The simple explanation is like mentioned before that the price of a coin is driven by the dynamics of supply and demand. However, there is more to it. These other factors need to be taken into account to answer the question "How much is my coin worth?"
A coins rarity depends on several things. Many numismatists have specialised in different types of coins and having access to the right reference works and auction history is crucial here. However, further research should also be made in order to establish an own, educated opinion on the coin in question. An understanding of the following will help to assess the rarity of a coin
- Mintage figures
- Hoarding trends
- Workings of the mint
- Other economic and political factors
Some coins are simply more popular and sought-after than others. Their sheer beauty, the popularity of the person depicted or the designer are all examples of what may make a coin more popular than others. Understanding popularity and how it changes with other world trends and time is important when it comes to spotting and profiting from new price trends.
Condition plays a big part in deciding the price of a coin. Nobody wants to put a worn, miscoloured or damaged coin in a collection, of course unless it’s the only example available on the market. In the trade we say grade, and there are different grading scales in the world. However, regardless of existing systems, determining the grade of a coin is much a personal opinion and one dealer and another can have slightly different opinions on a coin’s grade. Usually it is necessary to tilt the coin to get light from different angles in order to establish the grade. Prudence is virtue here, along with establishing relationships with trustable and experienced dealers.
Read more about how to grade coins…
Marketability / liquidity
When investing in coins it is important to think about what market/s your coins can be sold in. Of course, if entering a larger, perhaps global, market it will be easier to find a buyer and the price may be higher, but the same could apply when you purchase. Today we see a trend of certain types of coins going from a domestic customer base to a potential global one. The internet and international exposure plays a big part here and this trend is likely to continue, especially since investors from emerging markets are entering in larger numbers.
Counterfeit coins is a well-known problem in the trade. There are also an array of methods of deceptively enhancing a coin’s state by cleaning, tooling, plugging, engraving, lasering, etc. To counter this third party authentication and grading agencies are becoming more common. In the US, a large majority of collectable coins are sold in plastic holders with an assigned numerical grade. For an investor with little knowledge of grading this can helpful, especially when bidding online without viewing in person. However, serious investors are advised that an expert inspect the coin and formulate their own opinion as nothing can replace the human eye (at least not yet!
There is a lot to be said about counterfeit coins, for example read this article by PCGS, a US coin and authentication service. PCGS have also published a book, see this link. This is of course focusing on US coins but the counterfeiting methods are the same so the teachings are transferable to other coin types and markets.
This is a coin’s ownership history. A reputable provenance will most certainly give some extra spice to the price tag, and unlike car ownership the rule here is the more the merrier. Famous collections like Louis Eliasberg or king Farouk of Egypt form a numismatic heritage of their own part and specimens from these collections will reap premiums in auction. Another sort of provenance is a reference to a reputable auction house. Although not indicating ownership of a famous collector, this will eliminate (or at least sharply reduce) the risk of a counterfeit coin.