Modern collectible coins as an investment
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Modern collectible coins as an investment
What is an investment? Simply put, an investment is something that you can spend money on (or put money into) that will potentially grow the value of that money invested.
What are some of the pervasive myths regarding investments into precious metals or coins? Well, for starters, there’s the myth that only bullion is a good investment. Why is that myth so inaccurate but so prevalent?
That myth is so inaccurate because it wrongly presumes that the value (denominated in the spot price) of precious metals is always rising or that the precious metals market is always a bull market. Historically, no market that one can invest their money into is always a rising market. There is always fluctuations in the value of the investment whether that thing is a paper asset like a stock, a currency like the British Pound, or a physical commodity like precious metals. There are always fluctuations in the value and therefore the cost because there is always fluctuations in factors such as supply and demand…which is the primary driver of value for virtually all investments.
That myth is so prevalent because there are plenty of parties (businesses such as large bullion dealers and wealthy individuals) who have a vested interest in trying to persuade potential investors that only their product (bullion) is a worthwhile investment. Now while an investment in bullion can sometimes be a good investment, it can also be a very poor investment as evidenced time and time again. In just the last several years alone, the US Dollar denominated value of silver bullion has fallen in the range of about 50% (inflation adjusted). Since about January 1980, the inflation adjusted loss of value of silver is more than 80% (see http://www.macrotrends.net/1470/historical-silver-prices-100-year-chart ). Gold follows a similar track and gold bullion is also sometimes a very poor investment.
What about the claim that the demand for silver and gold always outstrips the supply of these commodities? We can clearly see from official data that this is not always the case. The Silver Institute http://www.silverinstitute.org/site/supply-demand/ provides date that can help us understand this dynamic better. In fact, when it comes to bullion coins like the American Silver Dollar from the U.S. Mint, often there is such a large surplus that the U.S. Mint stops it’s normal production for a period of time. It is reported by some sources that it and other major mints around the world engage in a “tightening of supply” in an effort to artificially increase the price of silver.
How do modern collectible coins compare as an investment? It’s very difficult to compare because the market for bullion and the market for collectible coins are not the same market though to a lesser extent, there is some investor overlap. Firstly, modern collectible coins are priced differently than bullion. Whereas with bullion, the buyer that can afford to buy very large quantities of a particular bullion coin can end up saving money, and thus pass that savings onto other buyers in the after market driving down prices of bullion coins, with collectible coins, since the mintage are generally so small in comparison, driving down prices based on the ability to buy massive quantities of a coin to flood the after market just does not exist as a dynamic for the majority of collectible coins.
Modern collectible coins appeal more to collectors than they do to commodity investors. In other words, the customer (the end buyer) for collectible coins generally buys the collectible coins for different reasons than the buyer who buys strictly bullion. The advantage for modern collectible coins is the buyers / collectors themselves. These collectors are not so interested in the base metal price of the coin. They seek qualities or characteristics of the collectible coin that are just not possible with bullion. These characteristics usually include low mintage, high production quality, the work or end result of a particular sculptor or engraver, and attention to detail of design and packaging…all qualities coveted by most collectors of modern collectible coins. And let’s not forget about coin sets and the strong desire for collectors to complete a full set even if that means paying considerably more money for a coin just to have a complete set.
Because collectors desire these qualities in the coins they seek to buy, they will generally pay exceedingly more money for a collectible coin than for bullion of the same size or weight. After all, the collector is getting much more than just a blob of metal for their money invested. And since the mintages for collectible coins is often very small in comparison to bullion, the factor of supply and demand can play a major role in the future price of the coin, especially in the after market such as like on eBay as just one of many examples of places where individuals have sold the collectible coins they have purchased with the intention to re-sell, for significant premiums over what they paid for the coin themselves.
For the average person, on a day-to-day basis, there can certainly be more opportunities to make more return on investment on buying and selling collectible coins than with buying and selling bullion.
I encourage you to take the time to understand the differences explained above and to see why my experience has led me to believe there are advantages for investment in modern collectible coins that just don’t exist with bullion. And while my position isn’t that bullion can never be a good investment, I hope you will understand the potential inherent greater risks with investing in bullion as opposed to collectible coins.
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