in purchasing hoard coins is that the excited collector or investor buys them at an inflated price because of the buzz and hype surrounding the hoard’s discovery and marketing. Then later, after the market has absorbed the increased populations of coins and the hype has died away, these collectors and investors are often disappointed to discover that their hoard coins are worth nowhere near what they paid because so many more of the coins are now in the market and the values have dropped accordingly. Coin value, after all, is based largely on scarcity.
Another problem has been with the narrow channels of distribution for some hoard coins. History has shown that when hoards are distributed broadly and democratically—that is, when many dealers are involved in selling the coins initially—the coins tend to hold their value to a higher degree after the initial interest has faded. Conversely, when the distribution of hoard coins is tightly controlled by a small “cartel” of just a few retailers, leaving the rest of the dealer community out of the process, the coins tend to find less after-market support and prices erode accordingly.
When the coin dealer community at large is excluded from a hoard dispersal, dealers often feel no loyalty to the coins and little obligation to support the secondary market for them, whereas participating dealers tend to support the market and their customers who wish to resell. When large segments of the dealer community are left out, the after-market can therefore shrink dramatically. So, while narrow-channel hoard dispersal is often highly profitable for the controlling retailers, it can ultimately prove to be unsuccessful for the hobby, for the long-term prospects of the hoard coins themselves, and most importantly, for the collectors and investors who bought the coins to begin with.
The purpose of this article is to help you to appreciate the extraordinary stories behind some of the famous coin hoards. These hoards are, after all, fascinating time capsules! But most important, as your reliable hard asset advisor, we wish to give you the information you need in order to make proper and intelligent financial decisions when considering the purchase of hoard coins.
The Redfield Hoard
One of the most famous silver coin caches in history was the “Redfield Hoard” of Morgan and Peace silver dollars. Lavere Redfield was a Los Angeles financier who left the big city in the 1930s to become a farmer in Reno, Nevada. Having lived through the Depression, and with a passionate distrust of both government and banks, Mr. Redfield decided to hold much of his capital in silver dollars. Whenever he accumulated $1000 in paper money, he would cash it in at his local bank for a $1000 mint bag of Morgan or Peace silver dollars. Hoisting his bag of silver onto his back, he’d carry it to his simple home, then toss it down the coal shoot leading into his basement! When Mr. Redfield died in 1974, over 600 bags (at 1000 coins per bag, that means 600,000 coins!) were discovered, untouched, where he had “deposited” them decades before. Several original bags of rare dates were found, as well as a vast number of exceedingly high quality specimens of common and scarce date silver dollars. It was truly a treasure trove!
The Brother Jonathan sank off the coast of Northern California in 1865 carrying some $2 million in gold.
The “buzz” surrounding the discovery of this unusual hoard was very loud. It may seem strange to contemplate, but times were simpler as recently as the late 1970s. Only governments and universities had computers, and the Internet was still just a gleam in Al Gore’s eye. So the dispersal of this amazing cache of Redfield dollars into the market was done the old fashioned way: through advertising in trade publications catering to collectors, through some telemarketing, and through a little mass media advertising.
The numismatic market at that time was largely collector-driven, and had not yet evolved into the investor-oriented market it is today. So the dispersal advertising was geared mostly towards the story behind the Redfield coins: what a neat and historical find they were, what an unusual opportunity this was, and of course, how beautiful and rare some of these coins were. Little, if anything, was said about their investment potential or future financial value because the buyers were mainly collectors who were stimulated by the diversity of the find.
The Redfield Hoard represents a fine example of a successful hoard dispersal. The marketing of the coins was a grass roots effort, very broadly based, with almost the entire dealer community participating. The coins were dispersed over the course of three years. Prices for many issues rose significantly and values have remained high for the most part, and not only because due to the demand generated by the sensational news of the discovery.
The Continental-Illinois National Bank Hoard
The grand-daddy of all coin hoards, and the leading example of a successful hoard dispersal in all senses of the term, must be the Continental-Illinois National Bank hoard of silver dollars in the early 1980s.
Banks are required by federal law to keep a certain percentage of their “deposits” in cash at all times as one of their federal reserve requirements. For more than a century, it seems, the Continental-Illinois National Bank in Chicago kept a portion of its reserves in original mint bags of silver dollars.
Because of the bank’s financial difficulties in the early 1980s, the Board of Directors of the bank decided to sell the bags for the significant profit that they were worth over their face value, to help soften the financial crisis that so many banks were facing at the time.
Beginning in 1982 and lasting for several years, as many as 1,000 original bags of brilliant uncirculated Morgan silver dollars, and another 500 bags of circulated silver dollar, came out of this hoard. That means more than 1.5 million coins! The majority were common dates: 1879-S, 1880-S, 1881-S, 1882-S, 1883-O, 1884-O, 1885-O, 1886-P and 1887-P. There were a dozen or so bags each of 1883-P and 1884-P and a few more single bags of some other dates. Beyond the sheer numbers, the condition of the coins was remarkable. Many from this hoard were absolutely breathtaking gems, exhibiting incredible cartwheel luster, magnificent rainbow toning, and outstanding proof-like strikes.
Marketing of the Continental-Illinois National Bank hoard was handled in model fashion. From the very start, the two or three major retailers who were charged with organizing the dispersal understood that the greatest benefit to all would be obtained by utilizing the abilities of the entire industry, wholesalers and retailers alike. By establishing an extremely wide distribution channel, they could rely upon the grass-roots marketing efforts of mail order and storefront dealers, and millions of customers would be reached directly. The combination of product, story, and price was a perfect fit for them. Extraordinary demand was created, and because so much of the industry was involved, the after-market support was firmly in place and demand for the hoard coins continued to build.
As a result of this successful dispersal strategy, the entire silver dollar market grew for the next five years. From 1982 to 1985, for example, Morgan Silver Dollars in MS 65 increased in average value by 450%! Collectors and investors alike were happy, and the hobby enjoyed a wonderful resurgence.
How things have changed
In the 1990s, coin hoards marketed on television and the Internet were represented as outstanding investment opportunities by people who seem to have little knowledge of the histories of previous coin hoards. The primary emphasis seems to be making money for dealers! Sometimes the customer isn’t always given all the facts required to properly evaluate such a major financial decision.
As is typical of the Continental-Illinois Bank hoard coins, these Morgan Dollars exhibit strong strikes and lovely rainbow toning.
If you are a collector, price might not be the primary factor in your buying decision. You might want or need that coin simply because it fits your collection or is appealing enough from a historical perspective to justify your expenditure. The happiness of owning and enjoying that coin far over-rides financial considerations. If you smile when you look at or think about your coin, then you’ve made a good decision. It makes you happy! And ultimately that’s what collecting is all about.
But if you are an investor, the joys of collecting may be far from your mind. A specimen is purchased to serve a purpose in your portfolio. How well your investment performs, however, is often greatly influenced by information to which you might have very little access, and by events far outside of your control. Clearly, in any investment scenario, it pays to know the facts.
Where there’s smoke, there’s fire
The sudden appearance of a group of unusual coins on the market always spurs this first question with professionals in our business, “How many others like it are out there?” This initial thought quickly yields the second question, “What other, different coins are in this hoard?” Getting straight or honest answers to these first two questions is far more difficult than you might imagine. Why? Because public knowledge of the depth or breadth of a suspected hoard of coins can severely impact its salability or value prior to sale. The sellers have a financial motive that is often directly opposite the financial success of the buyer.
Our advice to the question of whether a customer should buy a hoard coin is this: If you want to own a hoard coin because it matches your collecting desires, then let’s assist you in finding the most attractive specimen available within your budget. If you want to invest in a group of these coins, let’s get the facts so that we can help you make an intelligent financial decision. In almost every case, when hoard customers wait for the initial marketing excitement to pass, they are able purchase hoard coins at substantially lower prices—sometimes half as much.
Making an intelligent financial decision
Without knowing how many coins are in a hoard you simply can’t make an intelligent financial decision at all. The greater the number of coins that are unsold in the market, the greater the financial liability for owners of that coin. We always tell novice coin buyers, “Better to buy the last 100 coins in the hoard than the first 100.” You don’t want to invest in something that’s available in excess supply and cannot be sold. Obviously, you’ll have difficulty, too, when you choose to sell. Financial gains are uncertain until few coins are available on the market and demand remains fairly strong.
