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Sowing Financial Seeds
If you're thinking about investing in bullion or bullion coins, the Federal Trade Commission (FTC), the nation's consumer protection agency, says your best bet is to research your options and get smart. Being uninformed can have serious consequences.
Bullion is a bulk quantity of precious metal, usually gold or silver, assessed by weight, typically cast as ingots or bars, and sold by major banks and dealers. You also can buy bullion as coins.
Bullion coins are minted from precious metal, usually gold or silver, and bought for investment purposes from major banks, coin dealers, brokerage firms, and precious metal dealers. Their value is based on their gold or silver bullion content. Prices fluctuate daily, depending on the price of gold and silver in the world markets. Perhaps the best-known bullion coins are the American Gold Eagle, the Canadian Maple Leaf, the Australian Gold Nugget, and the South African Krugerrand.
The U.S. Mint has produced gold, silver and platinum bullion coins since 1986, and guarantees their precious metal content. The Mint produces two types of bullion coins:
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Proof bullion coins, which are specially minted for collectors and usually sold in a protective display case directly by the Mint.
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Uncirculated bullion coins, which are minted for investment purposes and sold to a select number of authorized buyers based on the current market price (the spot price) for the precious metal plus a small premium charged by the Mint.
Foreign governments also mint coins, but they may not be produced to the same standards as U.S. coins and they aren't guaranteed by the U.S. government. The value of foreign bullion coins depends primarily upon the coin's melt value – the basic intrinsic bullion value of a coin if it were melted and sold. A bullion coin's condition – its "grade" – isn't the most relevant factor in determining its price.
If you're thinking about buying collectible coins as an investment, the Federal Trade Commission (FTC) has three words for you: research, research, research. In fact, the agency says, there isn't a potential investor around who can afford not to spend time researching the coins, the graders who assess them, and the dealers who sell them.
Collectible coins have some historic or aesthetic value to collectors. The value of many collectible coins exceeds their melt value because their precious metal content is so small. Coin collectors refer to this collectible value as numismatic value, and they say it is determined by factors like the type of coin, the year it was minted, the place it was minted, and its condition – or "grade."
Dealers who sell collectible coins often have valuable coins graded by professional services. A grader examines the coin's condition based on a set of criteria. Then the grader assigns it a numerical grade from one to 70, and places it in a plastic cover for protection. But factors like "overall appearance" and "eye appeal" are subjective, and the grade assigned to a particular coin can vary among dealers. What's more, fine distinctions between grades can mean big differences in the value or price of a coin. The difference of one grade in the same coin can mean the loss or gain of thousands of dollars in value. Subjectivity in grading means there is real inherent risk in coin investing.
Expect to hold your investment for at least 10 years before possibly realizing a profit. That's because dealers usually sell collectible coins at a markup. It's how they make their money. In addition, the market for numismatic coins may not be the same as the market for precious metals or bullion coins. It's possible that the price of gold can increase while the value of a numismatic coin decreases.
If you're thinking of investing in collectible coins, take your time and get to know the subject.
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Ask for the coin's melt value – the basic intrinsic bullion value of a coin if it were melted and sold. The melt value for virtually all bullion coins and collectible coins is widely available.
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Read trade magazines to check the wholesale value of coins. Keep in mind that collectible coins generally sell for a premium or markup over the wholesale price so the dealer can make a profit. You can find up-to-date wholesale value listings in trade magazines, like the Coin Dealer Newsletter and Certified Coin Dealer Newsletter.
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Be clear on the commission or fees that the metals dealer or broker is charging.
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Examine coins in person. It's difficult, if not impossible, to make a practical decision about buying a particular coin based on a photo or a conversation with the seller.
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Ask about the coin's grade. If the coin has been professionally graded, check into the grading service. Is it independent from the dealer? What's its reputation in the industry? Two services commonly used by dealers are Professional Coin Grading Service (PCGS) and Numismatic Guaranty Corporation (NGC). If you suspect that a coin's grade is fake or has been modified, check out the serial number on the coin's case or the grading document. Most legitimate graders assign a serial number to each coin they grade so buyers can verify the grade independently. You can check the serial number online or on the phone.
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Get a second opinion about the grade and value of the coin you're considering as a double-check on the validity of the grade.
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Get a written copy of the return policy. Many reputable dealers offer a return period if you're not satisfied with your purchase. Fourteen days is typical.
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Ask about buy-back policies because they vary among dealers. Some may offer to buy back your coin if its condition is the same as when you bought it from them. Others will buy your coin, but charge you a commission fee. Still others may offer only a store credit.
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Consider the tax implications. The Internal Revenue Service classifies certain gold products as collectibles. Income from the sale of collectibles may be taxed at a higher rate than other investments. Visit irs.gov or consult a certified public accountant for more information.
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Check out any coin dealers in a search engine online. Read about other people's experiences. Try to communicate offline if possible to clarify any details. In addition, contact your state Attorney General and local consumer protection agency. Checking with these organizations in the communities where promoters are located is a good idea, but realize that it isn't fool-proof: it just may be too soon for someone to realize they've been defrauded or to have lodged a complaint with the authorities.