As often happens, this column was sparked by a question received by someone who last week requested a copy of my PowerPoint presentation on “Consumer Protection Tips When Buying And Selling Physical Precious Metals.”
This reader had gone on to read some of my other writings and noted that I mentioned the drop in price of common date gem Mint State-65 early Morgan dollars over the past four months as now offering a bargain buying opportunity.
His basic question was how to tell what is the best thing to purchase between bullion-priced physical precious metals and numismatics items.
This is actually a common question I have heard over the decades. Unfortunately, there is no one single answer that is suitable at all times or for all people. There have been times where the appreciation in precious metals has outperformed numismatic coins and paper money and vice versa. In down markets, sometimes one fell more than the other and sometimes it was the other way around. There have also been times when one rose while the other fell.
So, let me do a quick recap for the parameters I recommend for new buyers of “hard assets.”
Bullion-priced precious metals coins and ingots have a number of advantages compared to numismatic items. They have tighter buy/sell spreads, the typical quality is very nice or at least grading is rarely an issue, and they have greater liquidity. On average, the time frame for holding precious metals is shorter. While you can have changes over time in relative premiums at which precious metals sell, they are usually much smaller than some of the changes between different grades of the same coin.
Numismatic items, on the other hand, have the potential for greater appreciation than just the change in the spot price of the underlying metal. This opportunity needs to be balanced against the risks from wider buy/sell spreads, the need for strict attention to grade and to damage, selecting from a wide variety of series and dates and mintmarks and grades, and the longer time frame an owner may have to wait.
But – you also have to pick the right items and the optimum quality. My real life example was that I purchased a lot of 10 early Morgan dollars in the late 1960s in lovely Mint State condition for a total of $23.50. At the time, I could have acquired the top quality coins for an extra dollar apiece ($33.50 for the 10 specimens).
In late 1986, the coins I owned were retailing for about $60 each, while the really nice ones were going for around $1,000 per coin. From that perspective, I would have made a better purchase going for the nicer coins.
However, I sold these coins in 1980, where the nicer coins would not have brought that much higher than the price at which I sold the coins. So, on the basis of when I actually bought and sold, my outcome was optimized.
This is a perfect example of how the answer to customer questions can and do change over time. If someone had asked me in 1986 whether purchasing an MS-60+ early Morgan for $60 or a gem MS-65 piece for $1,000 was the better value, I would have said to go for the lower-priced quality. Had someone made such a purchase then and was looking to sell today, their loss would have been smaller having purchased the lower-quality coins in 1986.
For many purchasers, they should totally avoid numismatics if they are not willing to do their homework to become knowledgeable collectors.
If someone wants to focus on numismatics, but having nothing to do with investing in precious metals, I would still recommend that they consider having a position in bullion-priced coins and ingots.
Even though most buyers say they intend to keep their holdings until they die, or at least for a very long time, I know that life doesn’t always cooperate. If you need to raise cash at an unexpected time, it could be a very poor time in the market cycle to sell numismatic items. If you have bullion you can sell, the tighter spread makes an unexpected sale less painful.
There are also many people who like the idea of both owning bullion-priced precious metals and numismatics. To start with, I recommend focusing more on purchasing the bullion than numismatic items while a collector is learning the ins and outs of grading and relative value.
Unless someone becomes a full-fledged numismatist, I might still recommend that most of their acquisitions be items trading on the basis of metal value. You can acquire nice collections of circulated silver Roosevelt dimes, Washington quarters, and Franklin halves. Or you may assemble year sets of semi-bullion (often misdescribed as semi-numismatic) silver American Eagles, Canada silver Maple Leaves, Mexico Libertads, Australia silver Kookaburras, or Chinese Pandas all in top-notch condition.
The important point is for each buyer to consider their own circumstances and the state of the various markets as to which direction would be most appropriate for them. In my opinion, I like both the appreciation prospects for gold and silver as well as a number of numismatic issues. Trying to outthink the markets is part of the challenge and possible enjoyment of owning hard assets.
Patrick A. Heller was the American Numismatic Association 2012 Harry Forman Numismatic Dealer of the Year Award winner. He owns Liberty Coin Service in Lansing, Mich., and writes “Liberty’s Outlook,” a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at Coin Week (http://www.coinweek.com and http://www.coininfo.com). He also writes a bi-monthly column on collectibles for “The Greater Lansing Business Monthly” (http://www.lansingbusinessmonthly.com/articles/department-columns). His radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 a.m. Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com).
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