What are fair bullion coin premiums

I want to invest in and collect assets the value of which will persist for generations. One asset I'm interested in is precious metals bullion. I favor coins to bars because I believe their currency and recognition make their liquidity more likely to persist in the long run, whereas some bars are more likely to be subject to assay costs and other scrutiny. I would consider numismatic value if I think it is likely to persist in a possibly vastly different geopolitical landscape. I hope that gives some idea of my objectives.

I have been considering the bullion coins from the more popular mints: the eagle, buffalo, maple leaf, krugerrand, philharmoniker, sovereign and so forth. Because I expect to hold the coins for a long, long time, I don't value dealer's buy discounts (my selling premiums), except where they charge buy premiums or buy them back of spot because of problems with the coins. I am even more concerned about dealer's sell premiums, some of which seem extraordinarly high right now.

Assuming we don't have a collapse of the monetary system in the next few months, metal prices themselves won't go astronomical and I expect dealer's sell premiums to come back to some kind of normal. So my question is, what is normal? or what is fair?

From my research, it seems that a fair premium for one ounce gold coins is around 4.5-5%, but premiums now are often higher than 8%. Quarter-ounce gold coins have much higher premiums, but the Sovereign seems to have by far one of the lowest premiums for small gold coins.

Silver coins from the big mints seem to have exhorbitant premiums even in times when demand is more normal, and today they're carrying premiums well over 50%. How that is tenable I have no idea, especially considering that dealer's buy discounts are nothing -- apparently only the mints or dealers can make any money from the non-metal based value of these coins, or those who can find a sucker.

So my question is what are fair bullion coin premiums in a "normal" market? I'm especially interested in silver coin premiums because gold isn't half as ludicrous right now. I want to buy good silver coins without wasting money on hype. What should their premiums be when the dust settles?

 

Log in or Sign up to hide this ad.

I would say that if you expect to hold the coins for a long long time, the premium becomes less important. Check around for three or four sources you trust and take the cheapest. Premiums are very high now, as you point out, but it is just as likely that the spot price will rise as it is that the value of the bullion falls, so you may not come out ahead by waiting for dealer premiums to normalize.

The American Eagle gold and silver coins might not be the cheapest of the bullion coins, but they are probably easier to resell for a smaller discount than the others. Another thing to consider is that the American Silver Eagle series in particular may develop numismatic value someday if/when the US Mint decides to discontinue them. They are very popular but not yet scarce.

 

As Mr. Sweeper said, the whole world is upside down.

If you are interested in "long, long, long" term, why is the premium important? The value will "persist for generations", so what's a few percentage points?

Basically, if that's your philosophy, you can buy anytime. If you're out to make a buck, wait (obviously).

 

I would just comment that waiting is not "obviously" the best strategy. It is just as likely for the spot price to rise as for the bullion coin price to fall. And I'm not suggesting that the premium should be ignored, only that after shopping around, whatever the best available price is at any time is sufficient. Everything else is guessing.

 

I am working on such a collection myself and I have been for about 20 years.
Don't make the mistake of buying common modern bullion, the rewards come from buying old gold (pre 1933). I would recommend collecting Type I, II, III double eagles and finish it off with a set of Saint Gaudens $20 gold pieces.

If/when you obtain a complete set, you can spend the rest of your life trying to upgrade the lesser examples if you can afford it.

That will truely be a generational collection and will increase in value exponentially.

Enjoy.


Type I: http://www.usrarecoininvestments.com/coin_articles/liberty_head_type_1_in_history.htm

Type II : http://www.coinresource.com/guide/photograde/pg_$20CoronetT2DoubleEagle.htm

Type III :http://www.tulving.com/$20type3.html

 

I appreciate the responses, but it doesn't seem sensible that the premiums are unimportant over the long term. The premiums on silver eagles can be 80-90% these days - but I should just ignore that because I'm buying for the long term?

It seems to me that it is the short-term speculators that expect silver prices to double again the way they did over the last couple years, and they seem to expect it at any moment. Silver was below $10 for many, many years and it's 200 day moving average was above $10 for a very short time. Spot is now below $10. Why on earth should I pay $15 for a coin that has zero numismatic value? The only answer is "speculation." I am not a speculator.

