BY DAVID HALL
Coins have been mediocrefinancial performers for the past few years. But the market moves in cycles, and it’s about time for rare coins to get active again. Gold and silver bullion have also been lackluster for several years, but as I’m writing this in February 2019, they show signs of awakening. With a positive bullion market and some increased buyer demand, we could definitely see very positive near-term coin market activity. Everyone should have some gold. And this is my action plan for you to own gold. United States gold coins were struck for circulation between 1795 and 1933. This was the time that the U.S. dollar was literally as good as gold, because the U.S. dollar was gold. Since 1933, the U.S. dollar has been devalued to pay for numerous social programs and wars.
1893 Liberty Head quarter eagle. (Photos courtesy David Hall Rare Coins.)
It is no longer as good as gold, because it is no longer gold-backed. But gold is still gold, and its purchasing power has soared since 1933. To protect your wealth, guard against the inevitable decline of the purchasing power of the U.S. dollar, and even pass wealth to your heirs, everybody should own some gold. How much gold you own depends on your personalfinancial position, but you should buy the amount that makes you feel comfortable. But you should buy something.
You can start by counting one, and buy a one-ounce gold American Eagle. Or you can buy several ounces. American Eagles are easy to buy and keep track of, as one coin is one ounce of gold. But from my perspective, there is a really great way to buy gold right now. In fact, it’s one of the best gold bargains we’ve seen in decades. Generic, vintage U.S. gold coins have been internationally recognized and traded for more than 200 years. When these gold coins were used as money for commerce, they traded at face value. But since Franklin Roosevelt took us off the gold standard in 1933, the premium price over both face value and gold content has gradually increased as gold bullion has increased in price in U.S. dollars in the international markets.
I’ve been trading generic U.S. gold coins since I was a young man half a century years ago. And I can tell you that one of the most important factors that all gold coin traders watch is the “premium.” This is the percentage of the price that a generic, vintage gold coin trades for over the value of its actual gold content. For example, United States $20 gold pieces contain 0.9675 ounces of gold. So if gold is $1,000 an ounce, the value of the bullion content of a U.S. $20 gold piece would be $967.50. And the percentage of price that the generic, vintage gold coin trades for over its bullion value is considered the “premium”.
1908 Liberty Head half eagle. (Photos courtesy David Hall Rare Coins.)
I’ve been watching premiums for 50 years, and they typically run anywhere from 100% to 500% or more. Now, here’s where the bargain comes in. Premiums on vintage, gold generics peaked a couple of years ago. At that time, the premium for U.S. $20 gold pieces was over 150%. But since that time, premiums on vintage, generic gold coins have collapsed. And now, you can buy U.S. $20 gold pieces for 20% to 40% over their gold bullion value, depending on grade, type, and quantity. It is one of the great gold coin bargains and at this price is one of the greatest coins in the world to own. Why have premiums collapsed? It’s probably due to the fact thatfinancial attention has been focused on the stock market, and the bullion markets have been soff and boring. Buyer demand is elsewhere.
Is the premium price that important? You bet it is, and gold traders pay very close attention. Will the premium expand in the future? Nothing is guaranteed, but the downside risk is small. ATher all, vintage U.S. gold coins will probably never sell for much less than their gold content. Which vintage, generic U.S. gold coin should you buy? I like the third-party graded Gem quality, MS-65 or better, coins. They off er true relative rarity, good collector/investor appeal and demand, and their prices are currently low relative to both premiums and all-time highs.