Should I Invest in Bullion or Numismatic/Collectible Coins?

When investing in precious metals, there are two primary categories that it is important to understand the fundamental difference between bullion, whose value is primarily driven by its underlying precious metal content, and numismatics, essentially insider-speak for collectible coins, whose value is primarily driven by intangible factors such as age, rarity, year of issue, design, and the mint at which they were struck.

• The numismatics market is complex, illiquid, and involves a very steep learning curve. Precious metals investors can avoid all of this by simply avoiding numismatic coins.
• The bullion market is straightforward, liquid, and it’s easy to grasp the universal basis for valuation: the type and weight of the metal.

For the vast majority of precious metals investors, the answer is simple and clear: Yes, you should invest in bullion and no, you probably should not invest in collectible or numismatic coins unless you understand the details of that very specialized market. Why not?

Simple and fair vs. complex and convoluted: 

• Bullion offers a straightforward value proposition — own a historically reliable and stable store of wealth, in a form whose cost is very transparent and minimally different than that set by the giant global market established for such metals.
• Purchasing numismatics, especially as a new investor, means you are putting yourself at an instant disadvantage by purchasing little-known coins (the value of which are subject to countless subjective variables) from sellers who are usually coin experts.

Poor resale market: 

• Bullion is widely recognized and highly liquid; when it comes to resale you will not have any trouble finding significant demand for them at a fair, universally recognized price. You can easily compare offers (‘bids’) and choose the best one
• The market for numismatics is tiny by comparison. You may have a difficult time finding a willing buyer at anything resembling what you think is a fair price, especially as prices for collectibles can vary wildly. To make matters worse, collectible coin markets are so specialized — and we cover this extensively below — that there are seventy different quality grades that can be assigned to a single coin. Even at the highest-level coin grading firms, it’s so common for two of their experts to disagree they have a formalized process for figuring out what to do when this happens...

Home field for scam artists: 

• Numismatics are an area in which deceptive marketing abounds. Some sellers go to great lengths to overstate the value of what they’re selling while they simultaneously charge you obscene premiums… the likes of which will nearly guarantee you lose money on any collectible coin you buy.

Bullion tends to be a long-term financial investment and a store of value based overwhelmingly (or even entirely) on its precious metal content. Buying such coins and bars from a reputable dealer like GoldSilver.com is all you need to do to gain the benefits of physical precious metals ownership while fully insulating yourself from the risk and hassle 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 more common pitfalls to beware of.

Bullion

Bullion offers the more concrete value proposition. The worth of the coin, bar, or round is primarily derived from the mass and purity of the metal content and the current spot price of that metal. This inherent, universally recognized marker is called intrinsic value, or melt value. Bullion is a time-tested investment vehicle, are readily tradable, and work ideally as part of an estate to be handed down to your heirs. They’re 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; these 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; they usually aren’t worth much more than their metal content. However, some can be termed collectible bullion. These usually sell for a higher premium than bullion coins, and can on occasion be a good buy — depending on several evaluation criteria — as Goldsilver’s Jeff Clark explains in this post about silver (it also applies to gold).

Numismatics

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 the category of rare coins, as well as for the coins themselves — i.e., those that not only derive value from the precious metal they are made of, but also have an additional, intangible value based on their rarity and collectability.

Numismatics as a hobby is one that can be a great deal of fun and personally rewarding. It’s a way to hold centuries of history in your hand. But it is a challenging field to navigate. It requires a lot of due diligence if one is to avoid getting fleeced. (This link also explains why it’s foolish to think, as some buyers do, that numismatic coins represent protection against a future governmental gold confiscation.)

The best advice is to take up collecting rare coins because you truly enjoy the education, research, and process. But these coins should not be thought of as the foundation of an investment strategy or (least of all) the road to quick-buck profits.

