There is something happening with the $20 gold pieces

There is something happening with the $20 gold piece that I do not think the rare coin market has fully come to terms with yet.

Over the last several years, and particularly as gold continued to move higher, I have personally watched a remarkable number of Liberty Head double eagles disappear into the melting pot. I do not mean damaged coins, jewelry pieces, or coins that had already been written off by collectors. I am talking about certified coins. Coins in MS61, MS62 and even MS63 holders. Coins that at one time someone paid to have graded and encapsulated, and that had survived for well over a century. They were cracked out of their holders and sent to refineries.

The reason was actually quite simple. Economics. As gold moved higher, the spread between what wholesalers were willing to pay for common date double eagles and what refiners would pay for their gold content created an unusual situation. If a major dealer was paying 98 percent of melt and a refinery was paying 99 percent, there really was not much of a decision to make. A one percent difference may not sound significant when talking about a single coin. When you are dealing in hundreds or thousands of ounces of gold, it becomes very significant. So the coins went to the refinery.

I watched it happen enough times that it started bothering me. There is something strange about watching a coin that survived the Civil War era, the Gilded Age, two World Wars, the Great Depression, the gold recall and generations of collectors finally meet its end because the arithmetic favored melting it by one percentage point.

But there is another part of this story that I had not really considered until a conversation at the most recent ANA convention. I was talking with another dealer and mentioned how many double eagles I had personally seen melted. I told him about the certified MS61s, MS62s and MS63s that had been cracked out and sent to the refinery. He listened and then made a simple observation. "Imagine all the ones you didn't see."

That stuck with me. Because he was absolutely right.

What I witnessed was only what happened to pass in front of me. I am one dealer. I saw one small part of the wholesale gold market. The same economic calculation was being made by dealers, wholesalers, bullion traders and refiners all over the country. How many double eagles were actually melted? I do not think anyone knows.

And that leads to an even more interesting problem. The population reports may not know either.

From the numbers I have been able to gather, the current total graded population of Liberty Head double eagles across Types 1, 2 and 3 is approximately: PCGS: 807,952. NGC: 814,498. CACG: 1,901.

At first glance, those numbers make Liberty Head double eagles look plentiful. More than 1.6 million grading events between PCGS and NGC alone is an enormous number. But we have to be very careful about what those numbers actually represent. A grading population is not necessarily a surviving population.

When a certified coin is cracked out and melted, the grading label is supposed to be returned so the certification can be removed from the population report. In the real world, that frequently does not happen. I know this because I watched coins get cracked out and melted, and in many cases nobody was stopping to mail the labels back to the grading service. The coin was gone. The population number remained.

There is also the long-standing problem of resubmissions. Coins have been cracked out and submitted again in hopes of receiving higher grades for decades. Unless the old certification number was properly removed, one physical coin can potentially be represented more than once in the historical population data.

Slabbed Population of United States Gold Double Eagles : $20 Gold Pieces

So when we look at a population of 807,952 PCGS graded Liberty Head double eagles or 814,498 at NGC, we should not automatically assume that anything close to that number of individually certified coins still exists today. Some certifications represent coins that were resubmitted. Some represent coins that crossed from one grading service to another. And now, perhaps more importantly than the market realizes, some represent coins that simply no longer exist. They have been melted.

This creates what I think could become one of the more interesting stories in the rare coin market over the next five to ten years. For decades, common date Liberty Head double eagles have existed in a strange middle ground between numismatics and bullion. They are historic American coins, but many dates and grades have traded primarily as a function of their gold content.

That relationship works when the numismatic premium comfortably exceeds melt value. But when gold rises enough, the equation changes. The floor rises underneath the coin while the numismatic premium gets compressed. Eventually a point can be reached where the coin is worth more to someone as 0.9675 ounces of gold than it is as a collectible coin. And once that happens, the destruction is permanent.

Gold can always be turned into another product. A melted 1904 double eagle can never become a 1904 double eagle again.

What we are witnessing may not be new at all. Previous gold bull markets likely had their own effect on the surviving population of double eagles. The most obvious example is the great gold run of the late 1970s. Gold rose from roughly $100 an ounce in 1976 to an intraday high around $850 in January 1980. At $850 gold, the metal contained in a double eagle was worth more than $820.

Think about that for a moment. This was before PCGS. Before NGC. Before modern population reports. Common date double eagles that were viewed primarily as bullion could have been melted without leaving behind the kind of statistical footprint we would expect today. How many disappeared during that period? We will probably never know.

Then came another extraordinary gold market. From around the beginning of this century through 2011, gold climbed from roughly $250 to more than $1,900 an ounce. This time PCGS and NGC existed, but that creates a different problem. A certified coin could be cracked out and melted while its certification remained in the population report if the label was never returned.

The current gold market may simply be the latest chapter in a process that has been quietly reducing the surviving population of double eagles for decades. That is what makes this situation so fascinating to me.

We may be watching a gradual reduction in the surviving supply of a major United States gold coin series without having any reliable mechanism for measuring it. Population reports were never really designed to answer this question. They tell us how many grading events have been recorded, adjusted when certification inserts are properly returned and other corrections are made. They cannot tell us with certainty how many of those coins are sitting in collections, dealer inventories, bank boxes or vaults today. And they certainly cannot count coins that disappeared into refineries without anyone notifying the grading service.

Eventually, however, markets have a way of discovering real scarcity. It may happen through auction appearances. It may happen through dealer inventories. It may happen when collectors begin searching for particular dates and grades that population reports suggest should be readily available, but somehow are not. That is when things could get interesting.

I believe that over the next five to ten years we may begin to get a much clearer picture of how many Liberty Head double eagles actually survived these periods of elevated gold prices. And I would not be surprised if the answer is considerably fewer than the population reports would lead us to believe.

The irony is that for years collectors have studied double eagle populations looking for rarity in the traditional places: low mintages, condition rarities, branch mints and famous dates. Perhaps another form of rarity has quietly been developing right in front of us. Attrition.

Thousands of coins may have disappeared while the numbers on our computer screens remained unchanged.

I keep coming back to that conversation at the ANA. I had been thinking about all the double eagles I had watched go into the melting pot. The other dealer was thinking about something much bigger.

"Imagine all the ones you didn't see."

I have.

And I think someday the rare coin market will too.