You’ve probably heard the cacophony of voices crying “BUY GOLD” but should you actually consider adding precious metals or rare coins to your investment portfolio? It might not be a bad idea.
Most people who watch any sort of financial news have seen the meteoric rise in the prices of precious metals over the past few years. Gold, silver, and platinum have risen in price faster than a fat helium balloon on a windless day. Eighteen months ago, I penned an article called 8 Reasons I’m NOT Investing In Gold and many of those reasons still hold true for me today. While it does make sense to hedge my portfolio with a few precious metals (no more than 10% though), betting the farm that gold will hit $5,000 per ounce in the next 24 months isn’t a risk I’m willing to take.
Collecting rare coins, numismatics, has been a hobby for centuries. If you’re like me, you probably found an occasional Mercury dime (pure silver) or a “wheat penny” or were given a solid silver dollar by your grandfather. While those coins are certainly uncommon, they don’t really qualify as “rare” in the strictest sense of the word.
There are three general categories of investment coins
- European gold coins – including the Swiss 20 Franc Vreneli, the French 20 Franc Rooster, and the British Sovereign.
- United State gold coins – include the $20 Liberty Head and $20 Saint-Gaudens coin. Both of these contain almost one full ounce of gold.
- United States silver coins – the Morgan dollar is one of the most popular and collected silver coins while the Peace dollar was minted to commemorate the signing of the peace treaty between the United States and Germany at the end of World War I.
What causes rare coins to increase in value?
- Scarcity of the individual coin
- Historic value
- Historic protection from possible confiscation
- Intrinsic value
1. Scarcity of the individual coin
Scarcity and demand can increase the value of rare coins. The fewer there are, the more investors and collectors are willing to pay for them. Scarcity of any resource will drive up its demand … and its price.
2. The coin’s historic value
If you’re holding a piece of history, you’re holding more value. Historically significant gold or silver coins (such as from sunken treasure) have additional value in excess of their precious metal content. The value of these rare or numismatic coins is determined by a range of factors which may include condition, age, mint, type, population, and rarity. A portfolio containing these coins benefits both from rising collector and investor demand as well as increasingly limited supply.
Generally, rare U.S. coins are more easily converted to spendable cash compared to other investments such real estate, businesses, fine art, or other collectibles. Anyone who has tried to sell a home in the past few years knows about liquidity. But when it comes to rare coins, computerized trading networks allow many coins to be bought and sold instantly around the world, either with or without prior inspection.
Be aware, however, not all rare coins are equally liquid. The actual demand for a coin will affect its liquidity, so it pays to get some professional advice before making a purchase. Gold and silver coins encased in a holder and certified by a respected independent grading authority generally ranks among the most liquid … and the most valuable.
4. Rare coins offer something paper investments do not: PRIVACY
With all the turmoil in the world, the privacy of an investment seems more important than ever. Rare gold and silver coins are among the few remaining investments that you can legally accumulate and liquidate privately … for now.
5. Potential protection from confiscation
Historically, gold bullion and bullion coins have been confiscated by the government in times of national emergency. But when the U.S. government last confiscated gold from its citizens via Presidential decree in 1933, rare gold coins were exempt. Owners of rare coins were able to hold onto their assets throughout the entire 20th Century, even during the several decades where gold ownership by Americans was outlawed.
6. What’s its metal worth?
The most popular coins all have intrinsic value from their precious metal content alone. Consider the $20 Liberty gold coin: each contains nearly a full ounce of gold (0.9675 oz.). Its value is at least consistent with the value of that amount of gold. Further, these coins typically appreciate in value when precious metals markets surge and because of their historic value and significance, when those same markets retreat, these coins typically do not decline in value at the same rate.
All investing involves some sort of risk so be sure you read and understand everything associated with purchasing rare coins. Your best bet is to stick with a recognized name such as Goldline or use a trusted and respected rare coin dealer in your city.
And never put all your capital into any single investment.