The recent gold market rally has rekindled interest in coin investing. Sales of American Eagles and other gold-bullion coins, modern issues valued primarily for precious-metal content, are at their best levels in six years. And you may have noticed the increase in advertisements for coins both old and new, urging investors to get in on a "modern gold rush."
So do gold coins belong in your investment portfolio? "The bounce in gold prices is bringing coin dealers out of the woodwork," says Madeline Noveck, a New York financial planner. "But products come to market when they can be sold, not necessarily when they are good investments." Noveck and many other advisers believe gold-mining stocks and precious-metals mutual funds are fundamentally better ways to play the gold market than coins. "For investment purposes, you need to be able to sell easily, and there isn't as much liquidity in the physical gold market," she notes.
SCAM TARGET. However, those willing to do their homework can find bargains among gold issues from earlier eras that are prized for rarity and condition as well as their gold. Unlike bullion coins, which have always been a favorite with gold bugs, old coins were once exclusively a collector's market. That changed in the late 1980s, when Wall Street's limited partnerships snapped up rare issues, driving prices sky-high. Values later plummeted. But today's low prices of some rare U.S. gold coins offer newcomers a great buying opportunity, says Scott Travers, a New York coin broker and author of The Insider's Guide To U.S. Coin Values ($4.99, Dell Publishing).
Beginners should look for rare U.S. issues whose gold content value represents roughly half the overall price. This way, the new investor won't pay too high a premium for rarity and condition, which are difficult for the uninitiated to judge, Travers says. Neophytes should also seek coins that are at least 50% lower than their 1989 peak prices. This often suggests the coin is undervalued, and thus could appreciate significantly if gold prices resume their rise. For instance, $20 gold pieces designed by sculptor Augustus Saint-Gaudens and minted between 1907 and 1933 sold recently for $650. That's up about $90 from a year ago, thanks to the surge in gold prices earlier this year, but still well below the $1,600 the coins commanded in 1989. If gold climbs to $425 an ounce from its recent $370 price, these coins could jump to $850, Travers estimates. Avoid coins issued in years when large quantities were made, such as 1924 Saint-Gaudens pieces. They have less potential to go up in price.
BUYER BEWARE. The rare coin market is volatile, and investors should read books on collecting as well as attend coin shows and auctions before making any purchases. Another problem is that the market is unregulated and thus often a target for scams. Before plunking down your money, check with the Federal Trade Commission (202 326-3303) to find out whether a dealer has been charged with deception or other wrongdoing. Travers also suggests sticking to U.S. coins graded for condition and quality by one of the two leading grading services, Numismatic Guaranty Corp. of America or Professional Coin Grading Service. Coins are graded from 1 to MS-70, with MS standing for "mint state, for those coins that have never entered circulation." MS-63 is usually the minimum investment grade.
Another category to consider is ancient coins. Centuries-old Greek, Roman, and Byzantine issues are not as linked to the ups and downs of the gold market. But with today's depressed values, bargains abound for investors willing to hold coins for at least five years, says Alan Walker, a coin dealer at Leu Numismatics in Zurich.
A good place to treasure hunt may be at Sotheby's, which is auctioning off the remaining assets of the $25 million Athena Fund II, a limited partnership created by Merrill Lynch in 1988 to buy ancient coins. In 1992, the fund lost $2.2 million. Sotheby's will sell the coins at a two-part auction slated for Oct. 26-28 in Zurich and Dec. 9-10 in New York. Also on the block are coins remaining in the $7.3 million Athena Fund, another limited partnership privately placed in 1986. About 40,000 pieces will be auctioned, the most ever at one sale. Call 800 444-3709 for information and to order catalogs. Bids can be placed in advance by phone or mail.
Because there will be no minimum bids, "savvy buyers will have a chance to pick up some real bargains," Walker says. A deep-pocketed coin buff might consider the best of the bunch: one of two existing gold coins minted by Brutus around 42 B.C. to commemorate Julius Caesar's death. The coin, known as the "Ides of March," is expected to fetch $250,000, minimum, less than half of what it sold for in 1990. The winner can only hope that being wary of the Ides of March is not as crucial in today's coin market as it was to Julius Caesar.
PUBLICATIONS ABOUT GOLD COINS GOLD AND YOUR PORTFOLIO Free brochure, World Gold Council, 900 Third Ave., New York, N.Y. 10022 INVESTING IN RARE COINS Free brochure, Federal Trade Commission and The American Numismatic Assn., 202 326-2222 THE CERTIFIED COIN DEALER NEWSLETTER