My Blog List

Tuesday, May 28, 2013

Quasi-Collectible Bullion

Most folks buying bullion understand that they'll have to pay a premium when they're purchasing either gold or silver.  This premium can be different for two coins with identical precious metals content.

For instance, a gold American Eagle coin, will carry a higher premium than a gold Krugerrand, even though both of them contain exactly 1 ounce of pure gold.  Why?  Market demand says that Eagles are more valuable than Krugs.

Still, that difference in premium amount is usually less than 2% or 3%.  Not a real game changer.

There are a number of coins, though, that seem to defy gravity - and economics.

Take the Morgan Silver Dollar -

These coins were minted from 1878 until 1921.  Numismatic (collectible) specimens can be very expensive.  Virtually all of the ones minted at the Carson City mint - regardless of condition - fetch a nice collectors premium due to the low mintage's.  A number of key dates (1893-S in particular) can cost many thousands of dollars.

They are a very popular coin, but can be found in abundance.  Each coin contains 0.773 of an ounce of silver.  At today's spot price of $22.63, that means the coins contain $17.49 in silver.

Let's say that because of their popularity, bullion (non-collectible) versions were to command a premium similar to the American Silver Eagle - something in the range of $5 or $6 per ounce.

Doing the math (22.63 + 6 = $28.63 x 0.773 = $22.13) we see that each coin would sell for a bit over $22 a piece.

Good luck with that.

For some reason beyond my comprehension, these are selling for absolutely insane premiums.

If you go over to and go to their Morgan Silver dollar page [link] you can see the following prices (note:  These are for 100 coin sacks of bullion coins.  If you want to buy less than 100 coins, the premium is higher still!)

Just for comparison, here is a cull coin (barely able to distinguish features) -

And here is a Very Fine coin (these rate a 20 on a 1 to 70 scale, with 70 being a perfect coin) -

Nothing special to look at.  Yet you're paying a premium north of $18 per ounce.  Insane.

Another coin in this Irrational Exuberance Premium class is the $2 1/2 gold Indian -

Aside from one minting (the 1911-D), these coins are VERY available as bullion.  Several hundred thousand were produced each year of production.  They are kind of cool, in that their devices (the pictures on the coin) are imprinted INTO the coin, as opposed to how most coins have raised devices.

They contain roughly 1/8th of an ounce of gold (0.121 oz).  At a spot price of $1380 per ounce, they have $167 in gold.

A cleaned version (which absolutely removes any potential for the coin having collectible value) will set you back $272, and one in Extra Fine condition will set you back $322!

As I've discussed in the past, the smaller the coin, the higher the premium (more people can afford the cost of 1/10th of an ounce versus a full ounce).

Right now, an American Gold Eagle 1/10th ounce - the creme de la creme of modern gold coins - will cost you $161, or a premium of 16.7%.  The larger 1/8th ounce Indians mentioned above have premiums of 62.9% and 92.8%, respectively!

Accept The Challenge

There are many coins that fall into this "quasi-collectible" category.  Clearly, all bullion is not created equally.  As a rule of thumb, when something gets older, its perceived value rises.

If you're buying gold and silver as a hedge against future inflation, tread lightly here.  I can tell you that our shop - which does A LOT of business in numismatic coins - does not pay anywhere near these "market" rates for the two bullion-grade coins mentioned above.

Honestly, I don't know of any stores that do, other than those located in hoity-toity areas. 

If it is your belief that our economy is going to take a hit because of the actions of the Fed, and we're going to see ugly inflation, your dollars are much better spent buying bullion for the lowest premium you can find.

If you want to "roll the dice" a bit and pick up some of these types of coins, please do your research first.  Look up historical pricing in comparison to spot prices.

Also, from what I see in the news, the rich folks among us are paying crazy money for art and rare coins.  I just don't know if these not-bullion/not-numismatic coins are pricey enough for the rich folks to care about.

Lastly, during the last gold confiscation in 1933, collectible coins were exempted from confiscation.  If it were to happen again, and they played by the same rules, you might be wise to have some collectibles in your stash.

I prefer bulk buried in the back yard, but that's just me..... ;-)
Copyright 2013 Bison Risk Management Associates. All rights reserved. Please note that in addition to owning Bison Risk Management, Chief Instructor is also a partner in a precious metals business. You are encouraged to repost this information so long as it is credited to Bison Risk Management Associates.

1 comment:

Custom Challenge Coins for Sale said...

I have seen many posts but it is best of all thanks for the sharing.