When investing in precious metals, there are two primary categories that it is important to understand. Numismatic coins vs bullion coins. Numismatic coins are essentially insider speak for collectible coins whose value is driven by factors such as age, rarity, year of issue, design, and the mint at which they were struck. A rare coin market. Bullion’s value is driven by its underlying precious metal content and the price of gold and silver bullion. It is a good investment.
The numismatic coin's market is complex, illiquid, and involves a steep learning curve. Precious metal investors can avoid all of this by simply avoiding numismatic coins and simply investing in silver bullion coins, gold coins, rare gold or silver bars. The bullion market is straightforward, liquid, and easy to grasp the universal basis for valuation. The type and weight of metal of gold coins for example.
For the vast majority of precious metal investors, the answer is simple and clear. The spot price of gold. Yes, you should invest in bullion and not invest in collectible or numismatic coins until you understand the details. It is a very specialized market.
Bullion coins offer a straightforward value proposition with the spot price of gold. Own a historically reliable and stable store of wealth that is collectible. In a form whose cost is transparent and minimally different from that set by the giant global market price established for such precious metals as gold bullion.
The Risk of Numismatics
Purchasing numismatic coins at intrinsic value, especially as a new investor at a rare coin market, means you are putting yourself at a disadvantage by purchasing little known coins from metals dealers who are usually coin experts.
The bullion coins market is a widely recognized and highly liquid market. When it comes to resale of the price of rare gold or silver coins you will not have any trouble finding significant demand for them. You can easily compare offers and choose the best one by its metal content.
The market for numismatic coins vs bullion coins is tiny by comparison. You may have trouble finding a willing buyer who is offering a fair or spot price. As prices for collectibles and their metal content can vary wildly. To make matters worse there are seventy different quality grades that can be assigned to a single coin. Even at the highest level grading firms, it’s common for two of their experts to disagree that they have a formalized process for figuring out what to do when this happens. It may not be a good investment at the market price.
Numismatics coins is an area in which deceptive marketing abounds. Some sellers go to great lengths to overstate the value of what they’re selling while charging you obscene premiums. The like of which will guarantee that you lose money on any collectible coin you buy. Bullion coins tend to be a long-term financial investment and a store of value-based entirely on its precious metal content. Buying such coins and bars from a reputable dealer like GSI Exchange is all you need to do to gain the benefits of physical precious metals ownership while fully insulating yourself from the risk of the numismatics market.
If you have any doubt as to whether the investment you are considering is bullion or numismatic read on for detailed information on how to quickly recognize the types of products you’re dealing with and some of the pitfalls to be aware of with precious metals.
The Gold Standard of Bullion
Bullion gold coins offer a more concrete value proposition. The worth of the coin, bar, or round is derived from the mass and purity of the metal content and the current spot price of that metal. This inherent marker is called intrinsic or melt value. Bullion is a time-tested investment vehicle. It is readily tradable. And work ideally as part of an estate to be handed down to your heirs. They are nice to look at and handle. Even the most common bullion coins are exquisitely crafted.
Most common bullion coins are produced by a country’s national mint. They are also referred to as sovereigns. But a subset consists of modern gold and silver rounds. Rounds are typically relatively generic in their features and design when compared to sovereigns and are not worth much more than their metal content. Some can be called collectible bullion. They usually sell for a higher premium than gold bullion coins and can on occasion be a good buy.
True numismatic coins are different. Numismatics is an all-purpose word. It refers to the study of coins and currencies, including paper money, tokens, and other related valuables. It is also used as a general term for rare coins. As well as for the coins themselves; those that not only derive value from the precious metal they are made of. They also have an additional, intangible value based on their rarity and collectability. Numismatic coins as a hobby is one that can be personally rewarding. It’s a way to hold centuries of history in your hand.
Rare Coins Collecting: A New Passion
The best advice is to take up collecting rare coins because you truly enjoy the education, research, and process. These coins should not be thought of as the foundation of an investment strategy or the road to a quick profit.
