There are at least a dozen ways for investors to put their money into the gold market. Besides the stocks of gold-mining companies, consumers can choose to purchase gold bullion bars, bullion coins, and numismatic coins, invest in gold options or ETFs, jewelry, scrap gold or gold accounts. Anyone considering gold coins, often marketed as “rare” gold coins or numismatic gold, should be aware of the many myths that exist about this kind of investment. Here are the most common ones:
Myth #1 – Rare gold coins are just like gold bullion.
Fact: Nothing could be further from the truth. Bullion prices track the spot price of gold very closely and bullion has no value other than its metallic worth. Rare coins are entirely different animals. Much of their value is tied to the rarity and market worth of the fact that they are collectible coins. The country of issue, year minted, and denomination are vitally important for assessing their value at any given time.
Myth #2 – Rare gold coins are likely to increase in price astronomically because they are rare, and are made of gold.
Fact: Gold coins can increase in value, but retail markups are so high that unless you purchase huge lots or are an expert numismatist who knows the genre inside and out, you are much, much more likely to lose money by purchasing rare gold coins.
Myth #3 – Gold coins are an investment in the precious metals market.
Fact: Gold coins, rare or not, are primarily a numismatic (coin-collecting) investment. This is a world dominated by long-time experts, many of whom are licensed, certified coin dealers. Yes, gold coins are made of gold, but the bulk of their resale value has to do with their worth as a collectible, much like rare works of art.
Myth #4 – Pre-1933 gold coins are a smart investment because they cannot be confiscated by the U.S. government.
Fact: No gold can be confiscated by the U.S. government. Long ago, this was true, but times (and laws) have changed. Even in a huge international crisis it is doubtful the government would even want to do this because U.S. currency is no longer backed by gold. The government is as likely to “confiscate” gold as they are silver, cars, golf balls and toothpicks. The “confiscation” argument for pre-1933 gold coins is a marketing ploy used by unscrupulous sellers, many of whom operate online and offshore.
Myth #5 – Gold coins are very liquid and can be sold at any time.
Fact: Gold coins are anything but liquid and average investors often have great difficulty selling them. This myth is commonly repeated by people who have no idea about the way gold investment works. Rare coins are very similar to expensive paintings or collectible jewelry, both of which can be near impossible to sell unless a willing buyer appears.
Myth #6 – Gold coins are easy to store.
Fact: In one sense, yes, gold coins are easy to store. Literally, the statement is true, but practically speaking, it is not. Sure, you can toss your newly-purchased “rare” gold coins into a drawer and forget about them, but that puts them at great risk of theft. To go about it the right way, you’ll need to insure them first, and then store them in a safe deposit box, not at home. Additionally, coins can actually melt in a fire, or can easily be found by high-tech thieves who routinely use metal-detectors to locate “hidden” caches of coins and bullion.
Myth #7 – Investors can master the rare coin market by reading a few articles online or in a book.
Fact: Professional numismatists, many of whom have spent decades buying and selling rare coins of all kinds, will be the first to say that the rare gold coin market is complicated, volatile and calls for a depth of knowledge that cannot be acquired in a few hours, days or weeks. That said, investors who want to become collectors of gold coins might get good advice by speaking to a coin dealer they trust. But one needs to remember that rare coins are a collector’s game, not an investor’s.
Myth #8 – Rare gold coins are never a good investment.
Fact: If one has the advice of a trusted numismatist who knows the rare gold coin market, gold coins can be a way to invest. This type of investor would need to realize that the activity is akin to buying a valuable work of art, and further understand that a very long hold time is typical in order to make a profit.
Myth #9 – Rare gold coins at auctions and sales are genuine because they’ve been minted by national governments.
Fact: One should only purchase rare gold coins from a licensed numismatist or trusted coin dealer. Online selling is rife with fake coins that are gold on the outside and lead or some other filler on the inside. Buying gold coins online from one of the big auction sites is like purchasing an expensive new car, sight unseen, from a remote seller who only sends you a photograph.
Myth #10 – Gold coins are a smart investment because, in a jam, they can be used as money, at their face value.
Fact: If a seller ever tells you this, you should immediately run away and not look back. The denominated value of most gold coins is usually about one percent of the value of the gold in the coin itself. To consider using a rare gold coin (or any gold coin) as money is, frankly, an idiotic concept. Surprisingly, that very myth is often listed among the “advantages of owning rare gold coins” in many online advertisements, magazines and TV ads. It amounts to commercial hucksterism of the worst kind.
The bottom line is this: People who want to buy rare gold coins need to know exactly what they’re doing, or have the advice of someone who does. Even a small lot of rare gold coins can cost many thousands of dollars, are not very liquid, and can significantly decrease in value rather rapidly. For those who are dead-set on entering the rare gold coin market, the advice of an experienced professional numismatist or trusted coin dealer is essential.