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Sunday, August 1, 2010

Tips On Buying Gold Coins

Gold is the hot new investment opportunities being heavily promoted on radio and TV in the form of circulated gold bullion coins. Bullion value, however, rises and falls with the commodity metals market, which can change rapidly.

Buying tips

New investors can get confused, mainly because they don't understand the difference between and numismatic coin and an bullion coin, and also because they may not understand the value of each type of coin. Let's take a closer look at the two types of coins.

For a simple gold play: modern gold bullion coins

Gold bullion coins are the most popular coins, probably because they are the simplest to value and buy, and also because there are so many more of them (they are mass produced.) These coins are generally sold just above the spot price of gold (usually to account for minting cost and dealer commission.) Also, these coins are minted with a lower quality finish called a "bullion finish" which pretty much guarantees it will not turn into a collectors' item. Friendly gold coin dealers can show you different types of bullion coins, and pictures of them are readily available online.

For the collector: Rare, scarce or "numismatic" coins

These coins can be worth far more than their intrinsic value (the value of the gold contained in the coin.) An example would be a rare one ounce coin minted in 1861 which sold at auction in 2008 for $2.5 milllion! It was very rare indeed—there are only 2 known coins still in existence, even though 3 million of them were minted in 1861. This coin, and other numismatic coins, carry a "collectors' premium" which can greatly escalate the value of a coin. Before paying gold coin dealers a premium to buy a rare coin, you need to do your homework to make sure you know what you are buying, and how much it is truly worth.

Confusing bullion coins with collector’s coins

As an example as to how this can become confusing, The US Mint produces American Eagle Bullion Coins and American Eagle Proof Coins and Coin Sets. The bullion coins have no collector’s value, and the proof sets are made in smaller quantities and with a higher quality mint process and finish. The proof coins are minted in hopes their collector’s value will grow as the coin ages.

By contrast, investors who buy gold bullion coins never expect the value of the coin to rise above the gold spot. It is important to know this when you buy a bullion coin. You should pay very close to the spot gold, which will determine the value of your coin. If you want to invest in coins that will grow in value because they are rare or scarce, then you want to buy certified rare coins or at least proof sets. Proof sets are a little less appealing, as they have not yet had a track record of holding value.