From my research, I have seen that Silver speculation has been hot for a couple years now, but when silver's 200 day MA broke $10 in 2006, Eagles were selling for a 10% premium. If speculators had rightly predicited the spot price would double in two years, the premiums they were paying didn't reflect it.

The value of the dollar hasn't plummeted since 2006. If Eagles sold for $11 then when silver spot prices were similar to current, it seems that price reflects a fair premium. In 2004-2005, silver spot prices mostly stayed below $7, and Eagle prices were about 15% higher. So it follows that upwards of $15 - a 60% premium is a royal rip-off.

 

>Don't make the mistake of buying common modern bullion, the rewards >come from buying old gold (pre 1933).

I'll consider your advise, but I'm wary of numismatic values. In essence, they depend entirely on a form of nostalgia. The supply has an absolute limit and that understandably contributes to the price equation, but it assumes there will be demand. Gold itself has a several thousand year track record of demand. US coins do not. I also believe that the numismatic value of US coins is strictly limited geographically. There are exceedingly few people in Vietnam, Egypt, or Guatamala that would pay above spot for them. 200 years from the now the geopolitical landscape could very easily be as different as it is from California to Albania.

Why coins at all then? Why not just lumps of metal? Because they are recognized currency. Doubloons were common bullion. If I showed you a Doubloon, you would immediately have an idea of exactly what it is. You would assume it fit your standard concept of a doubloon, but you'd want to test it to see if it was genuine. Whereas with an unrecognized bar, you'd have nothing to base your expectations on -- you'd assume the worst.

Now the various kinds of doubloons certainly have numismatic value today -- but will today's semi-numismatic coins have anything more than melt value in a quarter millenium? It seems to me that the legacy of the US is that it rejected gold coin and money. If I were 250 years in the future and found myself nostalgic about the US, I might not be interested in gold coins which were nothing but an obscurity in its history. On the other hand, melt values might be even lower if they are able to synthesize gold with low-cost nuclear fusion.

 

Then I suppose this begs the question....do you plan on being around in 200 years to worry about selling these bullion or numismatic coins? If not, I don't really see where your point is going.
Guy~

 

Why not collect the Morgans and Walking Liberty halves....Franklins? These have held value during these turbulent times and even before. Besides, there is a bit of history versus the modern bullion. By the way...I collect them all. Am in this for the long term...grandchildren. And yes, premiums must be paid for the truly nice coins.

 

I would just urge you to consider that you may be making the analysis error of assuming that the spot price is somehow the correct price and that the physical bullion coin price should be priced at some small premium to it. The spot price is derived from the NYMEX/COMEX where futures contracts are traded. Those contracts are largely settled in cash. Lately, there have been massive silver and gold short positions rolled over from month to month that essentially never get settled. You have to deal with what is, not what you want it to be. I suspect that by the time the spot price and coin prices converge again, both prices will be higher than now. Where will that leave you? Buying at lower premiums but higher prices than now exist. Personally, I think that any price below $20 for a silver eagle will look incredibly cheap ten years from now. Perhaps it is easier for me to accept this because I expected the bullion coin and spot prices to diverge and have been saying so for several years on CoinTalk. When silver was $5, I bought silver eagles for $6-$6.50, which was a huge percentage premium that is completely irrelevant now.

It also isn't correct to state that the dollar hasn't fallen in value. Even using the rigged CPI the value is lower now than two years ago. This seems almost certain to continue and accelerate. The dollar index is a joke because it compares the value of a fiat dollar to the value of other fiat currencies -- hardly a true measure of value.

You say you aren't a speculator, but use technical analysis tools like the 200 day MA to make decisions. I would respectfully suggest that you are much more of a speculator than you think, and you might want to rethink your purchase. Bottom line is that you aren't going to buy any one ounce silver eagles below $10 now or possibly ever unless there is a massive deflationary depression.

Keep in mind that this is only my opinion but is my best thinking on the subject. Everyone has to make their own decisions, but I hope this helps.

