Best of the Week
Most Popular
1.UK General Election BBC Exit Polls Forecast Accuracy - Nadeem_Walayat
2.UK General Election 2017 Seats Final Forecast, Labour, Conservative Lib-Dem, SNP - Nadeem_Walayat
3.UK General Election 2017 Forecast: Conservative 358, Labour 212 Seats - Nadeem_Walayat
4.Theresa May to Resign, Fatal Error Was to Believe Worthless Opinion Polls! - Nadeem_Walayat
5.UK House Prices Forecast General Election 2017 Conservative Seats Result - Nadeem_Walayat
6.The Stock Market Crash of 2017 That Never Was But Could it Still Come to Pass? - Sol_Palha
7.[TRADE ALERT] Write This Gold Stock Ticker Down Now - WallStreetNation
8.UK General Election Results Map 2017 vs 2015 vs Opinion Polls - Nadeem_Walayat
9.Orphaned Poisoned Waters,Severe Chronic Water Shortage Imminent - Richard_Mills
10.How The Smart Money Is Playing The Lithium Boom - OilPrice_Com
Last 7 days
Is the Tech Stock Market Bloodbath is Finally Here? - 28th Jun 17
Crude Oil Sinks 20%: Why "Oversupply" Isn't the Half of It - 28th Jun 17
Important Money Management Tips For Teenagers - 28th Jun 17
The Coming Battery Bonanza - 28th Jun 17
Overlooked Stock Investments To Keep An Eye On in 2017 - 27th Jun 17
The Federal Reserve And Drug Addiction – A Prediction - 27th Jun 17
Charts Show Why Emerging Markets Will Be an Essential Part of Your Portfolio Going Forward - 27th Jun 17
Former Lehman Brothers Trader: I Bet My Reputation That Stocks Bubble Will Pop In A Year - 27th Jun 17
US Bonds and Related Market Indicators - 27th Jun 17
Stocks At Record Highs: Market Sentiment Still Bullish - 27th Jun 17
Stock Market Running Out of Steam - 27th Jun 17
Gold Back With A Vengeance As Bitcoin Bubble Bursts - 26th Jun 17
Crude Oil Trade & Nasdaq QQQ Update - 26th Jun 17
Gold and Silver Ongoing Consolidation May End Soon - 25th Jun 17
Dollar May Become “Local Currency of the U.S.” Only - 25th Jun 17
Sheffield Great Flood of 2007, 10 Years On - Unique Timeline of What Happened - 24th Jun 17
US Stock Market Correction Could be Underway - 24th Jun 17
Proof That This Economic Recovery Narrative is False - 24th Jun 17
Best Cash ISA for Soaring Inflation, Kent Reliance Illustrates the Great ISA Rip Off - 24th Jun 17
Gold Summer Doldrums - 23rd Jun 17
Hedgers Net Short the Euro, US Market Rotates; 2 Horsemen Set to Ride? - 23rd Jun 17
Nether Edge By Election Result: Labour Win Sheffield City Council Seat by 132 Votes - 23rd Jun 17
Grenfell Fire: 600 of 4000 Tower Blocks Ticking Time Bomb Death Traps! - 22nd Jun 17
Car Sales About To Go Over The Cliff - 22nd Jun 17
LOG 0.786 support in CRUDE OIL and COCOA - 22nd Jun 17
More Stock Market Fluctuations Along New Record Highs - 22nd Jun 17
Understanding true money, Pound Sterling must make another historic low, Euro and Gold outlook! - 22nd Jun 17
Green Party Could Control Sheffield City Council Balance of Power Local Election 2018 - 22nd Jun 17
Ratio Combo Charts : Hidden Clues to the Gold Market Puzzle - 22nd Jun 17
Steem Hard Forks & Now People Are Making Even More Money On Blockchain Steemit - 22nd Jun 17
4 Steps for Comparing Binary Options Providers - 22nd Jun 17
Nether Edge & Sharrow By-Election, Will Labour Lose Safe Council Seat, Sheffield? - 21st Jun 17
Stock Market SPX Making New Lows - 21st Jun 17
Your Future Wealth Depends on what You Decide to Keep and Invest in Now - 21st Jun 17
Either Bitcoin Will Fail OR Bitcoin Is A Government Invention Meant To Enslave... - 21st Jun 17
Strength in Gold and Silver Mining Stocks and Its Implications - 21st Jun 17
Inflation is No Longer in Stealth Mode - 21st Jun 17
CRUDE OIL UPDATE- “0.30 risk is cheap for changing implication!” - 20th Jun 17
Crude Oil Verifies Price Breakdown – Or Is It Something More? - 20th Jun 17
Trump Backs ISIS As He Pushes US Onto Brink of World War III With Russia - 20th Jun 17
Most Popular Auto Trading Tools for trading with Stock Markets - 20th Jun 17
GDXJ Gold Stocks Massacre: The Aftermath - 20th Jun 17
Why Walkers Crisps Pay Packet Promotion is RUBBISH! - 20th Jun 17

