The Best Value in Gold?

By Craig R. Smith

U.S. stocks moved lower the first day of May on soaring crude oil prices and rising inflation jitters.

"Sell in May and go away" became a Wall Street axiom two decades ago, but this strategy may be even more compelling this year. So where can you stash your cash?

Precious metal prices have been rising so far, so fast; some analysts are suggesting the commodities bull market may be a bubble.

Although I don't agree with this analysis, it does underline some major differences between investing in commodities like gold and silver bullion versus collectibles like fine art and numismatic coins. Which form of gold really does offer the best value today?

The secular bull market in commodities has driven gold bullion up 40% in the last year, from $440/oz. to $615/oz. last week -- yet prices of numismatic gold coins are only up an average of 20% -- so why the lag in growth?

First, keep in mind that investment-grade coins are not a commodity, they are a collectible. So while the bull market in precious metals may help to propel rare coin prices upward, buying an investment-grade coin is not the same as buying a commodity, like sugar, wheat or even gold bullion.

Have you ever seen a 100 oz. bar of gold? Some bars are ugly and beat up and some bars are brand new and shiny -- but they both trade for the exact same value. Not so with collectible coins. High quality and rarity are the primary drivers.

Second, because the investment-grade coin market is smaller than the bullion market, it is less prone to speculation and more geared toward being a long-term hold. This means rare coins are one of the least volatile forms of gold to own.

The collector appeal of U.S. gold coins is growing tremendously which is creating more demand than the available supply will accommodate. This basic law of supply and demand can cause rare coin prices to rise even when gold bullion prices drop.

As the charts illustrate, gem-quality (MS-65) numismatic gold coins are in a long-term bull market, like precious metals, but rare coins tend to move up and down more gradually. Perhaps this stability is one of the reasons WSJ, Marketwatch and other mainstream news outlets have been so positive about this market niche over the last year or two.

Investment grade U.S. gold and silver coins are fast becoming a new American icon because they offer investors financial stability, privacy and profit potential.

The greatest gold on earth

Senior Swiss America broker, Tom Rodriguez addresses why all gold is not created equal nor does it perform equally in our newsletter The Rule of Gold ...

To me, it's not about the purity of the gold, or the amount of gold that you own -- its about owning truly rare United States gold coins in the finest quality you can afford for the long term.

I monitor the rare coin auctions...I check the prices realized vs. the so-called published market value or trends on these coins...and let me tell you, they are bringing record prices.

Many of the ultra high-end museum quality rarites have sold for more than $1 million. In fact, the rare coin market has had more $1 million coins sold in 2005 than any other time in U.S. history!

The demand for the very best is strong and they are being put away for many decades to come with no intention of seeing the light of day by people just like you as part of their diversified portfolios.

These types of coins, in my opinion, should be included in every portfolio. Whatever price range you can afford, there are high quality, condition census gold coins available for you.

Bullion vs. numismatic... confused?

Earl Brown, Senior Numismatist at Swiss America addresses five of the common myths about buying investment-grade coins vs. bullion in The Rule of Gold...

Should you buy bullion or numismatic gold? What's the difference between bullion and numismatic gold? Isn't it always better to get the most gold for the money?

Myth: Bullion gold has less risk and less mark up than numismatic gold.

Truth: Not always. Kruggerands, Maple Leafs, American Eagles and most foreign gold are bullion coins. They are generally purchased within 15% of their melt value. In volatile markets the spread (the difference between bid and ask) can be as much as 20-30%. This can exceed the risk and mark up of some numismatic coins.

Myth: Old foreign coins that are certified or contemporary gold coins that are certified are non-confiscatable and non-reportable.

Truth: The reporting act (TEFRA) is very ambiguous, forcing dealers to report liquidations of any gold that's liquidated near melt value (25% spot price +/-). Old foreign coins and newly minted gold coins may sell at large premiums, but are generally forced to be liquidated at or near melt value. Thus they are considered reportable.

Back in 1933 (during the government-mandated confiscation of gold) only coins with a "collectible value" were not confiscated because they had a special value to collectors. Old foreign coins and newly minted gold would not qualify based on the lack of any special value upon liquidation.

Myth: If gold climbs in value all gold will climb equally.

Truth: Numismatic coins have a history of escalating two to eight times greater than bullion during the last bull market in gold (1979-1980).

Myth: It is easier to sell bullion coins when I need to liquidate than to find a buyer for my numismatics.

Truth: Both bullion coins and certified numismatic coins are equally liquid in today's multi-billion dollar international market for U.S. rare coins. At times bullion must be assayed before they are repurchased thus potentially effecting both the price and liquidity.

Myth: If the economy collapses, then bullion would be better for barter purposes.

Truth: If the economy ever turns to barter, you would be better off with canned food and a can opener since you can't eat any form of gold - bullion or numismatic. However, both would be better than $100 bills.

I've just scratched the surface here. Unfortunately, the myths may change daily, but the good news is that the truth remains constant. Call us with your questions about the newest myths on the street and we'll do our best to help you to identify the truth.

A classic golden double-play

The commodity boom is here to stay, but it could be a bumpy ride upward.

Jim Rogers, who foresaw the start of a commodity rally in 1999, told Bloomberg this week that the boom in energy and raw material prices will endure, driving gold to a record $1,000 an ounce. "The shortest bull market for commodities lasted 15 years, the longest 23 years, so if history is any guide, they've got a long way to go. This is not a bubble."

Because U.S. investment-grade coins are both a collectible and a precious metal they offer investors a golden double-play.

Rare coins offer as much or more upside potential for growth -- without the daily volatility of the bullion markets that are prone to wild speculation. Imagine buying a leveraged silver contract one day, then having to meet a margin call the next. Who needs the headache? In contrast, numismatic coins offer investors some well deserved peace of mind.

The current price levels of most U.S. rare coins are still at extremely low levels, adjusted for inflation and compared to their historical highs, but not for long! A potentially huge demand for these gem quality investment-grade gold coins is on the horizon today, so don't wait too long to get started. Contact a Swiss America broker to discuss this golden opportunity in 2006. Request a copy of our 2006 Special Alert.

Related Offer: The Rule of Gold