As people increasingly switch to tangible assets amidst global economic uncertainty, rare coin investing, particularly of gold and silver coins, will grow along with the value of rare coins. Due to currently depressed gold and silver prices, many investors are taking advantage of the buying opportunity the recent bear market in both metals has brought.
Investor Interest in Rare Coins Growing
With massive amounts of money printing by the world’s central banks, especially the Federal Reserve, investors are concerned about the value of paper money. Investors have thus switched their focus to more traditional forms of money, such as gold and silver, since they cannot be created with the click of a computer button. Given that coins were made in significant quantities using gold and silver in the past, investor interest in rare gold and silver coins has grown along with interest in precious metals.
The Fed’s Reluctance to Taper
With the Fed’s reluctance to taper its asset purchases, in order to keep interest rates artificially low, investors are increasingly concerned about a collapse of the bond market due to its continuous manipulation, which would lead to a dollar collapse. A collapse of the dollar, currently the global reserve currency, will likely cause gold and silver to play a greater role in the next monetary system, implying that they are vastly undervalued at current prices.
On September 18, Fed Chairman Ben Bernanke announced the Fed would not taper its asset purchases, a decision that was unexpected by many financial analysts. This decision not to taper signals that the central bank believes the economy is much weaker than is commonly reported by the mainstream media and that the monetary base will continue to grow, causing consumers to continue to lose purchasing power on their paper money. As inflation continues to eat away at the disposable income of the lower and middle classes, investors will increasingly place their money into tangible assets such as rare gold and silver coins, given that such coins cannot be reproduced in the manner that paper money can.
Given that Bernanke’s term as Chairman of the Fed ends on January 31, 2014, many investors are wondering what, if any, impact the next Chairman will have on the precious metals market. Currently, there is widespread belief that Janet Yellen, who is currently the Vice Chairwoman of the Fed’s Board of Governors, will replace Bernanke when his term ends. She is widely regarded as a dove, meaning she favors low interest rates as a means of stimulating economic activity. Whether or not Yellen is selected as the next person to head the Fed, the central bank is unlikely to radically change its existing policy of monetary easing.
Most Popular Rare Coins
Among the most popular rare coins are the Morgan and Peace dollars. Morgan dollars were minted by the United States Mint in the late nineteenth and early twentieth century, and Peace dollars were minted after World War I. These silver dollars, made of 90 percent silver and 10 percent copper, are 38 mm in diameter and contain about three-fourths of an ounce of silver. More sophisticated investors tend to be interested in even scarcer issues, such as Trade and Seated Liberty dollars, which are nineteenth century issues similar in dimension and weight, and smaller silver coins such as Barber, Seated Liberty and Capped Bust half dollars, quarters and dimes.
An advantage to collecting rare American coins is that they are universally valued by coin collectors. The dollar’s influence as the global reserve currency, meaning the currency used most commonly for international trade, has boosted the value of American coins in virtually all countries. Thus, in foreign coin shows, American coins tend to carry higher premiums than coins of other nations. The bias toward American coins, particularly in the United States, has meant that foreign coins may trade at a significant discount relative to American coins, suggesting a strong upside potential if they are to gain in popularity, especially if gold and silver play a stronger role in future monetary policy.
Avoiding Counterfeit Coins
To avoid counterfeit coins, investors should familiarize themselves with the unique features of particular issues. Counterfeit coins usually contain errors that can easily be detected by experienced collectors. Rare coin investors should also purchase a digital scale and calipers to precisely weigh and measure their coins, since many counterfeits will deviate in size or weight from authentic coins. Often, counterfeit coins will weigh substantially less than real gold and silver coins, since gold and silver are relatively heavy metals. Moreover, collectors should also possess a magnet, since real gold and silver coins are non-magnetic. For greater peace of mind, investors should purchase their rare coins from reputable dealers such as Monaco Rare Coins to ensure they are authentic.
Another layer of protection from counterfeits can be added by purchasing rare coins in slabs by reputable third-party graders (TPGs), such as Numismatic Guarantee Corporation (NGC), Professional Coin Grading Service (PCGS), American Numismatics Association Certification Service (ANACS) and Independent Coin Grading (ICG). Though counterfeited slabs have been reported, they often contain details that distinguish them from authentic slabs. To add further protection for coin collectors, both NGC and PCGS are storing photos of certified coins in their databases, which are accessible online to collectors. Purchasing rare coins in slabs provides many collectors with peace of mind in their purchases, which may more than offset the slight premium they pay for the authentication.
Rare Coins As the Ultimate Hedge
Though gold and silver investors may at times be urged to buy bullion given its greater upside potential when precious metals prices rise, investing in rare coins comes with the advantage of greater stability in values. Rare coins tend to carry significant premiums above their melt value that are unlikely to change much when precious metals prices drop, and will generally rise in value when precious metals prices rise. Conservative investors with an interest in precious metals may therefore want to allocate a percentage of their assets into rare gold and silver coins.
Though both gold and silver values are likely to appreciate as the world’s central banks continue to print digital money, silver is generally considered to have better potential as an investment, since it is 60 times cheaper than gold. Historically, gold has been approximately 15 times more valuable than silver. This discrepancy suggests that in the next bullish cycle silver may greatly outperform gold, especially since gold is already unattainable to many middle-class investors due to its high price. In a scenario in which the silver price hits the triple digits, many silver coins currently ignored by coin collectors may suddenly become highly sought after. Gold and silver’s correction since 2011, which has caused this gap in values to widen, should thus be viewed as a buying opportunity rather than as a signal that the bullish super cycle is over.
Besides being a hobby that brings enormous pleasure and satisfaction to people, coin collecting offers investors the possibility of making enormous returns on their investments as gold and silver continue their inexorable rise. The greater role that precious metals will likely play in the next monetary regime will add to already growing investor interest in rare coins.