Market Oracle FREE Newsletter

The MRI 3D Report

Numismatics Are Fool's Gold

Commodities / Gold and Silver 2011 Jan 04, 2011 - 01:39 PM GMT

By: Peter_Schiff

Commodities

Best Financial Markets Analysis ArticleLast month, I addressed the hype around gold confiscation, and debunked the myth that collectible or numismatic coins would offer effective protection. But there is another sales pitch that many dealers will use while trying to "up sell" you to numismatics. They may argue that on investment merits alone, numismatics are a better bet. While this may be a more rational line of thinking than the typical confiscation con, it is bad advice for investors hoping to protect their assets in an economic slump.


Think Like A Pro, Not A Schmo

I have long urged investors to keep 5-10% of their portfolios in physical precious metals, and add even more exposure when appropriate through the Perth Mint certificate program and mining stocks. This advice, far outside of the Wall Street mainstream, stems from my view of the kind of crisis we are approaching.

Many people assume that the crash I wrote about in the original "Crash Proof" was the credit crunch of October '08. They are mistaken. Though I did accurately forecast the economic events of 2008, my ultimate prediction was that these events would set into motion a larger crash to follow. That crash, the one I have been warning about for a decade, is a collapse of the international dollar standard.

This is the crisis for which the smart money is already preparing. The People's Bank of China, Reserve Bank of India, Goldman Sachs, Barclays Capital, John Paulson, Jim Rogers, and countless other big names are all protecting themselves from a global monetary breakdown by buying gold. But are they doing it with numismatics? Among the big players, the answer is universally no.

Numismatics Are Like Stamps, Not Stocks

The reason a numismatic coin can sell for double, triple, or even many multiples of the value of the metal it contains is that a collector values the rarity and/or beauty of the coin. As an investment, it is on par with a stamp or a baseball card. Some people do make money flipping these items, but it is usually an experienced broker who can buy at a steep discount and sell at a large markup - either to a collector who takes pleasure in owning the item but does not expect to profit from it, or to a naive investor who thinks he can make money selling it on to a collector (or a greater fool).

If you are buying numismatic coins, chances are you're making a fast-talking salesman very rich at your expense.

Lies, Damned Lies, and Statistics

This salesman might have a chart showing the performance of "rare/collectible/numismatic coins" against "regular/bullion coins." Of course, the chart shows the numismatics performing much better. But these graphs inevitably track particular rare coins which are cherry-picked with the benefit of hindsight. For every one rare coin that outperforms, there could be ten that severely underperform. Only afterward would you know which coin you should have bought.

In addition, these comparisons typically measure times of relative affluence, when coin collectors are flush. The chart is likely to reverse during a recession, not to mention the inflationary depression we are likely to experience. When times are tough, coin collectors are just as broke as everyone else.

Finally, the comparisons often omit the dealer's high markups and markdowns that would more than wipe out the alleged profits for retail investors.

Buillion Gold is Money

By contrast, bullion gold is more than an investment. It something you own so you can trade locally for the stuff you need - food, clothes, a roof over your head - even if the other guy isn't a coin enthusiast. In other words, it is money. One of the characteristics that makes gold money is its uniformity - meaning each coin is the same as every other coin of the same weight. Diamonds, which are not uniform because they vary in clarity, color, etc., are not money. Numismatic coins, which vary in rarity, condition, date of issue, etc., are also not money.

