Gold Coin Dealers: Tips On Buying Gold Coins
by: Brian Cheek
Investing in gold coins through gold coin dealers is a way to invest in small amounts of gold. As you will see later, some rare coins can end up being a sizable investment. Dealers often buy and sell all kinds of gold coins. Your first lesson in gold coin investing is that there are two main types of coins: Bullion Coins and Numismatic (Collectors') Coins. When you are buying or selling a coin, you need to know the difference between these two types of gold coins.
New investors can get confused, mainly because they don't understand the difference between and numismatic coin and an bullion coin, and also because they may not understand the value of each type of coin. Let's take a closer look at the two types of coins.
For a simple gold play: modern gold bullion coins
Gold bullion coins are the most popular coins, probably because they are the simplest to value and buy, and also because there are so many more of them (they are mass produced.) These coins are generally sold just above the spot price of gold (usually to account for minting cost and dealer commission.) Also, these coins are minted with a lower quality finish called a "bullion finish" which pretty much guarantees it will not turn into a collectors' item. Friendly gold coin dealers can show you different types of bullion coins, and pictures of them are readily available online.
For the collector: Rare, scarce or "numismatic" coins
These coins can be worth far more than their intrinsic value (the value of the gold contained in the coin.) An example would be a rare one ounce coin minted in 1861 which sold at auction in 2008 for $2.5 milllion! It was very rare indeed—there are only 2 known coins still in existence, even though 3 million of them were minted in 1861. This coin, and other numismatic coins, carry a "collectors' premium" which can greatly escalate the value of a coin. Before paying gold coin dealers a premium to buy a rare coin, you need to do your homework to make sure you know what you are buying, and how much it is truly worth.
Pros and Cons of gold bullion coins and numismatic coins
Many investors adn gold coin dealers, particularly ones who are in the rare and scarce coins business, point out that rare and scarce coins do far better than bullion coins as investments. They often recommend that novices buy pre-1931 $20 gold coins which offer a relatively low collector’s premium, but outperform bullion coins as investments. The counter to this argument is that this enhanced performance may be true as long as the collector’s market behaves itself. If you hold a rare coin that is supposed to be worth $X, but when you go to sell it no one wants to pay the collector’s premium for it, then the coin is worth its weight in gold and not a penny more.
Confusing bullion coins with collector’s coins
As an example as to how this can become confusing, The US Mint produces American Eagle Bullion Coins and American Eagle Proof Coins and Coin Sets. The bullion coins have no collector’s value, and the proof sets are made in smaller quantities and with a higher quality mint process and finish. The proof coins are minted in hopes their collector’s value will grow as the coin ages.
By contrast, investors who buy gold bullion coins never expect the value of the coin to rise above the spot price of gold. It is important to know this when you buy a bullion coin. You should pay very close to the spot price for gold, which will determine the value of your coin. If you want to invest in coins that will grow in value because they are rare or scarce, then you want to buy certified rare coins or at least proof sets. Proof sets are a little less appealing, as they have not yet had a track record of holding value.
Gold coins are not very liquid, because they are not always easy to sell, and you may not be able to get full price for them. This is the biggest argument against holding physical gold in the form of coins. If you do buy gold from a gold coin dealer, make sure you ask the dealer if he/she will buy the coin back from you at a later date, and at what price (% of spot.) Ask for it in writing.