Published by the Federal Trade Commission
If you're thinking about buying collectible coins as an investment, the Federal Trade Commission (FTC), the nation's consumer protection agency, has three words for you: research, research, research. In fact, the agency says, there isn't a potential investor around who can afford not to spend time researching the coins, the graders who assess them, and the dealers who sell them.
Collectible coins have some historic or aesthetic value to collectors. The value of many collectible coins exceeds their melt value because their precious metal content is so small. Coin collectors refer to this collectible value as numismatic value, and they say it is determined by factors like the type of coin, the year it was minted, the place it was minted, and its condition – or "grade."
Dealers who sell collectible coins often have valuable coins graded by professional services. A grader examines the coin's condition based on a set of criteria. Then the grader assigns it a numerical grade from one to 70, and places it in a plastic cover for protection. But factors like "overall appearance" and "eye appeal" are subjective, and the grade assigned to a particular coin can vary among dealers. What's more, fine distinctions between grades can mean big differences in the value or price of a coin. The difference of one grade in the same coin can mean the loss or gain of thousands of dollars in value. Subjectivity in grading means there is real inherent risk in coin investing.
Expect to hold your investment for at least 10 years before possibly realizing a profit. That's because dealers usually sell collectible coins at a markup. It's how they make their money. In addition, the market for numismatic coins may not be the same as the market for precious metals or bullion coins. It's possible that the price of gold can increase while the value of a numismatic coin decreases.
Investigate Before You Invest
If you're thinking of investing in collectible coins, take your time and get to know the subject.
Tip-Offs to Rip-Offs
Scams in collectible coins generally involve false claims about grading, current value or buy back options.
False Grading Claims – Unscrupulous sellers of collectible coins often inflate the grade of their coins. Some dealers grade their coins in-house or through less-than-reputable grading services. Others create counterfeit grading documents or place lower grade coins in cases labeled with a higher grade. Walk away from the purchase if the case appears to have been opened, if documents appear to have been altered, or if a dealer won't show you the grading documents or let you examine the coin case before you buy.
False Claims about Current Value – Some dealers grade their coins accurately, but overprice them or mislead their customers about their value. For example, a dealer may charge $5,000 for an accurately graded $10 Indian gold piece, even though the current retail value of the coin may be $1,750.
False Claims about Buy Back Options – Many sellers of collectible coins offer "buy back" options to give buyers a sense of security in their investment. Dishonest sellers fail to honor the option, or fail to disclose commissions and other fees they attach to the option. In these cases, you may find that your true options are to hold the collectible coins or sell them at a loss on the open market.
Glossary of Gold
Ask Price – The selling price a dealer offers.
Bid Price – The price a dealer pays for bullion or coins.
Bullion – Precious metals like platinum, gold or silver in the form of bars or other storage shapes. Bullion coins are made of these metals, too.
Collector Coin, Historic Coin, or Numismatic Coin – A coin whose value is based on rarity, demand, condition, and mintage; in fact, it may be worth more than its bullion value.
Melt Value – The basic intrinsic bullion value of a coin if it were melted and sold.
Premium – The amount by which the market value of a gold coin or bar exceeds the actual value of its gold content. The seller can recover part of the premium at resale.
Spot Price – The current price in the physical market for immediate delivery of gold; sometimes called the cash price.
Spread – The difference between the buying price and the selling price.
Troy Ounce – The unit of weight for precious metals. One troy ounce equals 480 grains, 1.09711 ounces, or 31.103 grams.
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