Shipwreck Coins: Worthy Investment Or Risky Business?

Sunken treasure coins are appealing to collectors due to their unique stories and historical significance. However, when considering shipwreck coins as an investment, it is important to evaluate their value beyond the hype surrounding their discovery. While they can be a fun addition to a collection, there are better ways to bring measurable value to an investment portfolio.

This paragraph will explore the factors that influence the investment potential of shipwreck coins, including their rarity, condition, and long-term market value. We will also discuss the role of reputable dealers and the importance of authenticity in ensuring a wise investment decision.

Authenticity is key: beware of fakes

When it comes to shipwreck coins, authenticity is everything. The market is fraught with fakes, so buyers, especially newbies, need to be careful. The best way to avoid counterfeits is to buy your coins directly from a reputable dealer.

Coins from sunken treasure ships can be very appealing when we think we're getting a bargain, or we believe that they will increase in value quickly. However, the more hype you see surrounding a shipwreck coin treasure sale, the more likely it is that the coins will decrease in value over time.

Basic economic principles teach us that supply and demand determine an object's value. For the value to increase over time, the supply must decrease, or the demand must increase. Rapid growth in value happens when both of these events occur simultaneously. The discovery of a new shipwreck full of coins will affect both supply and demand.

Sunken treasure coins are often degraded by their time underwater, especially if they are made of bronze or silver. Gold coins, on the other hand, usually survive mostly unscathed. Therefore, it is important to carefully inspect the condition of a shipwreck coin before purchasing it.

When buying shipwreck coins as an investment, it is recommended to only purchase the highest-grade coins. This generally means buying MS-64 or better specimens that have been graded and slabbed by a reputable grading service.

In summary, if you are considering investing in shipwreck coins, it is important to do your research, buy from reputable dealers, and carefully evaluate the condition and grade of the coins.

Coins from famous shipwrecks may decrease in value

Secondly, the hype surrounding a famous shipwreck coin sale can temporarily inflate prices. The excitement of owning a piece of forgotten history may lead collectors to pay high premiums for coins from famous shipwrecks. However, once the excitement dies down, the demand for these coins may decrease, resulting in a decline in their value.

Additionally, the condition or grade of coins from famous shipwrecks can be a factor in their value. Coins that have been underwater for a long time, especially in saltwater, may suffer damage and degradation. Bronze coins, in particular, are susceptible to damage in salt water, while silver coins can vary in their resilience depending on the purity of the silver. The conservation process, if not performed properly, can also further damage the coins. Therefore, it is essential to evaluate the grade of a shipwreck coin without considering its status as a shipwreck coin, as the condition can significantly impact its value.

Furthermore, the gold content of shipwreck coins may not always measure up to the purity standards of modern bullion gold coins. As a result, investors may be paying more for less in terms of gold purity. It is crucial to evaluate the coin's gold content and not just its aesthetic or historical value.

The value of gold coins vs. silver coins

Gold and silver are both precious metals that have been valued for thousands of years. They are both good investments, but there are some key differences to be aware of.

Volatility and Affordability

Silver has a more volatile market price than gold. This is because the silver market is smaller in value, despite a greater weight of silver being mined each year. Silver is more affordable for the average investor and is ideal for smaller purchases or gifts.

Storage

Silver requires much more storage space than gold. It is also more cumbersome to transport and is more susceptible to tarnishing.

Industrial Use

Silver has a much higher industrial use than gold, with 56% of its supply being used in industry compared to 12% for gold. Silver is used in electronics, medical applications, batteries, and solar panels. This means that the demand for silver is more susceptible to economic booms and busts.

Stockpiles

Governments and institutions used to hold large inventories of silver, but today only the US, India, and Mexico hold stockpiles. Central banks, on the other hand, hold large amounts of gold in their reserves and continue to buy more each year.

Liquidity

Gold and silver are both extremely liquid investments. They have been used as currency for thousands of years and can be easily bought and sold. Gold is slightly more liquid due to its historical and current status as a currency.

Markups

Gold and silver cannot be purchased for the spot price and will always include a premium to cover the dealer's costs and profit. Silver generally has smaller markups for purchases under $1,500, while gold has better markups for purchases over this amount.

Both gold and silver are good investments and have their own unique advantages. Gold is more stable and valuable, while silver is more affordable and volatile. Consider your budget, storage capabilities, and investment goals when choosing between the two.