You must remember that numismatics is unlike bullion, whose per-ounce price is posted for all to see. In contrast, numismatics are largely valued according to difficult ever-changing metrics such as demand for that particular coin. As well as market timing, coin condition and rarity, age, country of origin, and method of auctioning. Their price is wholly derived from attributes far more complicated than the metal content of the coin. Any given numismatic coin is worth what someone will pay for it based on intangible, subjective attributes. The numismatics market isn’t nearly as liquid as the bullion market so finding buyers or sellers at what you view as a fair price may not be easy.
Another interesting subject is a subset of so-called commemoratives such as gold eagles, an eagle, an American eagle, or a maple leaf. These are coins with standard gold or silver compositions that are minted to commemorate an event such as the Olympics, the World Series, or a historical milestone. They are usually issued by private mints which are limited. The idea is to create a sense of scarcity among potential buyers so that higher premiums above bullion value can be charged.
Commemoratives are often heavily marketed on TV and in magazines and newspapers as a collectible. The truth is that their potential is almost never realized. The market for them is bound to be small and the demand for them is likely to never be as high as they are marketed. They may be advertised as Mint State or Brilliant Uncirculated as if that was important. These terms mean something with numismatics but not with commemoratives. Because by definition every coin is brand new and identical to every other one. Generally, fans who want one will keep it, not because of its pristine condition.
Your chances of getting more money than bullion value when you sell them are minimal. It is best to avoid these metals dealers unless you are prepared to become familiar with the market and they provide you with intangible benefits above and beyond their bullion content.
So, now you have read our warnings against using the numismatic coin's market and the rare coin market as the foundation for your precious metals investing. If retaining the value of your investment is your main investment motive stay away from numismatics coins. If you are still interested in numismatic coin collecting as a hobby there are a few things you need to know.
Historically, gaining a decent coin collection was a hard thing to do. It was difficult to find a specific coin you were looking for and when you did you had to evaluate the condition of the coin, whether a double eagle or eagle coin. A judgment call that is certain to be disputed by both the seller and the future buyer. This all changed with two major breakthroughs. The emergence of grading services to provide dispassionate and professional coin evaluations and the rise of the Internet.
Grading Coins Since 1972
ANACS (the American Numismatic Association Certification Service) is the oldest grading service founded in 1972. It was followed by the PCGS (Professional Coin Grading Service) in 1985 and NGC (Numismatic Guaranty Corporation) in 1987. Both NGC and PCGS are rated as superior by the Professional Numismatists Guild and coins graded by them are accepted in the marketplace at their stated grade. ANACS provides gradings that are viewed as simply acceptable. ANACS graded coins trade at lower premiums than PCGS or NGC graded coins.
There are also other grading services but they are considered to be low tier. Coins graded by them will often be devalued because of inconsistent standards. This also applies to the grading done by the seller whether it’s a personal vendor or coin dealer. When choosing numismatic coins it’s better to choose one that has been graded by one of the top-tier graders.
This should not be taken as a guarantee that you will get what you are paying for. Grading is merely an opinion and differences of opinion exist even among the top experts on numismatic coins. This is true when the evaluator is confronted by subtle differences between coins at the highest of grades. Tiny distinctions that may not be visible to the naked eye can generate astronomical gaps in the marketplace.
The newest grader is the CAC (Certified Acceptance Corporation) which began in 2007. CAC evaluates coins that have already been graded by PCGS or NGC and if it agrees with the grading it attaches a CAC approved sticker. Coins with the CAC sticker are highly valued since they have been through the grading process twice and tend to fetch higher premiums.
The question to ask is can you as a collector submit gold coins to one of the services for grading? Yes, you can. As you gain experience you will develop an eye for quality and get better at evaluating a coin’s condition. If you purchase an ungraded coin from a private seller and believe it to be worth more than you paid. Getting it professionally graded is the only way to be certain of it. But you will pay for the privilege of money and waiting time and could well be disappointed. The cost for certification is from about $15 to $100 per coin depending on the coin value and the time frame you are in.
