We met yesterday with a very nice lady who sold us a collection of proof American gold eagles that she purchased from her coin broker. While the coins were certified, they were common date years that typically don’t sell at above standard premiums. In speaking with this individual, we were astonished to hear how much she spent on the coins. Furthermore, she asked us why certified proof American gold buffaloes were so expensive at a price of $3,000 – $3,500, which is well above market prices. This apparently is a quote that she received from her broker on the coins. She said that she oftentimes feels pressured to make a rush decision with her broker, who calls her with “limited time” opportunities that she’s urged to respond to the same day. This practice, in our opinion, is unethical, and we encourage customers to not rush into any decisions that may be damaging to their financial health. Below are some guidelines we recommend to avoid becoming the victim of overpriced numismatic coins.
Modern Bullion & Proof Coins
While we’re not going to make many friends in the industry by providing this advice, we recommend that you stay away from professionally graded modern bullion or proof coins that sell at a substantial premium over the spot price of gold and silver. This doesn’t necessarily apply to low mintage or special edition coins, which sell at an additional premium due to the rarity or limited production of the coins. Rather, we’re referring to common date certified coins. While some of these coins might have appealing labels used by third party grading services, the fact of the matter is that these are coins whose value should be primarily determined by the spot price of gold and silver.
Spot Price of Gold & Silver
If you don’t closely follow the precious metals market, you might not be familiar with the current spot price of gold and silver. If your broker is attempting to sell you a coin whose value should be primarily based on the spot price of gold and silver, then you should ask your broker for the current spot price of each. Better yet, you can check for yourself at www.kitco.com. Weigh the premiums that the broker is charging relative to the spot price to determine if you’re receiving a fair offer. Keep in mind that some foreign silver coins, such as Chinese silver pandas, sell at an additional premium, so take these factors into consideration when weighing your decision.
Many brokers will attempt to sell you on numismatic coins as investments, but it takes someone who has been in the industry for quite some time, and that is familiar with the historical prices and rarity of various coins to be qualified to provide investment advice. If the broker that you’re working with doesn’t know his or her history and can’t provide you with historical data, mintages, and the rarity of various coin offerings, then you should probably avoid their recommendations. That’s not to say that numismatic coins can’t make good investments, as the collectible coin market has experienced ten year returns of 248%, according to Elliott Wave.
While there’s a bit more subjectivity associated with determining one’s motivation, this is an important factor in determining if the coin broker has your best interests at heart. Are you feeling pressured to jump on a “limited time” opportunity? If so, then your coin broker is likely attempting to sell you a high commission coin or set that will likely line their pockets as opposed to benefitting you. Many ex-stock brokers will readily admit that they were instructed by their broker house to sell customers high commission products that earned a healthy commission to the broker/the brokerage house, but that oftentimes fell short of the purported return targets. In general, take sales pitches with an ounce of skepticism unless your broker is attempting to sell you low premium bullion coins.
In summary, while many coin brokers are looking out for their customers’ best interests, that isn’t always the case. In general, it’s wise to avoid common date certified modern bullion coins unless they can be purchased at a reasonable premium over the spot price of gold and silver. To determine if that’s the case, check the current spot price of gold and compare it to the offering price. If your broker is offering you low mintage or rare coins whose value isn’t necessarily tied to the precious metals value, they should be able to provide you with details as to the coin’s rarity, mintage, historical performance, etc. Last but not least, attempt to determine the motivation of your coin broker. If they’re pressuring you to make a quick decision, then it’s likely an investment that will earn him a healthy commission as opposed to a being a solid investment opportunity for you. Following the above steps should help you to avoid becoming the victim of overpriced numismatic coins. For additional tips and recommendations, follow us on our blog.