Owning and Investing in Gold: the Pros and Cons (Part 2)
I trust every one had a good Turkey Day and the opportunity to be with family and friends. Now it's time to move on with this series about gold ownership and investing.
Numismatics versus Bullion
Boy oh boy...this is an area of gold ownership and investing that's fraught with potential problems, especially if you don't know much about numismatics (i.e., collectible coins). First off you have to understand the huge difference between numismatic gold coins and bullion. We've already talked about one troy ounce gold "rounds" and the thing to remember here is that Krugerrands, Maple Leafs, Pandas, and other .999 fine gold bullion coins ARE NOT numismatic coins. They may look like a coin, but they are (and remain) bullion whose only value is their gold content based on the daily spot price of gold on the market. The same is true for the so-called gold or gold-plated silver coins advertised on television and in other venues by the Frank___ (to cover my ass legally you must fill in the last three letters) Mint and other private "mints." In their ads, these private "mints" try to use your ignorance of numismatics by alluding to the fact that the bullion "rounds" or coins they sell are somehow collectible. In point of fact they are not collectible from a numismatic standpoint. You could collect them till Doomsday and NEVER realize a numismatic profit from a single, solitary one of them, no matter what the TV ads like to proclaim. Moreover, by purchasing these erstwhile "coins" from the Frank___ Mint and other sources, you are simply paying a huge premium for what are, in essence, bullion "rounds" or ingots usually composed of .999 fine silver covered with a thin gold wash or electroplating. So if you're interested in buying some gold (or even silver) coins as collectibles with real numismatic value, steer clear of these privately minted bullion coins. Additionally, even if you buy these privately minted (again, Frank___Mint and others) as bullion and not numismatics, you're still getting burned from a cost standpoint. I recommend you avoid these sorts of semi-scam sellers and buy regular bullion rounds, ingots, or bars from a reputable seller where you won't be overcharged based on false claims of potential numismatic value.
(This set of of silver bullion coins coated with a thin layer of gold is advertised as quote, "collectible." Collectible for whom? These are not numismatic coins but spot-priced bullion for which you'll pay a premium well above silver's daily spot value. Don't get suckered in by the screwball pitches these private mints throw your way.)
The "Golden Rule" of Numismatics
Let's get this rule out there right from the get go. The"golden rule" of investing and/or owning numismatic coins of any composition (gold, silver, copper, etc.) is" "Thou shalt know that rarity and condition are most pleasing in the eyes of buyers and collectors." Let me use the vernacular here to drive home this point: RARITY and CONDITION. These are the two most important factors governing the value of collectible coins (gold and otherwise) whether you're collecting them or selling them. Nothing else exists beyond that point from an investing standpoint. Note I said "investing standpoint." Even though our current United States coinage is woefully ugly in terms of overall design and visual aesthetics, many people collect coins for their design beauty. The old 20 dollar, one troy ounce, U.S. gold piece designed by Auguste Saint Gaudens is a prime example of this sense of aesthetic appeal. But again, if we're investing in gold coins what we are looking for down the road a piece is a handsome return on our initial investment. In order to ensure that good return happens, we must focus our numismatic attention on...yep...rarity and condition. So drill those two words into your brain if you're interested in investing in numismatic gold coins from any part of the world.
(One of the most beautiful U.S. coin designs ever put into circulation. The Saint Gaudens' 20-dollar gold piece. This is, in general, a highly collectible or "numismatic" gold coin depending upon its rarity and condition factors. This one's a real beaut!)
Don't Make My Mistake
I've collected numismatics for as long as I've been treasure hunting and gold mining (40 years) so I know of which I speak, minus one big mistake. That mistake, you ask? I fulfilled the condition parameter very well but dropped the rarity factor in favor of building a large collection of U.S. silver and gold numismatic type coins. Don't get me wrong...my coin collection has grown in value over the years and has some beautiful coins in it, but had I to do it all over again I would have foregone collecting hundreds of coins in favor of just a few gold and silver coins with a very high rarity factor as well as the best condition I could have afforded at the time. The only saving grace here is that my numismatic collection was built for free...that is, my treasure and beach hunting finds paid for it. I spent no money of my own on my collection in the strictest sense. It's all a moot point for me now as I bequeathed my entire coin collection to my son a few years back. What he eventually does with it will be his business and not mine. So here's my recommendation as far as investing in or owning numismatic gold coins. Don't go for numbers, just go for a few coins with both high rarity and condition values. And if you don't know how numismatic coins are graded, you best start learning right now. Me? I can grade a numismatic with the best of them.
(This beautiful 1879 U.S. $2.50 gold piece appears to be in uncirculated condition. A 1914 version of this coin sold for nearly $40,000 (USD) in 2012. Why was the 1914 coin more valuable than this one? Most likely due to its rarity factor.)
Is Owning/Investing in Gold "Safe?"
What is "safety" after all? Your definition of that term and mine may be two different things. But the way most gold investment "experts" explain this safety factor is by pointing out that gold has always gone up over time, especially since 1971 when then U.S. Prez Richard ("Tricky Dick") Nixon told the Fed Reserve to remove gold from the dollar's value or some shit like that. Anyway, the upshot was that gold was no longer tagged at $35.00 a troy ounce. And by 1977 the spot price of gold had risen to $168.00 (USD) per troy ounce. In 1980, gold's spot price hit a high of $850.00! Now we know gold's value is well over one thousand dollars a troy ounce. So there is a certain "safety" in knowing that gold will go through its "ups and downs" in terms of value but the trend over time is ever upward. There aren't too many investments out there where the trend is continually upward despite fluctuations. Sure, certain equity funds do well over time too, but if things go awry economically here in the U.S. or elsewhere your paper stocks may transform themselves into so much toilet paper. Gold is always "real" money. It always will be. Ditto for silver to a lesser extent. An additional safety factor you must address is that having large amounts of gold bullion or gold numismatics (or silver) stashed in your house may prove unwise. Always keep this sort of thing on the down low so someone in your family or someone you know doesn't start shooting their mouth off and divulging that your home is a mini-me version of Fort Knox. Bad things will undoubtedly happen otherwise. Either by outsiders or sometimes even within your own family. Trust this old timer...I've seen it happen more than once both by burglary and in-family theft to buy drugs to fuel a son's or daughter's addiction. God save you from that eventuality...
(Here's a graph showing gold's value over the past decade. Ever upward, as I said...)
That's about it for now. We'll return to gold investing and ownership in my next post.
Hang in there troops!
(c) Jim Rocha 2018
Questions? E-mail me at firstname.lastname@example.org