Edit: In the middle of your post you indicate that $15 is too much to pay for a coin with no numismatic value. First of all, many ASEs already have some numismatic value. The day the US mint announces the end of the series, all of them will jump in price. And $15 is a great entry price for the ASE if you can get it. Remember, coins are probably the highest and best use for silver and should always sell at a premium to bullion prices because the weight and purity is know without the need for assay.

 

It's hard to keep my mouth shut. I agree with you Couldsweeper99 and GDJMSP. I find it hard too believe that 'bkm' is in it as a collector. He definately talks like someone looking to make a buck when PM's rise in price which will happen soon. Any gold or silver coins that are purchased now regardless of premium will increase in value greatly next year. So why complain and go spend or head off 'bkm' and make your buck next year. It is my opinion that you are in the wrong forum. ZEKE!

 

First of all, I want to admit that I haven't put much thought into this yet. I've only recently began to consider bullion or numismatic coins. I see some merit to each, and some drawbacks as well, but my thoughts on them are immature -- everybody starts somewhere.

I do realize that many people are expecting silver to shoot for the moon at any moment, but the dollar is strong right now not only in comparison to other fiat currencies, but also the PM's. There is deflationary pressure (in the Keynsian sense) and virtually all the commodities are depressed from artificially high bubble values of the last few quarters. I do realize that the central banks are pulling out all the stops to reinflate asset prices, and the chances of those monetary policies spilling the effects of excess money supply into the prices of everything else (inflation).

If I were a speculator, I would be better off with shares of a silver ETF like SLV -- at least in the short term until the whole market were put at risk of insolvency. The fees to speculate on metal this way are far lower than in bullion. But frankly the cost of preparing to "survive" the "big one" is high compared to its imminent probability. You could say I am speculating -- I'm betting that the world economy is going to survive and we'll see a depression in PM's that outlasts a lot of the bugs trying to hit it big when the world melts down. If it does, their PM hedges won't come close to covering their losses anyway.

The bottom line is I don't want to get ripped off because of the panic -- look what happened to people on Y2K. That was a rip off.

Now I've thought for a few minutes on numismatic investments. I don't want to bait flames or hurt any feelings now. I've only thought for a few minutes mind you, so take it with a grain of salt. I realize that numismatic appreciation can be astronomical with some coins accumulating annual returns in value of hundreds of percent over many decades running. But what is the real track record in history? Today, antiquities are also valuable -- say Roman coins or something from ancient China or Egypt -- but how were they valued at other times? Did the Romans assign terrific value to Egyptian artifacts or was it just old junk? The Renaissance might have fostered a nostalgia for the old days, but the whole Dark Ages was a long period of history where only a few povertous monks were interested in collecting old debris. The bible records thousands of years of history but I can't think of a reference to the kind of sentimental value of ordinary objects that modern numismatics represents. Isn't it true that the bulk of coins with numismatic value are hardly extraordinary?

Renaissance aristocracy and the nobility of the past had coin collections, but their collections were significant because of their antiquity and not the subtle nuances of modern numismatics with its varieties of mass-production classes, minting errors, the results of progressive die wear, and logs of total mintage figures. King Louis XIV would have a keen interest in coins from Pharoah's treasury, but he would find modern numismatics a dreadful bore stemming from nothing other than the the mania of the industrial monetary system's version of gongoozlers.

 

I think the wrench that has been thrown into the works is this idea of "what will be of value in hundreds of years".

This reminds me of the poeple who get on the threads about what the price of silver will be in a year and say "I'm in for the long term. I bought back when it was $4/oz". Yeah. Well, you're an idiot. You should have sold it when it was $8/oz or $12/oz or $18/oz. You don't get interest from PM's.

I cannot believe silver will have any particular value 250 years from now. I imagine you will be able to make whatever you want (including silver) in your kitchen.

If your goal is 250 years from now, you do that in steps, not in one giant leap. So this "millenium" business is a bit absurd and very difficult to respond to intelligently.

