Precious metals like gold can provide an effective strategy to diversify your investment portfolio and protect your assets from runaway inflation and severe economic downturn. With so many new investors entering this arena, dishonest companies try to take advantage of naive investors who may lack the the necessary knowledge to invest wisely. If you're looking to get into gold investing, it is vitally important that you seek advice from a specialist in precious metals investment before parting with any money. In addition, it is essential that you understand and avoid the common pitfalls. One such pitfall with gold investing is the failure to understand the simple difference between bullion gold coins and numismatic gold coins.
If you are investing in a precious metal, you are doing so because precious metals tend to retain their value over the long term, whereas paper currencies tend to lose their value over time. For the purpose of precious metals investment, the value of a coin comes from the metal itself and not from any extraneous factors such as age, asthetics or historical importance. This is one of the most important things to understand when it comes to investing in any precious metal. At the end of the day, if you're an investor, your first and foremost concern should be about buying the most gold and silver for the least amount of cash. So, right off the bat, you need to make sure that the coins you're buying are bullion coins and not numismatic.
Numismatic Gold Coins
The value of a numismatic gold coin is derived largely from its rarity, its collectability and its condition, so they can be far more expensive in relation to the value of the gold they contain. Whenever a coin has some historic value, this will be reflected in its price, even though the coin might cointain much less of the precious metal than bullion coins of the same price. Two examples of numismatic coins are the British Sovereign and the (pre-1933) $10 Eagle. The value of these coins is derived exclusively from their rarity and collectability. This means that when you decide to sell the coin, unless you can find a collector who eagerly wants to buy that particular coin, you could end up losing some of the money you invested. In the precious metals market, it is the metal that's important and not the provenance of the coin.
Of course, it is true that some numismatic coins can make good investments, but it can be an extremely risky area to get into unless you have extensive knowledge of rare collectables and particularly antique coins that are held in high regard among coin collectors. In addition, you will need to know how to value the coin based upon a range of factors including its rareness, condition and collectability. And then when you sell the coin, you will need to find a suitable buyer who also knows the value of the coin. So as you can see, for the average gold investor, numismatic coins should not be considered.
Bullion Gold Coins
Bullion coins on the other hand are coins that have a relatively wide circulation and derive virtually all of their value from their metal content. The market for regular bullion coins is far more liquid than for numismatic coins. Examples of gold bullion coins include the Canadian Maple Leaf (1 oz version shown right), the American Eagle and the South African Krugerrand. Bullion coins are usually minted and guaranteed for purity and weight by a respected governmental body. This uniformity for each type of coin, along with the fact that minted bullion coins are widely recognized and circulated, means that when you decide to sell your coins, you will not only be able to find a buyer quickly and easily, but the gold will be valued solely on the price of gold at that time. To learn more about bullion coins, please see our section on Buying Gold Coins.
So in summary then, when it comes to investing in gold coins, you want your investment to provide you with the best possible hedge against long-term inflation. If you're considering a Gold IRA then buying bullion/physical gold is probably more appropriate than buying numismatic gold. Numismatic coins should only be considered for investment purposes if you already possess the necessary knowledge and expertise to accurately appraise their historical or artistic value. More gold buying tips here.