Other considerations are these: What other coins may be part of this hoard? Will similar coins from the same hoard, or a related hoard, come to market later in a follow-up dispersal? A second and unexpected flood into the market of a similar coin could reduce greatly the value of the first group, even though the first group of coins has already been dispersed. It happens! Sometimes the forces controlling the dispersal of a hoard do not publicize the full populations of coins within it.
In a sense, then, coins can be like real estate. You might price your house at a certain level because it is unusual, different from nearby houses, and in a high-demand neighborhood. But what if your prospective buyer quickly replies that a new development is being built a mile away, featuring ten more new homes just like yours! And no one told you about it! You get the picture. Suddenly your pricing leverage has eroded dramatically. The newer house or hoard coin usually steals the thunder of the slightly older one, and sudden increases in the availability of scarce items almost always decreases their value.
So it is important, when considering the purchase of a hoard coin, to wait and see. Customers should realize that if they simply wait for the hype to fall away, prices will fall, too. As the saying goes, you can tell the pioneers—they’re the ones with arrows in their backs! Sometimes hoard coins become wonderful investments—but only later, after the market has fully absorbed them, and their new pricing levels have been re-established in relation to their new population figures.
1901-P $20 Liberty in MS 65 hoard
In 1993, a mysterious hoard of 1901-P Type 3 $20 Liberty gold coins in gem quality, Mint State 65 condition, hit the market. To this day, no one really knows where it came from; the seller, who is equally mysterious, clearly wanted to keep it that way. As we said above, it is usually in the seller’s best interest to keep the public in the dark about many hoard details. Overnight, the availability of this coin grew dramatically, and its market value in this condition changed dramatically, too. Here are the facts.
The S.S. Central America shipwreck has yielded the richest hoard of recovered gold coins in U.S. history.
Prior to the new hoard coins coming to market, less than a dozen coins of this date in gem condition were known to exist. At any given time, only one or two might be available for purchase; the rest were off the market in private hands. Prior to the discovery of the hoard, a PCGS or NGC certified gem quality Mint State 65 example was worth between $8,500 and $12,500, depending on its quality.
After the phenomenal hoard of these coins came to market and were certified, the combined PCGS and NGC populations (the published number of coins graded by PCGS and NGC in their monthly or quarterly report) multiplied by many times. Prices plummeted. During dispersal the hoard coins were marketed in $4,500 range, or about half the pre-discovery price. Afterwards prices eroded even further, owing to the combined effects of the radically increased population, the fading away of hoard-hype, and the narrow channel (just two dealers) through which the coins were disbtributed.
Today, in our opinion, this coin has finally come to represent a good value. But it’s taken several years. Here’s why. People look at the population report and see a total of more than 400 coins. At first glance that might seem like a lot, but most of them are now firmly off the market. At any one time, merely a handful are available nationwide, often none at all. Coins from this hoard all have exceptional eye-appeal and sell easily because of their superior strike and luster. This is a coin that should perform well for the investor in the future based on rarity, availability, and desirability. For the collector, the value is excellent but more importantly, the coins are very nice and easy to appreciate. They are certainly a much better value today than they were at the time of the hoard’s release!
For those people who owned this coin prior to the discovery of the hoard, well, these things happen sometimes with no advance warning. The good news is, they happen very seldom. For people who bought during the height of the dispersal, you’ll probably have to wait for a major market upsurge to recoup your investment. For those smart buyers who waited, you can now own a beautiful hoard coin with historical significance at a price that almost assures you of decent return on your investment.
Wells Fargo Hoard of 1908 No Motto $20 Saints.
The Wells Fargo Hoard of 1908 No Motto $20 Saint-Gaudens gold coins completely re-wrote the book on this particular issue. According to PCGS and NGC population reports, the Wells Fargo hoard contained approximately 15,000 coins, most of which were very high in grade. The coins came to market over a short period of time and were certified by PCGS as “Wells Fargo” coins on their grading certificates. Struck in a lovely yellow gold color and typically exhibiting extraordinary mint luster, most coins from this hoard are just stunning and really glow in appearance.