 

Now this is an interesting statement. If someone bought silver coins at $4 six or seven years ago and held them, they would hardly be an "idiot" compared to someone who sold at $8. I know that Pocket is brilliant in his timing and buys exactly at the low and sells exactly at the high every year with unfailing accuracy while adroitly avoiding the bid ask spread through superior negotiation skills. But a few others of us out there have different techniques and goals. I have an old Bluebook from the 60s where morgan dollars in uncirculated condition were listed for $1.50. ASEs were $5 not that long ago and $8 even more recently. As long as inflation persists, the long term trend has a high probability of being up for silver coins of all kinds.

 

I apologize. My point was missed. However, I DO wish I could pick the highs or lows.

My point. You don't just sit on something for 250 years - or at least, it's a bit difficult to give someone advice about what will be hot in 250 years!

More to the point. In 1975, average cost of silver was about $4.50/oz. My assumption is that you have a "price" at which you will sell - doesn't matter if you don't hit the "peak". That's probably where I took the wrong turn at the fork in the road....

Then with the money you just acquired, you re-analyze all your possibilities and put the money into what looks the most promising. Once again, you have a goal. It could happen in 2 months, 2 years or 2 decades.

Can you get it wrong? Yup. But you can get it wrong the first time and fiercely hang on until your holdings have much less value - because you're "long term".

Concerning Morgans at $1.50 in the '60's. Do the math. The return isn't that great. The few exceptions are the really "hot" keys like the 16D's of the world. It would have been better to have a Certificate of Deposit in a bank over all those years rather than investing in about 99% of the coins.

I guess I just see so many people say it in a way that the phrase "long term" will make everyone knowingly nod in agreement without thinking of alternatives.

 

If the $1.50 uncirculated morgan is worth about $30 now, it was approximately a 7% annual return over 40+ years without doing anything except owning a collectible with no investment characteristics. This is a reasonable preservation of purchasing power for a passive approach to just owning something that is a decent inflation hedge. And you are correct that if anyone had the ability to get out when silver prices went crazy in 1979-80 and get back in a few years later, the return would have been much better but perhaps unlikely since many people have trouble selling things that are rapidly appreciating in value.

The 250 year view doesn't really concern me; but I don't consider today's silver prices to be particularly high relative to everything else.

 

So, it seems we've come full circle here and the old "don't invest in coins" makes a lot more sense now. I'll use that as my final answer. Invest in stocks....thats why they're there. Coins are for spending and collecting.
Guy~

 

Except that since the mid-60s the stock market is up about 9 times in value while the morgan dollars are up about 20 times in value. Of course the morgans don't involve dividends, commissions, taxes, accounting fees and Schedule D's on your tax return with all of the plusses and minuses that entails. It would be foolish to put all of your money in silver coins. It isn't foolish to put some of your money in silver coins. There is no simple answer and a lot depends on exactly what you buy and when. People who bought silver at $50 and the NASDAQ at 5,000 are unhappy. People who bought silver at $4 and Google at $85 are happy. :thumb:

 

Howdy BKM,

First of all, you need to read and re-read both Cloudsweeper and GDJMSP.

Right now there is an extreme divergence between the paper price of bullion and the street price. This is being reflected in the enormous premiums on some popular bullion items. It's also resulting in some supply shortages here and there. This is abnormal. Whether or not it's Fair has nothing to do with anything.

There are a lot of different ways to acquire and accumulate bullion. However, most of the differences are a matter of taste. If you're simply wanting to set aside a stash of bullion than you want to buy stuff with the smallest premium and generally that's ingots and plain vanilla rounds. It's NOT official coins. The next step is to buy official coins but stay with those with the smallest premium like the krugs and phillies and leafs. It is NOT eagles or buffalos. Eagles and buffs are nice because they're american and fungible and that's a lot of the reason for their higher premiums. Next would be older US gold but of the generic type w/o any significant numismatic premium. This would be Saints and Liberties and should be slabbed and probably MS-63 or better - just common dates.

Now, as mentioned, the market right now is extremely weird and none of use are going to change it. What you may consider is to slowly Dollar Cost Average you purchases so as to dampen any nasty up and down swings. This should also help to dampen the nasty high premiums - over time. For example, each month you would spend a specific dollar amount and buy whatever bullion you choose. If the price goes down, you should get more - if it goes up you get less. Over time, it should average out.

good luck,

rono