Bullion gold coins will always have value to your fellow Americans, while paper dollars have less and less. As the dollar declines, the "price" of gold will continue to rise, reflecting the stable purchasing power of the yellow metal. What's more, in a volatile environment, bullion gold will carry a premium for being reliable and widely accepted money - just as the US dollar does now.


The Worst Time for Numismatics is Now

If we enter into depression conditions, numismatics may actually drop in value while the gold price rises. As I mentioned above, numismatic coins depend on the demand of collectors. Collectors are folks with plenty of discretionary income. When inflation is eating away savings and the economy is contracting, who are these mystery millionaires that are going to buy your stash of St. Gaudens Double Eagles? Chances are any collectors will also be liquidating their collections as they lose their jobs and their investments go south.

Sure, the coins' gold content will provide a 'floor' to their value that stamps and baseball cards don't have, but the gold value is typically only a fraction of the retail price of a numismatic coin. If you pay twice the bullion value to buy a rare coin, bullion could double in value and you still might not be able to sell your coin for a profit. If you buy a regular bullion coin, the gold price only has to rise the amount of the markup above spot before you profit.

Don't Buy Fool's Gold

In short: the idea of numismatic coins as investments should be put to rest, once and for all.

Gold is a commodity. Bullion coins are pre-measured units of this commodity, stamped with a design as a quick signal of authenticity. Gold is also history's most reliable form of money, which makes it a good commodity to own when the world's paper money system is in upheaval.

But just like buying an Armani suit is not an investment in wool, numismatics are not an investment in gold. The only people who should be buying numismatics are those who appreciate the coins for their aesthetic value and take pleasure in owning them, not those hoping to preserve their wealth.

Gold still has a long bull market ahead of it. It's not too late for Americans to dump their dollar for a real store of value. The key is to find a trustworthy dealer with fair markups - and avoid dealers with teaser prices on the bullion coins you want and aggressive pitches for numismatics you should avoid.

Click here for a description of Peter Schiff's best-selling, just-released book, How an Economy Grows and Why It Crashes.

Regards,

Peter Schiff

Euro Pacific Capital
http://www.europac.net/

More importantly make sure to protect your wealth and preserve your purchasing power before it's too late. Discover the best way to buy gold at www.goldyoucanfold.com , download my free research report on the powerful case for investing in foreign equities available at www.researchreportone.com , and subscribe to my free, on-line investment newsletter at http://www.europac.net/newsletter/newsletter.asp

Peter Schiff Archive

© 2005-2017 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

price hunter
05 Jan 11, 10:00
peter schiff

Thanks for posting Peter here. When He talks I (the little guy) listens. I hope Peter's name will become more and more well known among us the faceless millions of Americans who must bare the brunt of what has happened.


haney
06 Jan 11, 05:27
schiff

I like how you write in your article "although I accurately predicted the economic events of 2008" because you know you cant claim that you made accurate investment predictions. Predicting obvious thinks like the real estate bubble and banking issues wont make you money. You need to know how to make money buddy.


Adam
11 Jan 11, 12:23
haney

Accurately predicting markets makes you money mate. Schiff has made money and is telling people to hedge themselves with precious metals. It is a store of wealth, but if you do it now, it will still out perform just about everything else as we slide into oblivion. If you time it right you can transfer your gold into hard assets before the explosion. If you had of been listening to Schiff before 2008 and bought gold, you'd have what, tripled your money?


vittorio
13 Jan 11, 07:24
gold

need advise, thinking of investing in gold buying ETFs would the price be affected if the stockmarket crash.


MrSilverAG.com
18 Jan 11, 14:46
etf's

@vittorio I would the ETF's, in the end these are just paper assets and if this SHTF tomorrow, good luck cashing them in for anything. I advise people to always take physical delivery! A gold coin in the hand is worth 2 (or more) paper golds in my book


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife