Gold and silver investors recognize the importance of wealth preservation in a world where central banks are debasing their respective currencies to fund government deficit spending. The question that many precious metal investors may want to be answered is what type of gold and silver assets they should acquire to maximize the return that they see on their investments. Wealth preservation is ever more important as western governments continue to print currency to pay for their unfunded liabilities. The global lockdowns in 2020 were a classic example of profiting from owning gold bullion as the gold price hit a new record high in all major currencies.
Gold bullion is classed as bars or coins that trade at a price that is very close to the intrinsic value of the gold. Gold bullion coins are typically massed produced with a high gold purity. There is no rarity aspect to them and they are widely available. They tend not to be coins that were previously circulated, British gold sovereigns being the obvious exception to this. Numismatic coins by contrast are more interesting as they are coins that were often used for trade in their respective countries whilst a gold standard was in place. They are restricted in number and are often highly desired with some of the rare ‘pattern’ coins commanding massive premiums due to their very small number. The gold Honduras 10 peso is a prime example as only a handful was minted as a ‘pattern’ coin before the final approval was meant to be given for mass production.
Numismatic coins command a higher premium and can be worth tens of thousands of pounds despite their intrinsic gold content being worth a fraction of their market price. Examples of numismatic coins are gold una libra coins from Peru or gold veinte peso coins from Mexico. Auronum is a leading supplier of gold numismatic coins with a wide range of examples from the world over. Many investors have done very well by buying and selling numismatic coins around the world. There is indeed a massive market for gold foreign currency coins.
The Gold Anti-Trust Action Committee has published a wide range of evidence that gold spot prices are held down using the futures and derivatives markets, meaning that gold investors are having their gains capped by central banks and other participants that are depressing the gold price on behalf of governments. This limits the return on bullion coins and bars which closely track the gold price, however, gold numismatic coins only loosely follow the spot price and so large gains are possible for traders of gold numismatic coins even when the spot market is flat.
On balance, investors should purchase a mix of bullion and numismatic gold coins because they each have different strengths and pitfalls and will do better or worse depending on the underlying spot price movements. Profit can be made from selling numismatic coins when the spot price has fallen causing the bullion coins to fall below costs. Conversely, bullion bars and coins will likely perform better after the spot price has risen. Some numismatic coins can become ‘sticky’ as market participants remember, for example, that a certain design sold for £1,000 so may be reluctant to pay much more for this.
Bullion coins give an investor spot price gold or silver exposure and are relatively low risk insofar that their premiums are tiny, so a loss on these investments is only likely if the spot price falls. Numismatic coins trade at significant premiums and so there is a risk that the buyer overpays for the coin and struggles to find someone who values the coin as highly as they did. The benefit is that numismatic coins tend to hold their value very well even when the spot price of gold falls because investors are paying for a market premium that depends on the supply and demand of that specific coin design rather than the spot market price.
For this reason, investors should not be off put by the premiums of numismatic coins because it is ‘premium in, premium out’. Gold is often seen as a diversifier for larger stock and bond portfolios but there is a more granular diversification that can be undertaken within the gold aspect of an investor’s portfolio and so the risk can be diversified even further by spreading one’s gold assets between bullion and numismatic coins.