Investment or insurance? Defining the difference for today’s precious metals buyers
By Michael McConnell
As noted in our past columns, the decision to purchase gold and silver bullion or higher premium collector coins requires careful evaluation and education in order to ensure buyer satisfaction and realistic expectations of future prices. One of the most important points for new buyers is to understand the distinction between collecting rare coins and purchasing precious metal coins and bars. While both rare coins and precious metals coins and bars have unmistakable monetary value, we at The Coin Shop avoid using the term “investment” to describe these coin and bullion purchases. Instead, we recommend that buyers view the purchase of collectable coins as an acquisition of items that are historical, interesting and educational — and that they focus on these points as the main reasons to collect (in addition to building something of lasting value to be passed along to future generations). Furthermore, when it comes to purchasing precious metals items, buyers should understand that they are buying an asset that can fluctuate greatly in value. Therefore, it may not be advisable to tie up the majority of one’s portfolio with such purchases, but rather to accumulate precious metals in smaller quantities over an extended period of time.
Collecting rare coins
The primary trouble with “investing” in rare coins is that the buy/sell spread (that is, the difference between what a dealer will pay for a piece versus his or her selling price) can be substantial and will have to be overcome before any profit is realized. Also, unlike most investments, the rare coin market can become illiquid — creating even larger spreads and negating the owner’s ability to act quickly to realize profits or limit losses. Ultimately, there is no primary market maker with unlimited funds, but rather a variety of different sized dealers with limited liquidity. What does this mean for collectors? A wise collector will buy coins because he enjoys the process, and appreciates the history and beauty of the items purchased. By limiting yourself to using discretionary funds to build your collection, you can build value and take pleasure in the experience without risking critical assets within a tricky and unpredictable market.
Acquiring precious metals
When it comes to the precious metals markets, there is a big difference between trading extremely liquid contracts on the commodities exchange with a very small spread (which is where the majority of precious metals are traded) and buying physical gold and silver coins and bars. There is a larger cost involved to own physical gold since it is a non-paper asset; but if you stay with popular low premium gold and silver bars, American Eagles, Canadian Maple Leafs and South African Krugerrands, the cost is still just a small amount over the value of the metal content. This extra cost is well worth it if you want to own and take possession of an asset that has been held as a store of wealth for thousands of years.
Actual physical precious metals are traded in stores in much the same manner as rare coins are – that is, through a network of dealers who vary in size and can each set his or her own spreads. Precious metals coins and bars are very liquid in normal markets; but this high liquidity factor often prompts buyers to ask me what might happen if too many people were to sell off their holdings all at once. Many dealers may shy away from answering this question – and that is because, in the event of a widespread selling trend, there simply won’t be enough money for dealers to buy all the gold quickly. While this scenario may sound scary, it only poses a serious risk to those who have poured all their liquid assets into precious metals items. If you are buying these items as a way to hold a hard asset with enduring value as a portion of your assets, then rest assured: gold and silver will almost certainly continue to be items that are valued and prized for many years to come.
Learn more about precious metals and gold bullion collections at La Jolla’s historic Coin Shop
The Coin Shop is now open and under new ownership, and already we’re earning a strong reputation among local buyers for honest dealing, extensive knowledge and helpful advice for new and seasoned collectors alike. To learn more about rare coins, precious metals and gold bullion, come pay us a visit at 7746 Girard Avenue in La Jolla, or access additional resources online at www.sandiegocoinblog.com.
- Commodities versus collectibles: a precious metals buying guide
- Buying precious metals: a beginner guide
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