Collecting Gold Coins as an Investment

Gold coins
Replica gold coins that contain little or no gold. Jeffrey Coolidge/Getty Images

Before making any investments, you should consult with your investment advisor. If you have already decided to invest in gold coins, here is some sound advice before you make any investment in gold coins. Remember, in times of high economic volatility, the price of gold tends to rise. When the economy is strong and stable, the price of gold tends to fall. Avoid purchasing gold for investment purposes when the price has risen rapidly over a short period of time.

Private Firms Versus Government Mints

The Franklin Mint and Bradford Exchange were privately-owned companies that put out "collectibles" of various types, including coins. Since coins produced from these private firms are not from official government entities, most coin collectors are not interested in them. Although certain products issued by these companies (and their competitors) do have some modest secondary market value, their coins have historically done very poorly.

Except for a couple of early Franklin Mint sets, coin dealers just put these coins on a scale to weigh them and pay between 90% to 95% of the spot price ​of silver or gold. Unfortunately, many of the coins made by these private firms do not contain any precious metals. The United States Mint, on the other hand, is an official government mint, and its products do reasonably well on the secondary market, especially over time.

The United States Mint produces bullion coins for investors, which include offerings such as Gold, Silver, and Platinum Eagles. The mint offers these coins in both proof and uncirculated versions for coin collectors and mass-produced versions for bullion on investors. These coins have the potential to be good investments, but which one you buy will depend on your collecting or investing goals.

Are You a Gold Investor?

If your primary purpose is to buy gold bullion as an investment, my recommendation is that you don't buy gold coins. You will be better off to invest in generic gold bullion ingots and bars. Dealers sell these gold investment bars for a slight premium over spot price.

The U.S. Gold Eagle, as well as the Canadian Maple Leaf, Chinese Panda, and a few other coins issued by government mints, have premium markups on them because they are rare. The South African Krugerrand usually has lower premiums, but the lowest of all are the ingots and bars issued by European banks and certain recognized private refiners.

Some examples of the European bank ingot makers and refiners that are reputable are Credit-Suisse, PAMP, and Johnson-Matthey. In the U.S., there's Engelhard and SilverTowne. If you are buying gold to store bullion, then purchase the types that carry the smallest commissions on them, which are the ingots and bars made by these refiners.

Are You a Coin Collector?

If, however, your interest objective is more in line with collecting beautiful coins that also have bullion value, you will have several investment choices. Pure bullion coins include the American Eagles, Maple Leafs, Pandas, and Krugerrands. If you are looking to invest in precious metal coins, then you should buy classic U.S. gold, such as the Liberty twenty-dollar gold pieces or the Saint-Gaudens Double Eagles. Most common dates of these classic American coins trade at bullion value plus about 8%-10% premium. However, this premium can increase during times of economic volatility where the market is active and the supply of physical gold is limited.

These coins have the benefit of double potential: the gold in them will always be worth bullion value, and the bullion is stored in a 100-plus-year-old American coin. These two factors add to the possibility that they will increase in value because of their rarity. We have no idea how many were melted during the melting spree in early 2008 when gold topped $1,000 an ounce.

Therefore these coins will only get rarer over time, and the premiums on them are minimal considering their rarity and potential.

Should I Be a Collector or an Investor?

The first question you need to answer, to determine what to buy, is whether or not you're a collector or an investor. If you love the designs and images on coins and the way it feels to hold them, and the satisfaction of completing sets, then collect coins for their beauty and the enjoyment of the hobby. You can still buy to make a profit someday; most collectors have this goal in the back of their minds.

If, your primary goal is to store up bullion against the potential doomsday, or you just hope that gold will go up in value and you'll be able to sell for a profit someday, then buy bullion bars and try to avoid paying the premium commissions that collectible bullion coins carry. As noted above, you can sort of straddle the fence on this by buying classic U.S. gold coins, such as the Saint-Gaudens gold Eagles.

The Bottom Line

Whatever you decide to buy, make sure that you take delivery of your purchases right away! Never let companies store your bullion in their vaults for you! If these companies go bankrupt or become the victims of foul play, you're going to be stuck holding a paper note that isn't worth anything. Take delivery of your gold and store it somewhere under your control, preferably at a bank safety deposit box.

Edited by: James Bucki