What You Need to Know About Numismatics & Bullion

What is Bullion?
swiss bars, swiss gold bars, bullionBullion is a term that describes a common metal coin or bar. The value is derived almost completely from the actual gold or silver content, i.e. the metal’s value. Common bullion items are American Eagles, Canadian Maples, Swiss Bars, and Johnson Matt bars. These items are valued at the spot price, plus a small premium for production at the mint and, most likely, a dealer markup.

A key to bullion is that a one-ounce bar has almost an identical value as any other one-ounce coin or bar, even if they were minted at different places in different countries. This is because their value is tied almost entirely to the amount of gold in them. One ounce is one ounce, period.

The foundation of any savvy investor’s portfolio is bullion, preferably a well-known bullion such as American Eagles or Canadian Maple Leafs. Other bullion options like Austrian Philharmonics, South African Krugerrands, Australian Kangaroos, and Swiss Pamp Bars are also superb. And unlike collectable coins, they don’t require you to become a coin expert before you purchase them.

Bottom line, stick with the basics. When a dealer tells you their most popular product is a rare European gold coin or some other rare thing, they may be telling the truth, but the part they’re leaving out is that their sales people make giant commissions on those items. No wonder they’re a best-selling product if the seller is motivated by that huge commission! But that doesn’t help the buyer at all. These dealers typically tell you to expect to hold these rare coins for three to seven years for appreciation. That’s nonsense! It’s only good for the dealer!

What Are Numismatics?
Numismatics, or collectable coins, typically carry a high premium above the spot or melt value of the coin. Unethical dealers often promote numismatic coins because of the arbitrary and subjective premium they can charge. The premium can easily be 20% to 100% over the metal value, and it often has more to do with the story behind the coin rather than the market value (Which would you rather have, a precious metal or a precious story?).

These types of collectable coins are much harder to determine the market value of. And when it comes time to sell them, most dealers will only pay you for the gold or silver content. They’re only interested in the weight of the coin, not the story behind it.

Melt or Spot Value vs. Collectible
melting gold, melt value, My Gold AdvisorCalled either melt or spot value, this is the value of the actual gold or silver in the coin. The shape, engravings, imprints, etc., are unimportant. Dealers know they can melt a coin and recover a certain amount of money based on that alone. This is often the easiest way to value a coin and what many dealers will do when you try to sell them a collectible coin.

Rare coins are hard to sell for their sexy high value, because of their very nature of being rare. The owner has to find one of the few other people in the world who are interested in the coin’s collectable value as opposed to its metal content. Bullion, on the other hand, is fungible and easy to sell anytime, anywhere.

Ebay is a useful place to sell rare or collectible coins, because the entire worldwide market of buyers is available to you. If you’re going to sell a rare coin, I recommend first sending it to NGC to be graded and encapsulated with a serial number. This will provide proof of authenticity and condition before you put it up for sale on Ebay or elsewhere.

Many unscrupulous dealers advertise bullion to the public and then try to talk the customer into buying rare, proof, and/or graded coins (indicated so with a Mint State MS60-70 ranking) instead, often using emotionally charged stories to pitch the deal. The only party benefiting in these deals is the dealer.

pre-193 double eagle, double eagle, numismaticOne exception is the gold Double Eagle pre-1933 coins that were used as money before President Roosevelt made it illegal for American citizens to use gold or hold gold. If you like collectible coins but don’t want to worry about getting scammed by a bad dealer into buying bum coins, you’d be getting a fair deal on these old gold coins if you’re paying 3% to 5% over melt (or spot) value. In other words, you’d be buying a collectible but wouldn’t be paying a significant premium for the “collectible portion.” Almost all of your money would be going for the actual gold content.

My favorite dealer in the collectible-coin world is Marc Watt at Gaithersburg Coin Exchange. He’s the most knowledgeable and honest dealer I’ve ever met, and he would be a great resource if you’re interested in becoming a collector.