As taught in our Safety Step: Protect Your Future course, collectible (or numismatic) coins might not be the best choice for investors who plan on using their precious metals for trade someday. We discuss the difference in pricing between bullion investments and numismatic coins, and how the premiums that come from the usually high extrinsic value of collectibles can hurt certain investors. In fact, if people don’t know what they’re doing beforehand, they may end up paying a lot more for a smaller amount of metal than what they wanted!
So, how CAN you fit numismatics into your precious metals portfolio, in a way that makes more sense for those investors looking to get good prices for the metal that could potentially be traded someday? There are rare occasions in which it is possible to do just that with numismatic coins, and we’re going to talk about that for a little bit right now!
Low-Premium Collectible Coins
Most of the collectible coins out there today come with incredibly high premiums (i.e. the price you pay above spot price). Because of this, many investors can be taken advantage of, and have expensive coins sold to them in the name of “extra security,” because the 1933 “confiscation” is used as an example of collectible coins being exempt from a possible future confiscation. In our Protect Your Future course, we talk about how that is very unlikely to ever happen again, as well as the fact that there’s no guarantee that collectibles will protect you from a similar scenario anyways.
TRADEway has many arguments for why bullion is the wiser investment, and why we advocate NOT purchasing numismatic coins unless you are truly purchasing coins as a hobby. However, regardless of your philosophy, numismatic coins can be intriguing to everybody, because of their rarity, aesthetics and the coin’s history! So, if we were to find affordable numismatic coins that wouldn’t jeopardize your position in a future trading scenario, then it may very well be a good investment!
One of the biggest differences between bullion investments (or modern coins) and numismatics, is the fact that most bullion coins are continually produced with no variation to their artwork, and numismatic coins have a limited supply. If at any point, the demand for U.S. Gold Eagles increased significantly, the U.S. Mint can usually increase their production to satisfy the needs of bullion investors. But, if similar demand occurred for the old U.S. coinage, such as the $20 Double Eagle or the $10 Eagle, there is no producer to provide more in order to fill the gap. Therefore, when demand spikes for numismatic coins, so does the premium that the investor has to pay.
Increased demand for numismatic coins can actually be a result of fear-induced urgency among the general investor, specifically the novice investor. The reason is because many investors are not aware of some of the sales-schemes (as mentioned in one of our previous articles) used by precious metals dealers across the country. So when something like a Great Recession happens, and people want to put their money in gold, they will be convinced in some cases that numismatics is the best way to protect.
In 2009, when a large number of dealers were implementing this very tactic, common $20 Double Eagles, in average Uncirculated condition, were trading for 60-80% over the coin’s melt value! That is an astronomical premium that the consumer has to pay. In fact, some $20 gold pieces were worth more in 2009, when the spot price of gold was only $900 per ounce, than they are today while gold is currently sitting around $1,250, and it was because of the premium!
But, since 2009, the exact same numismatic coins have fallen dramatically in premium cost, and they are actually an interesting investment opportunity for people like us! All of the sudden, we have the ability to purchase coins that hold both intrinsic value (the value of the precious metal within the coin) and extrinsic value (the additional value that comes from its rarity, artwork, date, etc.)! Because you have these two different values, the overall value of the coin can increase if either one or both of those individual values increases! If the world spot price of gold goes up, so would the metal value of the coin. But, even if the spot price stayed flat, or in some cases goes down a little, the extrinsic value of the coin may increase, thus raising the overall value!
So, even though we do not emphasize investing in numismatics, you as an individual investor still have the ability to go out and look for great opportunities on that side of the market! It can be both exciting and rewarding, especially if you go into prepared.