You have to remember that numismatics are totally unlike bullion, whose per-ounce price is posted for all to see, every minute of every day. In contrast, numismatics are largely valued according to difficult-to-quantify, ever-changing metrics such as demand for that particular coin, market timing, coin condition and rarity, age, country of origin, and method of auctioning. Which is to say that their price is wholly derived from attributes far more complicated than the basic metal content of the coin. Essentially, any given numismatic coin is worth what someone will pay for it based on intangible, somewhat subjective attributes (assuming you can find that top-dollar buyer in what can be a highly illiquid market).

Sure, there are numerous websites, books and magazines dedicated to supplying numismatists with price guidelines for collectible coins. But that’s all they provide: guidelines. And if they’re not updated regularly, they’re of little use. In the end, no one can guarantee what you can expect to pay or receive for any given coin.

Commemoratives (Semi-Numismatics...the Grey Area)

Another subset is so-called commemoratives. These are coins with standard gold or silver compositions that are minted to commemorate a specific event such as the Olympics, the World Series, or a historical milestone. They are generally issued by private mints (although the US Mint dabbles in commemoratives now and then). Mint runs are limited. The idea is to create a sense of scarcity among potential buyers, so that high premiums over bullion value can be charged.

Commemoratives are often aggressively marketed, especially on TV and in magazines and newspapers. Extravagant promises are made about the coins’ potential for appreciation. But the truth is, that potential is almost never realized, because the market for them is bound to be relatively small and the demand for them is likely to never be anywhere near as high as it is during the mint’s original marketing blitz.

Consider, say, commemorative coins of the 2018 World Series, minted in a limited edition of 10,000. Future buyers are pretty much limited to those who both cared about the outcome of that Series (huge Red Sox fans) and who are coin collectors. 

Furthermore, they may be advertised as something like “Mint State” or “Brilliant Uncirculated,” as if that meant something important. These terms are meaningful when applied to numismatics, but not to commemoratives — because by definition every coin produced is brand new and identical to every other. Generally, fans who want one will want it as a keepsake, not because of its pristine condition.

Your chances of getting more than bullion value when you sell are minimal. Avoid them unless you’re prepared to become intimately familiar with the market or they provide you, personally, with additional intangible benefit above and beyond their bullion content.

Buying Numismatics: A Primer

Okay, so you’ve read our numerous warnings against using the numismatics market as the foundation for your precious metals investing. And we’ll say it one more time: If retaining the value of your investment is your primary investment motive, stay away from numismatics.

But if you’re still interested in pursuing numismatic coin collecting as a hobby, there are a few basic things you need to know.

Historically, acquiring a decent coin collection was very hard to do. You were at the mercy of local shops, coin shows, affinity groups, and auction houses. It was difficult to find a specific coin you were looking for, and even when you did you had to personally evaluate the condition of the coin — a judgment call all but certain to be disputed by both the seller and any future buyer.

This all changed with two major innovations: the emergence of grading services — to provide dispassionate and professional coin evaluations — and the rise of the Internet.

First, grading.

Grading

ANACS (the American Numismatic Association Certification Service) is the oldest American 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 generally accepted in the marketplace at their stated grade. The work of ANACS, though it’s been in existence longer, provides gradings considered to be merely “Acceptable.” ANACS-graded coins generally trade at lower premiums than PCGS- or NGC-graded coins.

There are other grading outfits but they are considered to be lowest-tier services. Coins graded by them will likely be devalued because of inconsistent or “looser” standards. This also applies to grading done exclusively by the seller, whether it’s a personal vendor or a coin dealer. When purchasing a coin, it’s best to choose one that’s been graded by one of the top-tier companies.

This should not be taken as a guarantee that you will always get what you think you’re paying for. Grading is an opinion, and differences of opinion definitely exist, even among the top experts. This becomes especially true when the evaluator is confronted by the subtle differences between coins at the highest of grades — tiny distinctions that may not be visible to the naked eye, yet which can generate astronomical price gaps in the marketplace.