The impact of market frenzies on coin value

The discovery of a shipwreck tends to spark frenzies in the market. Collectors get excited about owning a piece of forgotten history and spend much more than the long-term value of the coin. This is known as a "cash frenzy" in the stock market. It refers to periods of intense activity and high-volume trading, with a significant influx of cash entering the market. Market participants are driven by a sense of urgency, leading to rapid stock price movements.

During a cash frenzy, investors flock to buy or sell positions in response to short-term market developments, news events, or speculation. The market becomes flooded with cash as investors seek to capitalise on perceived opportunities or mitigate potential losses. This creates a palpable sense of excitement and anticipation in the market. Traders eagerly monitor their screens, analysing price movements and searching for potential trading opportunities.

The impact of a cash frenzy on the stock market can be significant, affecting both short-term trading dynamics and long-term investor behaviour. In the short term, cash frenzies can cause drastic price spikes or drops in a matter of minutes or even seconds. This heightened volatility makes it challenging for investors to accurately gauge the fair value of stocks and make informed investment decisions.

Additionally, during cash frenzies, short-term traders and speculators often dominate the market, leading to increased trading costs for retail investors. The increased competition for limited investment opportunities creates a highly competitive environment, where participants scramble to execute trades at the most favourable prices.

In the long term, prolonged periods of heightened market volatility can erode investor confidence and trust in the stock market. Investors may become hesitant to commit their capital for the long term, leading to a reduction in long-term investment volumes and a shift towards more conservative assets or alternative investment vehicles.

Moreover, cash frenzies often result in market distortions, making it difficult to distinguish genuine investment opportunities from speculative bubbles. When the market is flooded with excessive liquidity and speculative trading, it becomes challenging to identify stocks with solid fundamentals and sustainable growth prospects, potentially leading to misallocations of capital and market imbalances.

Overall, while market frenzies can create exciting opportunities for investors, it is crucial to approach them with caution. Investors should maintain a rational mindset, stick to their investment strategies, and carefully consider the potential risks and opportunities presented by frenzied market conditions.

Grading and condition of coins

Grading a coin is a complex process that requires a lot of knowledge and experience. The primary purpose of grading a coin is to determine its market value. This is influenced by how well the coin was initially struck, its level of preservation, and any wear and damage it has sustained.

Coin grading is a subjective area, and there is no scientific or factual scale to base a grading on. It is often referred to as an art form by numismatists, requiring a lot of attention and a keen eye for detail. The process can take years to master, and numismatists tend to specialise in specific coin types or eras, each of which has a different grading standard.

When it comes to shipwreck coins, the grade is determined by the coin's condition, which can range from worn to perfect. The better the condition, the higher the grade, and the higher the value of the coin. The most common coin grades are as follows:

• Poor (P-1): Barely identifiable and possibly damaged; must have a date and mintmark if used; otherwise, pretty thrashed.
• Fair (FR-2): Worn almost smooth but lacking the damage a coin graded Poor usually has. Enough detail must remain to identify the coin.
• Good (G-4): Heavily worn such that inscriptions merge into the rims in places; major features are mostly obliterated.
• Very Good (VG-8): Very worn, but all major design elements are evident, albeit faint. Little if any, central detail remains.
• Fine (F-12): Very worn, but wear is even, and overall design elements stand out boldly. Almost fully-separated rims from the field.
• Very Fine (VF-20): Moderately worn, with some finer details persisting. All letters of LIBERTY or the motto are readable. The rim's on both sides of the coin are full and separated from the field.
• Extremely Fine (EF-40): Lightly worn; all devices are clear, significant devices are bold. The finer details are bold and clear but may show some evidence of light wear.
• About Uncirculated (AU-50): Slight traces of wear on high points of the coin's design; may have contact marks, and eye appeal should be acceptable.
• Mint State (MS): Strictly uncirculated; no evidence of wear on the highest points of the coin.

The Sheldon Scale, ranging from Poor (P-1) to Perfect Mint State (MS-70), is considered the industry standard for coin grading. It was first used in the United States in the late 1940s and is based on a 70-point numeric scale, with higher numbers indicating a better condition.

It's important to note that not all shipwreck coins are rare and worth collecting. The value of a shipwreck coin depends on various factors, including the country they were struck in, the year they were minted, the ship they were carried on, and the condition they were discovered in.

Frequently asked questions