Investors to gold often wonder whether to invest in gold bullion or in numismatic gold, and here the differences between the two types of investing as well as their advantages and disadvantages will be explained.
Gold Numismatic Investing
Numismatics refer to coin collecting, so numismatic gold is gold coinage with usually extra value besides the metal based on a coin’s rarity, history, or demand. Numismatic investing is not generally considered an optimal form of investment for returns, since most coin collectors treat coin collecting as a hobby. The market for coin collecting is also not as liquid as the bullion market, since it’s not as easy to find buyers interested in a coin of a particular year and denomination as it is to find buyers who simply want a pure gold bar that has been properly assayed.
Thus, numismatic investing, while a form of investing and a way to store wealth — since the coins will always be worth at least the value of the metal they are made of — should be approached as more of a hobby than a way to accrue wealth. The rewards for this type of investing are mainly psychological, as collectors appreciate the history and rarity of these coins. Given the subjective nature of coin grading and the sentimental value of coins to collectors, buyers and sellers may not fully agree on the value of these coins, further reducing their liquidity and potential returns for sellers. However, the market for very high-end coins in particular niches may bring excellent returns for investors, given their rarity and increased popularity among the ultra wealthy.
Buyers of numismatic coins should also beware of counterfeit coins and bait-and-switch tactics by some gold sellers. Buyers of numismatic coins should thus buy from reputable and highly-trusted dealers, with the knowledge that counterfeiters (particularly from China) have become increasingly sophisticated and are even counterfeiting the slabs used by third-party graders. Reputable and highly-trusted dealers will be able to detect these counterfeits, and, in a worst-case scenario, will fully refund the money you paid for a counterfeit (though this is a highly unlikely occurrence with such dealers). The bait-and-switch tactic used by some unscrupulous dealers involves convincing buyers initially interested in purchasing gold bullion to purchase gold numismatic coins instead — because they bring greater profits to these dealers — without informing buyers about their lesser liquidity, by inflating their prices compared to their market value, and by exaggerating their potential returns. The bait-and-switch tactic thus capitalizes on the ignorance of the buyers.
Gold Bullion Investing
Gold bullion investing refers to investing in gold products of high purity that generally lack collector value. Gold bullion generally comes in the form of bars, coins, or medals. The gold bullion market is therefore more straightforward with established prices based on the supply and demand worldwide at any particular moment. The price at any particular moment of gold for immediate delivery is referred to as the spot price. Generally, sellers will charge a small premium above the spot price to offset other costs, such as labor, storage, and shipment. However, gold bullion investing allows gold buyers to accumulate more gold by weight than gold numismatic coins for an equal amount of money, given the smaller premiums of bullion products. Whereas sellers may charge a small premium for gold bullion products, gold numismatic products may sell for multiples of their melt value alone due to market factors. Over time, this can translate to much better returns for buyers of bullion over buyers of numismatic products.
Increasingly, bullion products — particularly bars — have been counterfeited, so it’s important for gold buyers of bullion products to also shop with reputable and highly-trusted dealers. These dealers have the equipment to detect such counterfeiting. Large gold bars such as 10 ounce and kilo bars are particularly susceptible to counterfeiting, with tungsten used as a core and coated with gold, given that tungsten is a metal with similar properties to gold in its density and weight. As a general rule, it’s best to purchase bars and coins one ounce or less in weight, as they are less likely to be counterfeited.
Both gold numismatic and gold bullion investing are great ways to store and build wealth, though gold bullion investing will generally bring greater returns due to the smaller premiums charged for them as well as their greater market liquidity. Buyers of gold should generally buy numismatic products as a hobby with the understanding that the market for them is much smaller and more subjective. However, for those who truly enjoy numismatic coins for their rarity, history, or other factors, the pleasure in collecting them may outweigh other investment considerations, and so for such collectors they may be the better option. In the end, we should aim for what makes us happy.