If buying bullion, make it high grade

This article was originally printed in the latest issue of Numismatic News.
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The price of gold is at record highs. Confidence in the dollar is dropping and demand for small size foreign bullion coins continues to rise.

Perhaps those of you who are putting away some of these pieces in case of economic hard times might consider an alternate approach to your investment plans. You may like to form a gold coin collection of various type pieces from different countries or assemble a date set of British sovereigns in the best condition you can find.

This will be no easy task because for years the small quarter ounce coins from various countries have been traded with little respect to their rarity or condition. While it will be relatively simple to find late date British sovereigns or restrike French roosters and Swiss 20 francs in grades of MS-65 to MS-67, other bullion coins may elude your search.

One reason for choosing high grade examples over others is that these pieces can often be mixed in with lots of baggy uncirculated examples or even XF–AU coins at a slight premium for the option of picking. With diligence you can assemble a very pleasing group of coins to look at. Just don’t pay too much more for “condition” because when “hard times” actually come, few buyers are going to care whether your gold coin is a gem or XF.

There is one upside to searching for pieces in better condition from different countries or different dates from the same place. It will become a numismatic collection and may not be subject to government seizure if it should come to that. You may even wish to have your best pieces slabbed by a grading service. Look for a company that will do this for a low cost. Unless you have a coin that is truly scarce, paying

an expensive grading fee will eat into your potential profits if gold continues to rise in price and be wasted if the coins are sold at scrap prices in an emergency. The presence of slabbed coins in your accumulation will add credence to the fact that you are forming a collection of gold coins and not just hoarding gold.

You will also need to purchase your coins from a reputable dealer as I have seen parcels of mixed date bullion coins “salted” with counterfeits. Since the fakes had not been assayed, I cannot report on their gold content but it’s my guess it is fairly high since many sellers don’t seem to care that some of their coins were not official government issues. Such is the demand for these pieces as gold continues to rise.

Should you decide to collect bullion gold, it is graded by the same standards used for U.S. gold coins. Restrikes aside, it is difficult to locate coins with full, original luster and no trace of wear. That’s probably because they have traded all these years as bullion rather than collectibles. As I have reported here in the past, coins with friction wear on their high points may still be traded/graded in the Uncirculated range. However, unlike the U.S. series of gold coins, the majority of foreign bullion coins that I have seen do not suffer from attempts to make them more attractive by buffing, cleaning, and surface alterations. What you see is what you get.

Look for frosty coins with the least amount of bagmarks and rim dings. Any type of impact damage is judged by the number of marks, their location and severity. The number of marks is easy to determine – just count them. Their severity is more of a subjective appraisal with location playing a significant roll. Large marks that are hidden in the design may not be as detracting as a few obvious hits in the field. I have found that within a short period of time, my grading students can get a sense of what is attractive and what is not with respect to the marks found on coins.

Now look at the micrographs above. The coin at left is a German States, Prussia 20 mark dated 1888-A. Note the mint frost in the protected area behind the legend and around the eagle. The field inbetween appears dark because the original luster is broken due to handling. There are also many small impact marks especially in the field. The coin at right is a Prussian 20 Mark dated 1893-A. It has virtually full luster and some bagmarks. Both these coins came in the same group at the same premium over the spot price of gold. Which of the coins pictured here would you choose to own?

If you choose to collect high grade bullion gold coins, baring a world financial meltdown, you’ll have a nice collection of attractive pieces that should always hold their value relative to the price of gold.