Investing in United States commemorative coins is a tricky business. Some coins contain precious metals, such as gold and silver, and can be greatly influenced by the current market price of these metals. But the two major factors that determine the value of a coin are supply and demand. Both of these will change over time and will lead to changes in a coin's value.
Some people invest for the short term by buying coins directly from the U.S. Mint and quickly flipping them for quick profit. Unfortunately, this is risky and can also lead to a loss of capital. Other people will avoid common coin investment mistakes and take a long-term strategy by holding onto their commemorative coins for many years.
Supply versus Demand
The economic forces that drive the coin market follow the same laws of supply and demand that drive any other free-market. As the supply of a certain item increases, while demand holds steady, the price will fall. Conversely, as demand for an item increases, while supply holds steady, the price will increase. Other factors go into determining the actual price that a dealer will charge for a particular coin, but supply and demand influence the coin's value the most.
When the United States Mint first issues a commemorative coin, the supply is virtually unlimited. There may be laws that dictate that the United States Mint may only make 350,000 or 500,000 coins, but those limitations are rarely met.
Additionally, these laws usually state that the Mint can only sell the commemorative coins for one year. After which, the Mint melts all the unsold coins. There are some notable exceptions, such as the 2011 25th Anniversary Five Coin Silver Eagle Set that had a production limit of 100,000 sets and sold out in a matter of hours.
The topic and the design that is embodied on the coin greatly influences demand. In 1995 and 1996 the United States Mint produced a series of silver one dollar coins to commemorate the 1996 Olympic Games in Atlanta, Georgia. In some instances, the mint sold almost ten times more proof coins than the uncirculated version. Unfortunately, the Mint no longer makes coins dated 1995 or 1996 anymore; therefore the demand for uncirculated coins must be met by a very limited supply. Hence, the price has increased proportionately.
Demand for Encapsulated Coins
In the mid-1980s, third-party grading and authentication companies started to gain popularity. For a service fee, you could send your coins to one of these companies, and a professional numismatist would verify the authenticity of your coin, and render a professional opinion on the coin's grade. The coin would then be encapsulated in a hard tamper-evident plastic holder displaying identifying information and the coin's grade. The two leading third-party authentication services are Professional Coin Grading Service (PCGS) and Numismatic Guarantee Company (NGC).
Recently, these two companies started an online competition among coin collectors to see who could build the best coin collections. These competitions are known as registry sets. Coin collectors can submit their coins to be professionally graded, encapsulated, and then registered on either PCGS's or NGC's website. The higher the grade of the coin the more points it is worth. Sets are then ranked against each other by their total points. The popularity of registry sets among coin collectors has greatly increased the demand for high-end certified coins.
Supply of MS-70 and Proof-70 Coins
The advent of registry sets has driven the demand for MS-70 and PR-70 coins to new levels that nobody ever expected. When the United States Mint first releases commemorative coins, the supply of perfect MS-70 or PR-70 coins is very low. Hence, the cost of being one of the first to own one these perfect coins is very high (high demand = high price).
As more people submit their coins to be professionally graded, more and more coins receive the MS-70 or PR-70 grade. Therefore, the supply will increase, and the laws of economics will cause the price to decrease. Eventually, the market will get saturated, and prices will stabilize.
Take for example the 2008-P Bald Eagle Silver Dollar. The uncirculated version of this coin had an original issue price of $37.95. In August of 2008 (while the U.S. Mint was still selling them) an MS-70 specimen was selling for $144.00, while an MS-69 specimen was selling for $66.00. Within five years, prices stabilized at approximately $90.00 for an MS-70 specimen and $49.00 for an MS-69 piece.
Net Effect on Coin Prices and Values
As you can see from the chart above, from the time a coin is issued it takes approximately twelve months for the market to stabilize. Other market demands can also influence the price of coins. A notable exception is the popularity of the 2009 Abraham Lincoln Bicentennial Silver Dollar that included four new reverse designs on the Lincoln cent in the same year. Another notable exception is the 2001-D Buffalo Silver Dollar originally issued for $32.00; an MS-69 is now priced around $170, and an MS-70 specimen is approximately $375.