Best of the Week
Most Popular
1.Are UK Savings Interest Rates Finally Starting to Rise? Best Cash ISA 2017 - Nadeem_Walayat
2.Inflation Tsunami - Supermarkets, Retail Sector Crisis 2017, EU Suicide and Burning Stocks - Nadeem_Walayat
3.Big Moves in the World Stock Markets - Big Bases - Rambus_Chartology
4.The Next Financial Implosion Is Not Going To Be About The Banks! - Gordon_T_Long
5.Why EU BrExit Single Market Access Hard line is European Union Committing Suicide - Nadeem_Walayat
6.Trump Ramps Up US Military Debt Spending In Preparations for China War - Nadeem_Walayat
7.Watch What Happens When Silver Price Hits $26...  - MoneyMetals
8.Stock Market Fake Risk, Fake Return? Market Crash? - 2nd Mar 17 - Axel_Merk
9.Global Inflation Surges, Central Banks Losing Control and Triggered the Wage Price Spiral? - Nadeem_Walayat
10.Why Gold Will Boom In 2017 - James Burgess
Last 7 days
Trump Stock Market Rally Over? 20% Bear Drop By Mid Summer? - 22nd Mar 17
Trump Added $3 Trillion in Wealth to Stock Market Participants - 22nd Mar 17
What's Next for the US Dollar, Gold and Stocks? - 22nd Mar 17
MSM Bond Market Full Nonsense Mode as ‘Trump Trades’ Unwind on Schedule - 22nd Mar 17
Peak Gold – Biggest Gold Story Not Being Reported - 22nd Mar 17
Return of Sovereign France, Europe’s Changing Landscape - 22nd Mar 17
Trump Stocks Bull Market Rolling Over? You Were Warned! - 22nd Mar 17
Stock Market Charts That Scream “This Is It” - Here’s What to Do - 22nd Mar 17
Raising the Minimum Wage Is a Jobs Killing Move - 22nd Mar 17
Potential Bottoming Patterns in Gold and Silver Precious Metals Stocks Complex... - 22nd Mar 17
UK Stagflation, Soaring Inflation CPI 2.3%, RPI 3.2%, Real 4.4% - 21st Mar 17
The Demise of the Gold and Silver Bull Run is Greatly Exaggerated - 21st Mar 17
USD Decline Continues, Pull SPX Down as well? - 21st Mar 17
Trump Watershed Budget - 21st Mar 17
How do Client Acquisition Offers Affect Businesses? - 21st Mar 17
Physical Metals Demand Plus Manipulation Suits Will Break Paper Market - 20th Mar 17
Stock Market Uncertainty Following Interest Rate Increase - Will Uptrend Continue? - 20th Mar 17
Precious Metals : Who’s in Charge ? - 20th Mar 17
Stock Market Correction Continues - 20th Mar 17
Why The Status Quo Is Under Increasing Attack By 'Populist People Power' - 20th Mar 17
Why the SNP WILL Destroy Scotland, Exit UK Single Market for EU - IndyRef2 - 19th Mar 17
Crypto Craziness: Bitcoin Plunges on Fork Concerns, Steem Skyrockets and Dash Surges Above $100 - 19th Mar 17
What ‘Ice-Nine’ Means for Your Money - 19th Mar 17
Stock Market 4 Year Cycle - 18th Mar 17
The Only Article You Need to Read to Understand the Trump Phenomenon - 17th Mar 17
Janet Yellen Just Popped the Stock Market Bubble - 17th Mar 17
Financial Crisis, Steve Eisman: Smart, Lucky, Abrasive & Now One Of Them - 17th Mar 17
Gold Cup – Horse Racing’s Greatest Show, Gambling and ‘Going for Gold’ - 17th Mar 17
Trader Education Week - Free Event to Help You Learn to Spot Trading Opportunities - 17th Mar 17
$1.4 Trillion of SPX Notionals Due to Expire - 17th Mar 17
Preserving Order Amid Change in NAFTA, U.S. Sovereignty v. WTO - 17th Mar 17
3 Maps That Explain Why Syria Raqqa Battle Will Drag On - 17th Mar 17
Crude Oil Price Outlook 2017 - Video - 16th Mar 17
Dutch and French Electons - Winners are Losers and Left is Right - 16th Mar 17
The Straddle Trade Stock Market Brief - 16th Mar 17
Gold Up 1.8%, Silver Up 2.6% After Dovish Fed Signals Slow Interest Rate Rises - 16th Mar 17
Stocks Get Close To Record High Again As Fed Hikes Interest Rates - 16th Mar 17
Scotland Second Independence Referendum War - SNP Determined to Destroy the UK - 16th Mar 17
Here’s How Pharma Is Using AI Deep Learning To Cure Aging - 16th Mar 17
Stock Market Chaos in the Chicken Coop - 15th Mar 17
Gold and Silver Price Manipulation: The Biggest Financial Crime In History - 15th Mar 17
“Ryancare” Dead on Arrival: Can We Please Now Try Single Payer? - 15th Mar 17
Fanaticism, Stock Market Crash 2017 or Continuation of Bull Market - 15th Mar 17
Stock Market Most Overvalued On Record — Worse Than 1929? - 15th Mar 17
Desperate Saudi Arabia Turns to Asia for Investment - 15th Mar 17
Startups Will Define the Future of US Employment - 15th Mar 17
Fed Rate Hikes, Fiscal vs. Monetary Policy and Why Again the Case for Gold? - 15th Mar 17
SNP Declare Scotland to Commit Economic Suicide Early 2019, 2nd Independence Referendum - 14th Mar 17

Market Oracle FREE Newsletter

Elliott Wave Trading

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

© 2005-2016 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