Prior to the discovery of this hoard, there were about 775 coins certified gem quality Mint State 65 by PCGS. Afterward, the population increased seven-fold and the prices for the issue dropped accordingly. Many collectors of these Wells Fargo hoard coins will never sell them, no matter what the price, because they are so beautiful. However, investors who brought multiple specimens at inflated dispersal prices would have been much better off investing in some other dates in the series.
As with the 1901-P hoard, many dealers were left out of the dispersal process, so little after-market support was available to buoy prices. But the important thing to remember is that hoard coins like these are almost always priced on the coin’s pre-hoard population and the marketing hype surrounding the hoard itself. Few customers are aware of just how much the supply of new hoard coins will lower the value of that issue simply because it has suddenly become so much less scarce. Dispersing dealers are usually not quick to publicize these numbers. Nor do customers realize that if they simply wait for the hype to fall away, prices will fall, too.
Brother Jonathan Shipwreck 1865-S Type 1 $20 Liberty
Two days after the overloaded Brother Jonathan set sail from San Francisco to Victoria, British Columbia, it hit an uncharted rock during a fierce storm and sank near Crescent City, off the coast of Northern California, on July 30, 1865. There were 221 deaths in the accident. Only 19 people, including 11 crew members and eight passengers, survived, using a single lifeboat.
A typically gorgeous 1901-P $20 Liberty Hoard example in MS65.
Numerous explorers had tried to find the wreckage, drawn by rumors that the ship carried $2 million in gold, a $250,000 payroll for the U.S. Army troops in the Northwest, 346 barrels of whiskey, two camels and a horse. None was successful until Deep Sea Research, after more than 20 years of research and searching, found the wreckage in October 1993.
Modern technology is amazing. The fact that we can search the deepest depths of the ocean and actually find and recover historical artifacts is astounding. The combination of their fascinating history and amazing recovery naturally make Brother Jonathan coins very appealing. Their short-term market potential, however, is a different story.
As many as 1200 gold coins were discovered, many of which are $20 Liberty coins dated 1865 and minted in San Francisco. Prior to their recovery, PCGS had graded merely 7 1865-S $20 Liberty coins in Mint condition: 1 coin at MS61, 5 coins at MS62, and just a single MS63, with no finer examples graded.
The Brother Jonathan find has added more than 400 coins to the known population of 1865-S $20 Libs in the PCGS report, and there are rumored to be more coins on the ocean floor that are yet to be recovered. Prices for Brother Jonathan coins in the market dropped about 25% within a few months of coming to market in 1999. The story surrounding these coins is wonderful, but so far they've proven to be poor investments. New buyers certainly appreciate the savings they’ve attained through patience.
S.S. Central America Shipwreck 1857-S Type 1 $20 Liberty
Among the most recent hoard of coins to come to market are the S.S. Central America gold coins recovered from the bottom of the ocean off of the coast of Virginia. The S.S. Central America carried as cargo most of the San Francisco’s mint production of $20 Liberties for the year 1857. Embarking from Panama, the S.S. Central America sailed around Cuba on its way to New York, but tragically sank off the coast of Virginia in foul weather. The wreck was discovered in 1989, and it has taken until now to untangle the legalities of ownership and dispersal rights. Approximately 95% of the coins recovered are 1857-S $20 gold pieces; there is no depth or real secondary choices from this incredible find.
Like most of the “Wells Fargo Hoard” Saints, this MS66 example is beautifully struck, with a lovely yellow gold color.
The marketing campaign behind the S.S. Central America coins was certainly one of the largest and most expensive in the history of hoard coin dispersals, encompassing virtually all media, including television, radio, print, and the Internet. The coins themselves have been sold by three of the largest retail coin firms in the country, which have basically formed a cartel. Few smaller dealers will be able to buy these coins (and hence offer them to their customers) from the California Gold Group, the wholesale distribution arm for the S.S. Central America gold coins.
