Investing in Coins for their Precious Metal Value

1oz Krugerrand Gold Coin

Besides coin “collectors,” who view their hobby as a labor of love, there are a growing number of coin investors, those folks who are primarily interested in making a profit on an investment of time and money.

Investors tend to fall into the “precious metals” or the “rarity” categories, depending upon how they plan to make money as coin investors. The metals crowd sticks to gold and silver bullion pieces or a small group of heavily traded legal-tender coinage made of nearly pure gold or silver.

Those who invest in truly rare coins have their work cut out for them, and they tend to be more adept at grading, buying, and selling high-dollar gold and silver coins. Many who do this type of coin investing consider themselves to be numismatists. In many cases, such investors are indeed licensed numismatic dealers who own and/or operate traditional coin shops in major cities.

Investing in Precious Metal Content

One need not be an expert numismatist to profitably invest in gold and silver coinage. Those who specialize in pure bullion pieces (not legal tender) and money coinage (legal tender) are one of the fastest growing segments of the modern metals segment.

Buying gold and silver from a dealer or an individual carries risks, but also offers the potential to make a healthy profit on the regular price swings in the metals markets. In fact, whenever world economic stability takes a hit, or when international markets begin to shake, investors flock to the safe haven of precious metals. Many are drawn to gold and silver for all sorts of reasons, like ease of ownership and liquidity.

Anyone who invests in gold coinage and bullion in unstable or stable times should know about the downside of the practice, as well as some of the common tips offered to newcomers:

  • Because they have such high purity and are widely available, U.S. and Canadian gold bullion one-ounce coins are one of the hottest items in the metals market, routinely selling by the millions each week.
  • A sizeable number of investors who come to the so-called “hard metal” marketplace are former owners of gold and silver exchange-traded funds who don’t like holding mere “paper” rights to precious metals. They want the real thing! The ETF market boomed in the early 2000s, and millions of new investors became owners of gold and silver ETF shares for the first time in their lives. After a shaky decade, many ran headlong to the nearest coin dealers in search of real gold and silver coinage.
  • Gold and silver one-ounce coins are minted by dozens of government mints around the world. By far, the most popular of the lot are Canadian and U.S. one-ounce rounds that sell for a small premium over the spot price of the metals.
  • Between mid-2005 and late 2010, the price of gold rose nearly 300 percent, bringing huge profits to those who purchased just before the boom. Because the selling price of gold one-ounce coins is closely tied to the spot price, it is easy to watch one’s investment grow or shrink each day. No complicated math is involved.
  • Be ready, as an investor, to hold gold and silver coins for about three years. Anything less than that means you are a “trader” rather than an investor. And unless you understand the metals market constantly, trading gold and silver short-term is a grueling business. It’s not the way for investors to make money.
  • Prices fluctuate on a daily basis, and this goes for silver much more than gold. Primarily because silver is both an industrial and precious metal, its price is subject to more outside factors than is the price of gold. However, both gold and silver coin investors should be ready for price rises and declines during their designated holding period.
  • Most dealers will only accept cash or a cashier’s check for gold and silver, which means that buying precious coinage on a credit card is almost never an option. Always be sure to ask a dealer what the policies are for purchase and sale. Some dealerships offer a bit of wiggle room on this rule, especially for established customers. But, as with all things gold and silver, know the lay of the land before plunking money on the table.
  • When buying gold and silver coins, ask the dealer what his buyback policy is. Most will openly state the price they’ll pay if you want to sell the coin back to them. It is typically stated as a percentage of the spot price. In order to make a living, dealers routinely sell precious metal coinage at a specified amount above the spot price, and buy back at a specified amount below spot. Know the exact percentages before doing business with anyone. A small difference in sales markup (and buyback markdown) can make a huge difference when buying several thousand dollars’ worth of coins.
  • Beginners should buy only U.S. and Canadian coinage. While the Canadian Maple Leaf coins are a bit purer (24 carat) than the U.S. Eagles (22 carat), the U.S. coins are more popular and have the added advantage of being “IRS approved” for investment in retirement accounts.
  • Avoid “bars” and stick to legal-tender coinage for gold and silver purchases, especially if you are new to investing in precious coins. Bars usually come in 10-ounce and larger sizes, which means it is sometimes hard to sell them. Coins in one-ounce and smaller sizes are readily saleable and carry more realistic prices.
  • Always take possession of the coins you buy. This might sound like a no-brainer, but there are some unscrupulous dealers out there who offer “storage plans” for the coins you purchase from them. Experts recommend taking physical possession of your coins and storing them in a safe place. Safe deposit boxes are best, but home safes are another option. The goal is to be able to access your coins quickly if you ever decide to sell them during a price spike.
  • S. Eagles (22 carat) are usually a better investment option than the newer, more precious, American Buffalo, which is a 24-carat coin designed to compete with Canada’s Maple Leafs. The Buffalos are gorgeous coins of unquestionable purity but are sometimes hard to sell. The real “coin of the realm” in the gold market is the U.S. one-ounce Eagle.
  • It is a good idea to avoid buying Krugerrands and Philharmonics (minted by South Africa and Austria, respectively), even though they’re well known, pure gold and sought after by many investors. The fact is that U.S.-based dealers often do not want to stock them because they are not so in demand outside of Europe. (Truth be told, nearly every gold coin investor wants to own at least one Krugerrand, so don’t feel guilty for having one or two in your portfolio. Forgetting about investment goals for a moment, Krugerrands are a common family heirloom piece all over the world).
  • Shop for dealers who offer the lowest markup on gold and silver ounce coins. The U.S. Mint does not sell standard gold eagles directly to the public, so dealers are the only option. The good news is that dealer markups vary, so a bit of online price shopping can pay off handsomely. When it comes to markup percentage on gold, try to never pay more than about 4.5 percent. If you are willing to purchase five or more ounces of gold, many dealers will knock their premiums down a bit as a sales incentive. Such bargains are worth finding.
  • Stick to one-ounce gold coins whenever possible. Unless your local dealer is trying to move a few of the smaller U.S. Mint gold coins (half, quarter, and one-tenth ounce), the one-ounce almost always carries the smallest markup.
  • Ask about buyback policies, sales markups, and transaction policies. Some dealers are happy to, occasionally, offer regular customers “no-premium” gold one-ounce coins. These are usually a smart option if you have a regular dealer that you trust, and provided you are in the market for a one-ounce gold coin at the moment. Just as it pays to know a good dentist, doctor, lawyer and realtor, there are wonderful advantages to having a regular coin dealer who knows what you want and whom you can trust.
  • The big online auction sites are typically NOT a good place to purchase gold and silver coins. While most sellers at such sites are well-intentioned, there are just too many scammers out there for the auction sites to be safe. Telemarketers, of course, should be avoided at all costs, as should garage sales and local Internet listing services.

Anyone who wants to invest in gold and silver coinage, especially one-ounce bullion rounds minted by the U.S. government, should understand that reputable dealers are the way to go. If you don’t live in a large city, you can always find a worthy dealer in the nearest metropolis and pay a small shipping fee for precious gold and silver coinage.

There are so many ways to invest in precious coins that the possibilities can be dizzying, especially for a beginner. Stick to a simple plan, follow the guidelines above, and research the gold bullion and coin market regularly. Patience, diligence and knowledge are the keys to making a profit as an investor in gold and silver precious coins.

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