Investing in coins

by Admin
Updated: August 4, 2020

Gold coins are worth their weight in gold but can investing in coins that are rare be a good strategy?

Buying & selling coins is one way of investing in precious metals, but coins can also increase in value over and above their assay values by virtue of their rarity and appeal to collectors.

Buying & selling coins may also be tax efficient under certain circumstances. However, only specific coins can be added to government tax-incentivized investment plans such as a precious metal IRAs and there are strict rules (e.g. coins must be purchased directly into the plan and held by an approved third party).

The strategy for investing in coins is no different from any investment strategy in that it’s important to know as much as possible before going in.

Bullion coins

Bullion coins maintain a minimum value reflected in the market price of the metal (gold or silver) they are made of.

In some societies, buying & selling physical gold coins is normal and a necessary hedge against currency devaluation.

In certain jurisdictions, the sale of some types of bullion coin is not subject to capital gains tax on account of it being legal tender.

The value of bullion coins, whether old or newly minted, can be expected to change in line with the precious metals markets unless they have some additional value associated with rarity, known as numismatic value.

Numismatic coins

Numismatics is the study or collection of currency. It covers a broad range of activities from simply collecting to the detailed study of money in general.

Almost everyone expects coins to be valuable which makes finding a bargain at a flea market practically impossible.

Most old & rare coins are bought & sold through established dealers who should be able to provide some verification of authenticity and value. The need for the dealers to make a profit means the coins are traded at a spread which makes it impossible to flip them.

There are, however, a few other ways of obtaining rare coins:

  • Inherit them.
  • Discover lost treasure.
  • Use a metal detector.
  • A lucky find.

Grading

Most grading of numismatic coins is done in accordance with the Adapted Sheldon scale, a version of the original 1953 Sheldon scale updated in the 1970s by the American Numismatic Association.

The scale is fairly complicated, using a combination of letter codes and the numbers 1-70. There are also some commonly used (but unofficial and possibly misleading) adjectival grades.

Commemorative coins

2018 Trump DPRK summit coin

Commemorative coins are numismatic coins created to mark an historical event. They are always intended only for collectors and not for circulation. As such they can often be medallions with no legal face value, although government-issued commemorative coins may be minted as valid currency (“Non-Circulating Legal Tender”). Commemorative coins are typically sold at a premium for fund-raising or seigniorage and their future value depends entirely on desirability and rarity.

Thematic coins

Thematic coins are much like commemorative coins except they celebrate a theme or an idea and are not associated with an event.

Advantages

Coins may be a more pleasurable alternative to numbers on a page.

As an art collection, coins are very compact and easily transported.

The value of rare coins for which the exact maximum quantity in existence is known is unlikely to go down and could increase significantly over time. Important: Mint condition is critical!

Disadvantages

Coins themselves do not generate any income.

The chance of other similar coins disappearing and thereby increasing the rarity & value of a holding is very small.

In the case of old rare coins, someone could find a stash of them greatly reducing their rarity and hence current value.

Counterfeit coins exist.

Coins are attractive to thieves.

More info

The Sheldon coin grading scale at everything.explained.today

PCGS Grading Standards at pcgs.com

NGC Coin Grading Scale at ngccoin.com

Internal links

Investing vs trading Jewelry The special case of gold Go to Articles
Agree? Disagree? Questions? Answers?
Please post a comment...
Log in