Precious metal investors have a vested interest in certification and do it routinely. Most of the time it’s quicker to purchase the coin you want after it has been graded. You are not likely to get a great bargain but you are gaining an expert opinion as to what you now own. You will also be able to negotiate a price below what you expected to pay.
The Grading Process Continued
So what does the grading process look like? When you submit a coin to a grading service it is examined by at least two experts who must agree on the coin’s condition. After the grade has been done a coin is slabbed, meaning it is encapsulated in a plastic holder that can’t be opened without destroying it. This ensures protection against tampering by counterfeiters while preserving and protecting the coin long-term. The coin’s consensus grade is printed on a tag inside the slab and a serial number is affixed. It is important to mention as grading and slabbing have created a revolution in the numismatic world. They have stabilized and brought a level of integrity to what was once a field defined by fraud and deception.
Coin collecting is determined by a system that evaluates a coin according to its wear and tear such as physical gold. The most pristine coins are deemed Uncirculated or Mint State (MS). The coins were put into storage after being minted and were never circulated. Yet the mint state has eleven-minute gradations. There are Proof coins that are perhaps the most beautiful and are early samples of new issues that mints produce in small numbers employing a double-stamping process. They have an incredible mirror finish.
Age is a major factor in numismatic value. In all other areas being equal the older the coin the more it’s worth. Older coins are more likely to have been melted down over the years or to have circulated and become badly worn. It may seem incredible that any coin minted for use in general commerce would survive hundreds of years in a Mint State condition. For some numismatic coins, this involves significant numbers. There are records about the number of coins made in any given series and historically small-mint runs yield more valuable coins as do years in which meltdowns were common. All gold coins feature mint marks that show where they were created and hold intrinsic value and the price of gold.
How the Internet Changed the Game
The Internet and particularly eBay have changed coin collecting dramatically. It has made finding a specific coin much easier than it had ever been. You can “Buy It Now” if you feel the price is good or engage in bidding against collectors searching for the same coin. As with all auctions, the price can quickly escalate beyond what you are prepared to pay. But you may also hit a low-demand day or an auction with low or no minimum selling prices. Then you are in luck.
eBay is user friendly and sellers are able to share lots of info about the coin with the bidder. In the case of coins of higher collectability, the numismatic coins will be graded and slabbed by one of the premium services reducing your risk. It rates frequent sellers according to buyers’ experiences with them and gives you a recent price history for similar coins. And it provides protection against fraud.
To be sure there are still unscrupulous numismatic coins dealers and you may come across one if you walk off the street into his shop. He may try to take advantage of you by persuading you to buy gold coins which are more common than he says or is selling for a much higher price than its worth. The coin dealer may try to charge you an exorbitant premium over the coin’s listed book value. But this type of seller is much less common than in the pre-Internet days. If a seller is trying to sell you a coin all you have to do is go on and look up one of the sites that lists the current book value for any coin you encounter. Or you can see what the collectible coins are selling for on eBay.
Building a collection of numismatic coins is an interesting hobby if you enjoy it. And it’s less of a threat to you financially than it used to be with a coin dealer. Buying and selling rare coins is the same as dealing with other collectibles. What people are prepared to pay or sell the collectible coins vary greatly with time. Particular individual coins can see massive increases or declines in price. And the market goes up and down very sharply.
It’s nearly impossible to gauge where you are buying into that market. You may get what seems to be a reasonable deal on a coin today only to see it fall in value tomorrow. And remember that when you become a seller you always must find a buyer who is looking for exactly what you have and pay your selling price.
So, become a dedicated collector if you want to but it’s best not to think of numismatics which trades in a highly specialized way as an investment in the same way you may view bullion and precious metals. Gold bullion and silver bullion is a reliable store of intrinsic value as an investment. They may be purchased or sold at any time to a precious metals broker for the spot price and minus a small dealer fee.
For the investor who is seeking the safe and reliable store of value that gold and silver are known for, bullion is the best option.