It bears repeating that the primary goal of a narrow channel of distribution, of course, is to protect the current market value of the coins by limiting their availability. We believe this approach is shortsighted. As has proven to be true in other narrow hoard dispersal programs, when the coin dealer community at large is excluded, few dealers have interest in supporting the value of the coins in the secondary market, and values do not hold. So when current buyers choose to sell, they are more likely to be disappointed.
While many of the S.S. Central America coins are quite beautiful, and the story behind them is surely fascinating, their initial prices were exorbitant--double their value, in our opinion.Remember, the known population of 1857-S in uncirculated condition has now increased by 100 times! These coins have gone from being rare to relatively commonplace in survivor numbers.
S. S. Republic Shipwreck
Brother Jonathan $20 Liberty coins have dropped 25% in price since they hit the market in August 1999.
In 2004, silver coins recovered from the wreck of the S.S. Republic, which sank off the coast of Georgia during a hurricane on October 25, 1865, started being offered to the public. According to published records, the recovered U.S. coinage includes 47,000 U.S. silver half dollars, 2,620 gold $20 double eagles, and 1,496 gold $10 eagles. The half dollars, dated between 1850 and 1865, will be sold first.
The true market value of these coins is difficult to determine because, like the market value of any coin, it depends on grade. However, the service that is responsible for conserving and authenticating these coins, NGC, will NOT be giving them a certified grade. Yes, the coins will be sold in a special NGC holder designating their origin, the S.S. Republic Shipwreck. But instead of a grade, the holder identifies them merely as exhibiting "Shipwreck Effect." These coins have been damaged by the corrosive effects of immersion in salt water for 130 years. Without an assigned grade, or state of preservation, the fair market value for these coins will be very difficult for novice investors and collectors to determine.
In essence, "shipwreck effect" means corrosion by seawater. Silver is highly susceptible to the corrosive effects of salt water--far more so than gold. As a result, silver coins recovered from any shipwreck tend to be far more damaged by their immersion than gold coins from the same wreck. The temperature of the seawater plays a key part in how much corrosion will occur. Colder water results in relatively less corrosion, warmer water in more. Therefore the depth of the wreck is very important because seawater gets colder as it gets deeper. The deeper the water, the colder it is. The colder the water, the less of an effect it has on silver coins.
The S.S. Republic sank in 1,700 feet of water, making it a fairly deep wreck. Still, the coins have been immersed in the sea for more than 130 years, subject to the corrosive effects of salt water on silver. Faced with this reality, NGC simply had to acknowledge that these coins cannot be graded like normal coins, so they coined the phrase "shipwreck effect" to signify corrosion by seawater.
If you're an investor or collector with an eye toward appreciation, we strongly recommend against these coins. Like the other shipwreck coins we discuss in this report, once the hoopla dies down, the silver S.S. Republic coins are almost certain to lose money!
Our pure nugget of advice regarding hoard coins: be patient! When it comes to hoards, patience is indeed a virtue that is likely to be well-rewarded.
The S.S. Central America fnd has increased the known population of mint state 1857-S $20 Liberty coins by 100 times!
The next wave of real opportunity
We strongly recommend common date U.S. gold coins in the higher Mint State grades to customers who are interested in hoard coins. Combining true scarcity, constant collector demand, and excellent value today, they provide all of the investment benefits of gold bullion plus the accelerated profit potential that only scarce, collectible gold coins can offer. But the best part is, unlike hoard coins, they are underpriced and offer excellent upside potential.
Minted around 100 years ago or more, these classic U.S. gold coins are in constant demand worldwide for their beauty, fine gold content, true scarcity, and historical significance. We generally favor the middle-to-high Mint State range (MS63 to MS65) because these grades tend to offer the best comination of scarcity and low cost.
Although called "common dates," they are actually quite scarce. Of the many millions originally minted, almost all were heavily used in circulation during the 1800s and early 1900s. Only a small fraction survives today in Choice Uncirculated (MS63), Near-Gem Uncirculated (MS64), and Gem Uncirculated (MS65), the grades most keenly sought by investors and collectors.
Follow this link to view current AGE prices and population totals for common date U.S. gold coins.