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Where did the gold premium go?

Everyone is familiar with the phrase, “Heads I win, tails you lose.”

I would like to modify that to “Heads I win, tails please explain it to me.”

With the intense interest in and Internet promotion of gold and silver investments, it is not surprising that some individuals can’t resist jumping in to try to make a big profit on the escalating prices of precious metals.

I had an e-mail yesterday from an individual who said he had purchased seven one-ounce gold Buffalo coins in MS-70 and Proof-70 condition. He is now trying to sell them. He is surprised that all of the dealers he has contacted have told him they will pay bullion value.

How can that be? he asks. The coins are such high grade.

Start with the fact that Numismatic News has been reporting for months now the narrowing and the elimination of premiums over melt value for many bullion coins. This happens often when metal prices rise rapidly.

Would-be buyers figure a market that can go up quickly can retreat just as fast so they get cautious on their purchases. They don’t want to be left holding the bag if a downturn hits.

Having coins with high grades also shows an expectation that collectors might want them in the future. However, Buffalo coins were never meant to circulate. They were struck only for the bullion investor market and for coin collectors.

With all of the care taken by the Mint to assure high standards, far higher percentages of the mintages make the top grades than do coins produced 100 years ago for circulation.

An MS-70 Buffalo is not the same thing as an MS-70 Saint-Gaudens or Liberty Head $20.

To earn a numismatic premium over time, coins still have to be scarce.