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Which Gold Coins Are Better Investments For Me?

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Saint-Gaudens $20 Gold Double Eagle

The Saint-Gaudens $20 Gold Double Eagle makes for a nice compromise between gold bullion content and rare coin potential.

Photo courtesy of Heritage Auction Galleries.
Question: Which Gold Coins Are Better Investments For Me?

Reader J. J. sent in the following question, "How are bullion (24k, 99.99% gold) and 'collector proof coins' different and do they contain the same gold content? As a collector, which is worth more? As an investor which would be worth more? I read your article about your least favorite and most favorite ways to collect coins. You mentioned that buying from the "Franklin Mint" and "Bradford Exchange" are not the best deal. Does this include the U.S. Mint?

Answer:

The Franklin Mint and Bradford Exchange are privately-owned companies who put out "collectibles" of various types, including coins, but because their coins are not from an official government entity, coin collectors are generally not interested in them. Although certain products issued by these companies (and their competitors) do have some modest secondary market value, their coins have historically done very poorly. With the exception of a couple of early Franklin Mint sets, coin dealers just throw these coins on a scale to weigh them, and pay about 92% to 95% of spot price IF they're even made of silver or gold, which many of them aren't. The U.S. Mint, on the other hand, is an official government mint, and its products do fairly well on the secondary market, especially over time.

As for the bullion offerings (e.g. 24kt Gold Eagles, Silver Eagles, etc.), the Proof and Mint-marked versions of these coins sold on the U.S. Mint Web site have the same bullion purity content that the regular coins do, but they're struck to a higher standard of quality and in limited numbers. Both types of coins have the potential to be good investments, but which one you buy will depend on your collecting or investing goals. If your main purpose is to buy gold bullion as an investment, my recommendation is that you don't buy these coins at all, but buy generic gold bullion ingots and bars that are sold for a couple of percentage points over spot price. The U.S. Gold Eagle, as well as the Canadian Maple Leaf, Chinese Panda, and a few other coins issued by government mints all have premium mark-ups on them. The South African Krugerrand usually has lower premiums, but lowest of all are the ingots and bars issued by European banks and certain recognized private refiners. Some examples of the European bank ingot makers and refiners that are reputable are Credit-Suisse, PAMP, and Johnson-Matthey, and in the U.S. there's Engelhard and SilverTowne. If you are buying gold just to store bullion, then buy the types that carry the smallest commissions on them, which are the ingots and bars made by these refiners.

If, however, your interest is more in collecting beautiful coins that also happen to enjoy the solidity of bullion, you would go with the American Eagles, Maple Leafs, Pandas, etc., or better yet, buy classic U.S. gold, such as the Saint-Gaudens Double Eagles, which trade at bullion value plus about 8%-10% for most dates and grades. These coins have the benefit of double potential: the gold in them will always be worth bullion value, no matter what, but the fact the bullion is stored in a 100-plus year old American coin also adds the possibility that it will increase in value for its rarity. We have no idea how many were melted during the melting spree in early 2008 when gold topped $1,000 an ounce, but these coins will only get rarer over time, and the premiums on them right now are minimal considering their rarity and potential.

Are You a Collector or an Investor?

The first question you need to answer, in order to determine what to buy, is whether or not you're a collector or an investor. If you love the designs and images on coins and the way it feels to hold them, and the satisfaction of completing sets, then collect coins for their beauty and the enjoyment of the hobby. You can still buy with a view towards making a profit someday; most collectors have this goal in the back of their minds. If, however, your primary goal is to store up bullion against the potential doomsday, or you just hope that gold will go up in value and you'll be able to sell for a profit someday, then buy bullion and try to avoid paying the premium commissions that collectible bullion coins carry. As noted above, you can sort of straddle the fence on this by buying classic U.S. gold coins such as the Saint-Gaudens gold Eagles.

Whatever you decide to buy, make absolutely certain that you take delivery of your purchases right away! Never let companies store your bullion in their vaults for you! If these companies go bankrupt or become the victims of foul play, you're going to be stuck holding a paper note that isn't worth anything. Take delivery of your gold and store it somewhere under your own control, preferably at a bank safety deposit box.

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