The new kid on the block is the CAC (Certified Acceptance Corporation). It was started in 2007 as a sort of super-reviewer. CAC evaluates coins that have already been graded by either PCGS or NGC. If it agrees with the grading, it attaches a CAC-approved sticker. Coins carrying the CAC sticker are more highly valued, since they’ve been through the grading process twice, and tend to fetch higher premiums.

Can you as a collector submit a coin to one of the services for grading? Yes. But should you? Well, it’s your call. As you gain experience, you’ll develop an eye for quality. You’ll get better at evaluating a coin’s condition. Say you pick up an ungraded coin from a private seller and believe it to be worth much more than you paid. Getting it professionally graded is the only way to verify that. But you will pay for the privilege in money and wait time (and you could well be disappointed). Costs for certification run from around $15 to more than $100 per coin, depending on the coin value and the time frame you’re operating in. So it may or may not be worth it.

Dealers, on the other hand, have a vested interest in certification. They do it routinely. So most of the time it’s far more efficient to just purchase the coin you want after it has already been graded. You’re not likely to get a great bargain, but it’s a hassle-free buy and you’re inheriting an expert opinion as to what you now own. Moreover, you may be able to negotiate a price below what you expected to pay, especially on eBay (about which more in a moment).

Finally, can you grade a coin yourself? Well, yes. Sort of. If you become adept at evaluating a coin’s condition, you may attempt a DIY grading. But be aware that if you try to sell a self-graded coin, buyers will not be inclined to believe you.

The Grading Procedure

Ok, so what does the grading procedure look like?

When someone submits a coin to a grading service, it is examined by at least two experts. They must independently agree on the coin’s condition. If they disagree, a “finalizer” will cast the deciding vote.

After the grade is established, a coin is “slabbed” — i.e., encapsulated in a plastic holder that can’t be opened without destroying it. This ensures protection against tampering by would-be counterfeiters, while preserving and protecting the coin long-term (it’s surprising how quickly its grade can slide when a coin is exposed to the air and human handling). The coin’s consensus grade is printed on a tag inside the slab and a serial number is affixed. The result will look like this:

It’s difficult to overstate what a revolution grading and slabbing have wrought in the numismatic universe. They have stabilized and brought a decent level of integrity to what was once a field largely defined by fraud and deception.

Determining Grade

A coin’s grade is determined by a system that evaluates a coin according to its wear and tear, i.e. the degree to which it was circulated during its life. The most pristine coins are deemed Uncirculated or Mint State (MS). They were put into storage immediately after minting and were never circulated. You might think that MS would be the ultimate designation, but no. Even Mint State has eleven minute gradations. And then there are Proof coins, perhaps the most beautiful of all. These are early samples of new issues that mints produce in small numbers, employing a special double-stamping process, and they have a stunning mirror finish.

Modern grading dates from 1949, when Dr. William Sheldon developed a scale from 1 to 70, where a “1” represents a Poor coin lacking virtually all details and a “70” is a Perfect coin. His original system has been modified over the years, and today grading categories include: Poor, Fair, Very Good (VG), Fine (F), Very Fine (VF), Extra or Extremely Fine (EF or XF), About Uncirculated (AU), Uncirculated (UNC), Brilliant Uncirculated (BU) or Mint State (MS) and Proof (PF). You may also occasionally see the very finest proofs graded as FDC, or Fleur du Coin.

Grades, again, are subjective, but there are general guidelines involving amount of wear, quality of strike, clarity of details, scratches and blemishes, toning, and other factors. The highest range, excluding proofs, is from MS-60 to MS-70, but the lower categories are carefully subdivided as well, and assigned numbers. Thus you may see a coin graded as AU-50, AU-53, AU-55 or AU-58. It’s all in the eye of the beholder.

Age, Rarity and Mint

These are the other determining factors in deciding the value of a coin.

