Money Management & Retirement Planning Advice by Barry Unterbrink, Chartered Retirement Planning Counselor

Friday, May 15, 2009

Collecting Gold, Silver and Coins

The collecting of coins, gold, silver and other precious metals can be fun and financially rewarding. These tangible items are often referred to as "hard assets" because they are heavier than most other commodities or collectibles. Someone once quipped, "if you drop an asset on your toes, and it hurts, then it's probably a hard asset and valuable". Try that with 50 ozs. of silver or a brick of gold - ouch!

The renewed interest in precious metals has been built upon their price rise during the past few years. In fact, there’s been a bull market in gold and silver for 5-6 years. Coincident with the lows of the last bear market for stocks in 2002, gold rose from under $300 to just over $1,000 per ounce. That run bested the gains seen by most of the traditional classes of financial assets – stocks, bonds, money markets. Silver, being the main industrial metal, rose almost four-fold, per ounce, equating to a larger percent gain than gold over the past 5 years.

Basically, there are a just a few ways to go about collecting or investing in this arena. You can buy the physical metal and store it hoping it will go up in value, or you can collect numismatic (fancy word for coin collecting) pieces that have either collector value and some gold or silver content value or both. I prefer coins since that is the way I got myself started as a teenager. Of course, back then wages were low for a teenager (as they are today), so I was limited to a few silver coins and some one ounce silver ingots; gold was out of my price range. My father signed up as a silver dealer with a mining company that was riding the wave of investor speculation as silver shot to over $50 per ounce in 1980, so that helped pique my interest also. When I learned to appreciate the smallish cache of coins I collected with my money, my parents later gifted me a bag of silver dollars. During the 1940’s and ‘50’s, Las Vegas slot machines accepted them when you gambled. My Grandpa was prescient, he had kept them all those years in his Ohio home and passed them on to my Father. It was fun to sort them and look catalog their value. They dated from the 1870’s to the 1920’s. I considered it a hobby and rarely sold or traded many coins. I understood the United States’ common series of cents, nickels, dimes and dollars, so that’s what I collected.

Gold and silver have not shown us a great track record to profits over longer periods of time, however. The price rises in recent years came after a long period of suffering – gold was $850 in 1980 when the Dow Jones stock index was under 1,000. So overall, you have lost big just holding physical gold or silver the past 25 years because inflation has stripped away your profits if you had any to tally. The metals seems to trade in fits and spurts, and often rise in time of investor panic in other areas of finance (recent mortgage and banking mess). Owning collectible coins, in my opinion, has yielded better and more predictable returns over long periods of time, even coins not containing gold or silver, such as early coppers cents.

This study following that I embarked upon should show you that coins can be fun and profitable if you have some patience. I took a list of a few USA coins that I now own or wish I owned, and computed their rate of return over the past 8-9 years. Surprisingly, a collector can assemble a complete set of most American coins going back almost 100 years in cents, nickels, dimes and quarters because most dates are very common in all but the better uncirculated grades. Few exceptions exist, so I will key on those few semi-precious key dates which are still somewhat affordable today that most collectors need to finish their collection. These are coins with low mintages that are the key dates in its collection. I used the pricing at, a good and fair reference source. Shown are the date and mint of the coin, the price rise over 8-9 years, and lastly, the compounded price per year average gain, so you can measure the gains apples to apples. Coin grades used hovered around fine to extra fine condition.

1909-S Indian 1 cent, $435 to $950 in 9 years = +9%
1909-S VDB Lincoln 1 cent, $650 to $1,600 in 9 years = +10%
*1914-D Lincoln 1 cent, $425 to $1,100 in 9 years = +11%
1921-S Liberty 5 cent, $675 to $1,000 in 9 years = +4.5%
1916-D Liberty 10 cent, $1,250 to $3,000 in 9 yrs. = +10%
1932-D Washington 25 cent, $155 to $400 in 8 years = +12.5%
1884-CC Morgan $1, $55 to $235 in 9 yrs. = +17%
1889-CC Morgan $1, $440 to $2,000 in 9 yrs. = +18%

As you can see, the average price appreciation has registered around 10% or better for most of the selections. The past few years, there’s been a renewed interest in the Lincoln penny, and older Morgan Silver Dollars. Since mintages are fixed and known, once demand picks up, prices rise sometimes fast. The higher grades command king’s ransom’s of $5,000-$10,000. A rare 1804 silver dollar sold at auction this month for $2 million. Its pedigree dates back to 1950 when it traded for $3,250. That's +11.5% per year gain, also in line with the results above. My study is not entirely scientific, so I’m sure you could punch some holes in it using other coins and time frames. Coin prices move around with demand and investor interest. Also, remember, collectibles should usually not represent a large portion of your retirement assets unless you are an expert in that area. It’s difficult to hold coins and precious metals inside IRA’s for example unless they are US Mint authorized. Coins and precious metals don’t pay any dividends or interest like stocks or bonds. Lastly, as collectibles, coins, gold and even gold funds are taxed at a higher 28% capital gains rate vs. the 15% rate most stock investors enjoy. With all that aside, once you catch the collector bug, you’ll surely enjoy the process of collecting, and hopefully the financial rewards also. It’s a great hobby to pass along to your children someday, or to cash in and retire on.

If you’re the first to reply to this blog post, I’ll buy you an on-line subscription to Coin World. Get going!
* I’ve owned the 1914-D cent mentioned above for 35 years, and it’s appreciated at 7% per year, a 10 fold increase since 1974.

No comments: