Three ways to collect gold coins
NEW YORK – Gold shows off its attractive properties well in jewelry and watches. It’s also a key metal in medicine, electronics, science and even used in space exploration as reflective shielding because gold is malleable, noncorrosive, reflects heat well and it won’t rust or decay.
But gold is relatively scarce. In fact, all the gold mined in recorded history would reach only a third of the way up the Washington Monument, about 186,700 tons. That makes it a precious metal, enough for governments to buy and trade large ingots as part of a stable national economic policy. You can own gold for your own security, too, but because it has one of the heavier atomic weight of all precious metals, it must be acquired in smaller, more portable ways such as coins.
A 1-ounce gold Krugerrand gold coin sold for near spot price for $1,275 on July 21, but a 25 percent buyer’s premium placed it just over the spot price of $1,425. Image courtesy Antique Finders Service and LiveAuctioneers
Gold coins are classified in three categories: bullion, numismatic and commemorative.
Bullion Gold Coins
There is a reason why all the gold heists you see in the movies requires heavy equipment. Gold has an atomic weight of 79, one of the heavier of precious metals. A standard gold ingot weighs about 27 pounds or 400 troy ounces with a value of about $500,000, give or take. That’s fine for Fort Knox; not so great for your safety deposit box.
But because government central banks own most of the gold (the United States owns the most of any country at about 8,000 tons), they are able to mint national gold coins in stable weights that are certifiable and secure.
You can own gold ingots in smaller troy ounce sizes for portability or you can opt for the artistic design elements of brilliant, uncirculated, government-issue gold coins from one-quarter troy ounce to as high as five troy ounces of between 90 and 99.99% pure gold. They can be bought directly from any national mint, but it is better to buy from authorized dealers designated by the U.S. Mint, for example, for a small percentage over the daily spot price or at auction.
Bullion coins don’t circulate and so are always considered to be at the highest condition and are common, so it is unnecessary to have them professionally graded, unlike numismatic gold coins. The value of bullion coins is set by market forces determined by the buying and selling of gold on the open market on a daily basis, usually by central banks, large institutions and individual investors.
This 1904-S Liberty Head $20 gold coin is valued based on its somewhat imperfect condition and rarity that sold for $1,200 or near the spot price of gold. Image courtesy: Seized Assets Auctioneers and LiveAuctioneers
Numismatic Gold Coins
Gold coins have been in circulation since at least 560 B.C. under King Croesus of Lydia in Bronze Age Asia Minor. Since that time, each historic age has had their national gold coins minted with their history, heroes, monuments, conquerors and kings. Holding a numismatic gold coin is to feel the weight of history.
These gold coins, known as numismatic, usually trade higher than the spot price of gold for several reasons usually defined as rarity, condition, age and historic significance. All these factors affect its final value.
Numismatic gold coins aren’t regulated by the ups and downs of the spot market based on intrinsic weight (although it’s a starting point). Collectors instead value numismatic gold coins based on history. Unlike bullion gold coins, numismatic gold coins have been circulated over time and are generally uncommon the longer ago they were minted. That’s why it is generally sound advice to have a numismatic gold coin professionally graded for rarity, age, condition and overall available quantity so as to provide a regulated basis for future value, especially for auction where values are usually set.
A gold coin representing Kanishka, an early emperor of the Kushan Dynasty from circa A.D. 400 that sold in February 2016 for $2,050 based more on its history than its intrinsic value of .28 of an ounce or about $400 of gold. Image courtesy Ancient Art & Antiques and LiveAuctioneers
Grading is usually from 0 to 70, the highest being without flaws. The lower grades, though, can still command higher auction values simply because of its rarity without regard to condition. That is the wonder of collecting numismatic gold coins. Bullion gold coins are considered only for investment while numismatic gold coins tell a great story.
Commemorative Gold Coins
Remembering an historic event, whether ancient or modern, is easily commemorated in the form of a gold coin. The U.S. Mint, for example, routinely mints many commemorative gold coins such as the 50th anniversary of the Apollo 11 moon landing this year. Still, these gold coins are legal tender, usually uncirculated and, with some exceptions, are considered bullion despite its commemorative mint.
On the other hand, private mints produce commemorative gold coins in large volumes for special events such as a presidential inauguration. They are unregulated, are not legal tender and grading them is usually unnecessary as they are not considered numismatic. It is sometimes difficult to know whether the gold used is gold filled, gold plated or just an alloy with silver, perhaps. Yet, their cost is usually much higher than the cost of acquiring bullion gold coins and even higher than gold coins bought at auction.
When a privately minted commemorative gold coin is eventually sold out of a personal collection, the value would be in the intrinsic value of the gold it contains, not the commemorative event itself regardless of its original “limited edition” price paid for it. And that’s usually disappointing to the collector.
A proof set of three U.S. Bicentennial gold coins by the Franklin Mint that sold for $80, no doubt a fraction of its selling price in 1976. Notice that there is only 6 grams of 500/1000 gold. Image courtesy Midwest Auction Galleries Inc. and LiveAuctioneers
Still, commemorating a special event in a gold coin that has special personal meaning makes a great memory, too. Just understand that their value over time is limited relative to bullion or numismatic gold coins.
Fakes, scams and forgeries
As long as gold coins have circulated, counterfeiters have had a field day trying to pass off lower levels of gold in a coin as the real thing. One way to accomplish this is by using tungsten as a base metal (the closest in density to gold), minting it into a recognizable coin, and adding a small layer of pure gold overall. The weight is similar to an authentic gold coin if not subjected to a higher level of professional scrutiny. Coins from the Middle East, China and North Korea, for example, account for some of the highest gold counterfeits circulating today.
One way to quickly detect a counterfeit gold coin is through its manufacture. If the details are somewhat uneven, incorrect in its original design or missing altogether, chances are the coin is a counterfeit. National mints pride themselves on the extremely high quality of their design and manufacture.
Collecting gold coins is great for investment, for history and even for personal memories. Just be sure to understand the complexities of each as your collection grows.
