The MCC Food Chain

The MCC Food Chain

Before I discuss the “Food Chain”, I wanted to touch upon a topic mentioned in a previous post about how difficult it is to deal with a collector vs. investor when trying to make a purchase.

The topic has to do with knowing who your seller is. I think this is relevant given all the new members on CCF recently. I am not sure if many have noticed but CCF is at 800 members strong and counting (congrats to Snowball and all the contributors!!!) . If I recall correctly, membership went from 600 to 700 at a measured pace, but from 700 to 800 very quickly.

Back to the topic; yes, it is a good idea to know your seller, and I am not talking about knowing them personally, but knowing what their strategy is. If you know their strategy, it may help you securing the best price for the coins you want. If you recall, many months ago I wrote about the difference between a collector, investor, and dealer. Also, I mentioned that at times the collector or investor can cross over the line many times acting as each other as the opportunity presents itself. For this purpose we will focus on the differences between the collector/investor (as one) and the dealer. Point being each has a different agenda and each approaches selling differently.

For example, it’s obvious that dealers are the ones running the auctions each week, whereas a collector/investor is a buy it now type of seller. It is important to know the distinction when you’re trying to negotiate a better price, if possible. Most dealers will not end auctions early and it probably becomes an annoyance if they receive to many requests. Your chances of securing a better deal is to wait for an auction to end, and if the coin does not sell, contact the dealer to see if the coin is still available.

For collectors/investors, most, but probably not all, typically refuse to lower prices. This could be for several reasons, but the most likely are; they know the real collector value of their coins and refuse to let them go for a lower price, or they may have some emotional attachment, or they know it would be extremely difficult to replace the coin, or their coin is the only one being offered on ebay. Point being , don't expect large discounts. While many collector prices are probably above market prices, they usually have the highest quality and hard to find coins. Why? because collectors are the pickiest buyers, unlike dealers. My guess is to request a discount of 10% which might seem reasonable, and seems to have worked in the past...or just ask for their best price. Don't expect to much back and forth, usually their best price is their last price. However, this may not always work out, and be prepared for rejection.

In the end, the buying opportunity is now, as I believe there will be an abrupt end to securing a better deal…. This dove tails nicely into my next topic which I refer to as the MCC Food Chain.

The MCC Food Chain is a personal theory of mine and helps me understand why sales have stalled and pricing has declined over the past 6 -8 months or so.

First, some background. I think it’s fair to say that China has produced the greatest variety of modern coins and medals in comparison to any other country in the world as we know today. Whether you like gold, silver, platinum or palladium...1/20th or 1 kilo. From pandas, to unicorns, to peacocks and dragons. From cultural figures to historically significant events. From mintages of 99 to mintages to 1 million. There is something for everyone and every budget.

No other country has produced such a variety in modern times. What this all means is that a collector could spend 20 years collecting MCC and never finish. Yes, there is a strong collector base in China…proof being some 60,000 members on Jibi.net. Also, what other country has a public market place to buy coins similar to the Diamond District in NYC?? None that I know of.

Alternatively, the collector base of MCC in the US is probably close to the amount of members on CCF (800 or so, give or take) . Why, because CCF is probably the only place in the US to find accurate and reliable information on MCC. In comparison the US coin market has probably tens of thousands of collectors and dealers all chasing coins in the hundreds of thousands of mintages, with the same old designs year after year.

So you have to ask the question, why would sales and pricing slow down if many coins are rare and mintages are very very low? It has been my observation that sales were slowing during the early summer of 2011 whereas gold prices kept climbing. Also, the stock market did relatively well until August. So why were sales slowing in times when macro external forces were moving in the opposite direction.

My theory is the MCC Food Chain. So here it goes;

Since there are so few collectors/investors in the US for MCC, the Food Chain needs a constant new US base of collectors/investors to keep the market healthy. If for any reason the collector base stalls or declines, or pricing gets to expensive, there will likely be pull backs in sales and pricing…let me expand.

A typical new collector/investor of MCC probably started out by collecting silver pandas or something similar several years ago. These were and continue to be easy to identify with and are readily available. However, once the new collector starts down the path of collecting MCC's, they catch the MCC bug. This MCC bug is probably more powerful than say the golfing bug. Point being, over time, the new collector is not satisfied with just silver pandas anymore, now they want unicorns, or 5 ounce or 12 ounce or even kilo coins, gold coins or platinum. However, it takes time for a new collector to gain confidence in the ebay buying system, or develop relationships with certain sellers and also confidence they know enough information to make an informed buying decision. Over time, while confidence and knowledge are building, the new collector starts setting sights on more rare coins/medals.

Over time the collector transforms into the “upgrade collector”. In periods of slowing rising prices, the upgrade collector realizes that many coins bought earlier have now appreciated. However, the upgrade collector may not be willing to invest additional funds and risk having more exposure to MCC, but at the same time the upgrade collector wants to purchase rarer coins. The upgrade collector then starts selling the higher mintages pandas, etc. and exchanges those proceeds for rarer coins. This process fuels the MCC market in the US. The experienced upgrade collector now offers lower priced silver pandas to new collectors. The experienced upgrade collector then purchases more expensive coins and so on… you get the picture. And this process works quite nicely when prices are reasonable and readily affordable. However, the playing field changed in 2010, and many of those coins purchased in prior years were way more valuable. I think it’s fair to say that almost every single MCC has at least doubled if not quintupled or more from 2010 to 2011. During the last half of 2010 and first half of 2011, pricing ramped up very quickly, as coins still seemed affordable in comparison to mintages.

However, at some point coins got expensive for the new collectos, this is not to say they are overpriced, just way more expensive. This makes it difficult for new collectors to afford the entry level MCC coins. Coins that once were a couple of hundred dollars are now a couple of thousand dollars. This means that entry level MCC collectors have to wait longer to afford purchases, due more due diligence before making a purchase, and slowly gain confidence in the MCC buying/selling system. This means that as coins have become expensive, the Food Chain slows down dramatically. Buying slows down which in turn slows down price increases, and fuels price decreases as sellers become impatient and lower prices to stir interest. Rarer coins come onto the market to spur interest and supply becomes plentiful. It’s important to note that since there are so few collectors/investors in the US in MCC, that any rapid appreciation of pricing can affect the food chain dramatically.

However do not be fooled by this situation. Supply is only temporary, certain coins are very scarce and rare, and it is only a matter of time before the MCC Food Chain corrects itself, and the process begins all over again.

So that’s my theory…whether believable or not, may provide some insight and explanation into the market forces at work.

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