If you believe those late-night infomercials, radio-talk-show hosts or even those stunning sales figures for Gold Eagles, buying gold coins is a slam-dunk strategy for lasting wealth.
Just last month, for instance, U.S. Mint buyers ordered 107,000 ounces of bullion Gold Eagles – the third-best May in the series' 25-year history.
And this soaring interest in yellow-metal coinage isn't limited to the U.S. market. Take India, where the State Bank of Travancore announced in late April that a program to sell gold coins through five of its branches would be expanded to 60 branches in a single months' time. In fact, as one bullion-dealer executive said in reference to India's fifth-largest city: "In Chennai, even the poor buy [some] gold."
So does this mean you should run out and stock up on gold coins?
In fact, I'm going to let you in on a secret: If you're looking at gold coins as a true "investment," there's only one kind to consider.
The rest are a waste of your time.
The Only Gold Coins Investors Should Buy
With gold having doubled in price over the last four years – not to mention a U.S. dollar that continues to weaken – it's no surprise at all that the world coin markets are attracting buyers like moths to a flame. First timers often arrive and are confused by all that's available – including rare and antique coins, and a numbing array of "collector" and "commemorative" coins.
But here's a rule of thumb that will make things simple: If you're an investor looking to bolster your portfolio with a modest helping of "hard assets," there's really only one category of gold coins to consider.
I'm talking about bullion-based gold coins.
Other than that, you can generally find better places for your investment dollars.
The reason is simple: Due to the costs of minting and marketing, even the most basic of bullion coins carry a markup – a premium over the price of gold itself.
With bullion-based coins, this markup is generally fairly modest – from 3% to 6% above the "spot price" for physical gold (though during periods of heated demand, coin premiums can approach – and sometimes even exceed – 25% or even 30%).
But you move away from bullion-based coins – and into the realm of rare or collectible coins – the markups become even more pronounced.
Once that happens, gold-coin values become almost entirely divorced from the price of gold itself. Instead, they're determined by subjective measures like scarcity, design, condition, and quality. That last valuation variable is especially subjective, since grading standards vary widely and appraisals can differ depending on which "expert" is evaluating a given coin.
Then there's the "liquidity" issue: Gold coins can also be more difficult to sell than physical gold – particularly when it comes to very rare coins. And with some "collector" coins, investors are often chagrined to discover that there's virtually no secondary demand at all – making it almost impossible to sell them, let alone recouping one's investment.
Given these insights, if you still want to buy gold coins, you need to understand two things:
- Are you an "investor" or a "collector?"
- And do you understand the difference between "price" and "value?"
Before You Buy
The most important step that you need to take is to determine just why, exactly, you wish to buy the gold coins in the first place.
Are you looking to buy them strictly as an investment – a hard-asset addition to a portfolio that's otherwise composed of stocks, bonds, funds and other such "intangible" assets? Or are you more likely to become a collector?
There's no wrong decision, but you do need to know – because that decision should determine just what kind of coins you are willing to buy.
If you think the coin designs are beautiful, enjoy knowing about their designers and the history of the images depicted, and love how it feels to hold and look at them, then you're probably more of a collector than an investor. That means you'll want to bone up on minting standards, grading, rarity, the completion of coin "sets," and display methods before you begin purchasing.
But if you're trying to establish a hard-asset reserve against the next financial Armageddon – or want to be able to sell at a profit next month or next year – then you are playing in our ballpark and are definitely an investor.
And means you should target the basic bullion coins.
Buying Gold Coins: Separating "Value" From "Price"
Now that you understand your objective, you need to do one more thing before you can actually go coin shopping.