Age – In general, all other things being equal, the older the coin, the more it’s worth. This makes sense. Older coins are more likely to have been melted down over the years, or to have been circulated and become badly worn. It may seem miraculous that any coin minted for use in general commerce would survive for hundreds of years in a Mint State condition. Yet that’s the case, and for some coins, in significant numbers.

Rarity – There are extensive records about the number of coins produced in any given series. Historically-small mint runs generally yield more valuable coins, as do years during which melt-downs were common.

Mint – This is related to rarity as well. All gold coins feature mint marks that show where they were created. Major mints like Philadelphia produced larger numbers of gold coins than smaller ones like Carson City. Thus the CC mint mark is highly coveted by collectors.

The Internet

The Internet, and particularly eBay, changed coin collecting dramatically.

For one thing, it made finding a particular coin far easier than it had ever been. You simply type in the object of your desire and eBay will provide you with a source or a number of sources. In many instances, you can “Buy It Now” if you feel the price is fair; in others, you can engage in spirited bidding against collectors seeking the same thing. As with any auction, the price can quickly escalate beyond what you’re willing to pay. But now and then you may hit a low-demand day or an auction with a low or no minimum selling price. Then you can luck into some pretty good deals.

As long as government doesn’t jump in and meddle with regulation, eBay will remain the most democratic of marketplaces, ruled entirely by supply and demand. Overpriced coins won’t sell, nor will coins no one wants. But truly desirable items will usually find their appropriate price level.

eBay is very user-friendly. Sellers are able to share lots of information about the coin with the bidder, plus post high-res photos that can give you a closeup look that is virtually as good as holding it in your hand. In the case of coins of higher collectability, the coin will be graded and slabbed by one of the premium services, reducing your risk level. eBay also works hard at maintaining trust. It rates frequent sellers according to buyers’ experiences with them, and endeavors to police out the bad apples. It gives you a recent price history for similar coins. And it provides protection against fraud.

Not to mention the convenience of obtaining some long-sought-after item with a few clicks of a mouse.

If it isn’t on eBay, you can Google it and may well find it offered on the website of one of the many dealers with an Internet presence. In that case, do a search to check on the vendor’s reputation, and if you find someone you like and trust, you can establish an ongoing relationship.

To be sure, there are still unscrupulous rare coin dealers, and you may encounter one if you walk off the street into his shop. He may try to take advantage of you by talking you into buying a coin that is much more common than he says, or is selling for a much higher price than it is worth. Even if he’s basically honest, he may attempt to charge you an exorbitant premium over the coin’s listed “book value.”

But these shysters are much less common than in the pre-Internet days. If a guy is trying to sell you a coin, all you have to do is go to your smartphone and look up one of the sites that lists the current “book value” for most any coin you’ll encounter. Or you can see what that coin is currently selling for on eBay. You’ll know in an instant whether you’re being cheated.

Summing Up

Creating and building a collection of numismatic coins is a fun and exciting hobby if you’re into it. And it’s far less of a threat to your financial health than it used to be.

That said, buying and selling rare coins is just like dealing in any collectible. What people are willing to pay or sell them for varies considerably with time. Particular individual coins can see major increases or declines in price. And the overall market itself goes up and down, at times very sharply.

It’s almost impossible to gauge where you are when buying into that market. You might get what appears to be a reasonable deal on a coin today, only to see it fall precipitously in value tomorrow. And remember that when you become a seller, you always have to find a buyer who is looking for exactly what you have and will pay your asking price. Otherwise, no sale.

So by all means, become a dedicated collector if that fires your enthusiasm. But it’s best not to think of numismatics — which trade in a highly specialized environment — as an investment in the same way that you regard bullion. The latter are a reliable store of intrinsic value. They can be bought from or sold to any precious metals broker, at any time, for the spot price plus or minus a small dealer fee.

For the average investor who’s simply seeking the traditionally safe and reliable store of value that gold and silver are known for, bullion is the better way to go.