Bullion or Numismatic?

As in a previous piece, I must first make a disclaimer. I deal in bullion coins, not numismatics. There are two sides to every question…or more. I offer my side of the controversy, and will attempt to offer the other side too, to be fair. The other side first…also to be fair.

Numismatics is defined, as rare or collectible coins. Coins the likes of old Double Eagles, Eagles, or gold coins of smaller denominations, such as $5, $3, or even $1. An "Eagle" is an old $10 US gold coin. A "Double Eagle" is an old $20 US gold coin. US gold coins were last made in 1933, when Roosevelt ordered production stopped. The "Red Book," which comes out every year, lists years, number of each US coin minted from each mint, and their value according to condition. Numismatic coins are not limited to gold, but include silver, and even copper pennies. Numismatics includes coins of other nations of various dates, which are collectible as well. The "condition" may be described as VF, (very fine) EF, (extremely fine) AU, (about un-circulated), and MS, (un-circulated), all of which have various numbered degrees of condition, such as 20, 40, 60, 63, and 65. It is the "condition" that allows coin shops to mark up coins from 30 to 50%, or more. A shop might buy your coin, "grading" it, and paying you for "EF," and "grading" it, and selling it to a customer for MS. As an example, at random, I opened my Red Book, and a 1921 silver dollar (far less than one ounce of silver) in VF-20 condition, is priced at $40, and the same year in MS-63 condition is priced at $250. Who is to say? It is an invitation to be cheated. As with all antiques, whether they be furniture, cars, or stamps, their respective conditions are a matter of opinion, with the seller's opinion mostly far higher than the buyer's, as in a coin shop. I have a personal friend who deals in numismatics, and who has often told me that numismatics is "where the real money is." He should know, as he often brags about buying something for $10, and selling it for $100. I charge a 1.5% commission over my cost, which includes delivery by registered, insured mail! My conscience would not allow me to deal in numismatics.

If you wanted to take a thousand-mile trip, and had a 1921 Model T Ford in your garage, fully restored, and in like new condition, as well as a new Ford, which would you take? The Model T is beautiful, wonderful, reflects a bygone era, and is a source of pride to own, polish, and run in parades. (Ever drive a Model T? What fun! It has 2 speeds, plus reverse, and a hand throttle.) I own a couple of antique cars, antique furniture, and even live in a marvelous 1887, brick, Victorian masterpiece, which couldn't be duplicated today for a million dollars. I love antiques! However, let's get back to the proposed thousand-mile trip. We, who purchase precious metals, love to hold and look at them, and take much pride in ownership…correct? I do. But we bought and buy them for the "thousand-mile trip," which happens to be hedging ourselves for the ultimate hyper-inflation, demise of the currency, and economic catastrophe we mostly believe will come; either quickly or slowly…but surely. We should get our surplus assets out of the dollar denomination, and into the denomination of troy ounces, in which gold and silver are measured. The price per ounce, goes up in dollars, as the dollar goes down in value and purchasing power. Subsequently, if we need dollars, we sell our ounce denomination, re-converting it into the dollar denomination. We will have "hedged" our surplus assets. We should then get the most gold and silver for the least money. Doesn't that make sense? For the same price, a fraction of an ounce 1921 silver dollar, even at it's low book "value" of $40, vs. a brand new, beautiful American Silver Eagle, weighing a full ounce for under $6, gives you almost 8 times the amount of silver, as does that silver dollar. When we want to sell and re-convert into dollars, the American Silver Eagle is simple to sell over the phone, and receive payment quickly. Selling that 1921 silver dollar might require a lot of bargaining at a coin shop…to put it mildly. The coin shop has rent to pay, and a huge, costly inventory, which has its owner's capital invested. It must have large margins, and wheedle on prices to pay its expenses. The owner of the coin shop is not evil, but must act accordingly, to maintain his shop and livelihood.

As a broker, my capital is in my brains, personality, knowledge, connections, and ability, (cheap stuff!) but no physical inventory in shiny showcases, all marked with years, condition, etc. I don't have to charge sales tax, because I don't sell out of my home or shop. I am not even in the phone book. I can charge my miniscule 1.5% commission, and do quite well. My numismatic friend does his business in this town and surrounding area, and I do mine in all 50 states, and even Singapore. His stuff has to be examined and bargained for, and mine doesn't. Some numismatists claim that when gold and silver go up, rare coin prices go up faster and further. I have seen no proof of that, but even if it were true, try to sell at a profit to a coin shop, when it must mark up its merchandise to pay fixed expenses and a get a return on a huge, costly inventory. I work out of my house, pay no rent, have no employees, do no advertising other than my web site, and operate so economically, that any coin shop would be green with envy.

It all boils down to getting the most gold and silver for the least amount of dollars, for the thousand-mile trip. Have that Model T or other collectible in the garage, safe, or hanging on the wall, for pride of ownership, and for the sheer fun of owning and showing it. Do the same with numismatics. I have an AD 97 silver Roman Denarius…for the pride and fun of it. It's a silver coin over 1900 years old. It might weigh a tenth of an ounce, I don't know, but I love it. I love my 1941 Plymouth pickup, which I have restored from a wreck, and is supposedly worth $18,000, but I wouldn't drive it on a thousand-mile trip, and it wouldn't be easy to sell, if I wanted to do so. For the thousand-mile trip in economics, your silver and gold should be of the bullion variety, because you should want the most metals for the least bucks, and want to be able to sell as easily as you bought. Quickly, because one can never predict when an emergency might happen, and funds must be made available.

No one has to examine an American Gold Eagle, if a sale is desired. They all look alike. It isn't the rarity or age of a bullion coin, which determines its price, but its content in gold or silver. One troy ounce of gold, regardless of the year it was minted, is in the full size American Gold Eagle, Krugerrand, or Canadian Maple Leaf. It's one ounce, half ounce, quarter ounce, or tenth troy ounce of gold you are buying and selling, not rarity or date. The previous examination of numismatics, doesn't take into consideration the fact that tens of thousands of Double Eagles, and St. Gaudens have been counterfeited by communist countries, and are still floating around. They are undetectable without a jeweler's loop.

Would you buy a piece of antique furniture without seeing it? Would you buy a home or antique car, without examining it? No, but you can buy bullion coins easily, on the phone, because you know it isn't condition or date that counts, but contents. Like any antique; rare old coins are a delight to own, hold, and treasure. However, for the thousand-mile trip, get Plain Jane, beautiful, bullion coins; which happen to be the most gold and silver for the least money. The most gold for the least money actually, is a kilo bar, if you can afford it. At 32.15 ounces, and currently close to $8,800, it's only about $2.00 over spot. Next best is the Krugerrand, or American Gold Eagle, which weigh more than a troy ounce, due to hardeners added, but contain one full troy ounce of gold. Canadian Maple Leafs weigh exactly one troy ounce, and have no hardener in them, but are very soft and easily scratched or dented. If damaged, the Maple Leaf can have a few dollars taken off the price, if liquidation is desired.

Whatever road you may take, protect yourself, because no government ever has, nor ever will.

Don Stott

December 1, 2001

Don Stott has been a precious metals broker since 1977, has written five books, hundreds of columns, and his web site is www.coloradogold.com