Investment Grade Coins

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Investment Grade Coins: How to Turn a 4-Dollar Investment Into Serious Coin

By Dr. Steve Sjuggerud, President, Investment U
Thursday, October 30, 2003: Issue #285

As you probably know, I’ve been recommending ‘investment grade’ gold coins for months now and prices have been rising steadily. But these coins are still cheap – off 75% from their 1989 highs.

Today we’ll go way behind the scenes inside an actual gold and silver vault inside the numbers. And we’ll find out firsthand just what makes gold (and specifically, gold coins) such a great opportunity right now.

Yesterday, I spent two hours face-to-face with a leading expert in the rare coin market. Paul Montgomery, the president of Bowers and Merena Galleries (one of the major coin auction houses) was kind enough to show me his business from the inside out including how he (and coin dealers in general) make money

Security was high, as you might imagine. But once inside, Paul was an open book

Inside the Coin Dealing Business – Way Inside

I hadn’t seen a business like this one before. There were many things that might seem strange at first glance. For example, why does a coin dealer need a photo lab with at least three full-time photographers?

I’ll answer that The photographers are taking pictures of coins for upcoming Bowers and Merena auctions. You see, for each auction, each coin is photographed and put in the auction catalog and on the Internet. We’re talking thousands of rare coins.

There was the vault, where two folks were working. And the room next to it, a few folks were busy cataloging coins for an upcoming auction. Then there was the customer service area, where a small group answered inquiries about upcoming auctions and sold coins to individual investors like you and me.

How Rare Coin Pricing Works Or Works You

Buying a rare coin or an ‘investment grade’ coin is not like buying a stock. You can’t click your computer mouse and have it in your account a few moments later. In my experience, the transaction process can take weeks, even once you’ve settled on a price.

Ah, price. Again, like the stock market, there is no easy price quote. Even with Paul’s sophisticated computer software, many of the quotes he had on his screen I knew were unreliable

For ‘retail’ price quotes, his quotes were from Coin World Trends and from Coin Universe. I know these quotes are not updated frequently enough to be useful, and are usually higher than what you’d really pay.

For ‘wholesale’ dealer quotes, his screen showed prices from the Greysheet and the Bluesheet. These prices are much more accurate, but for whatever reason, they seem to be two weeks behind the market. There were other quotes as well, from dealers.

Looking over Paul’s shoulder, I could also see the markup he charged above dealer prices. In extremely common coins (bullion-type coins) the markup is negligible – a couple of percent. Hardly worth dealing in, to me. In semi-numismatic coins (coins that are old and collectible and uncirculated condition, but are still widely available to dealers), the markup may be 10% or 15%. And in extremely rare coins in extremely high grades, the markup can be 30%.

I don’t know if it’s this way for all coins. But the coins we looked at followed this pattern. So if you want a ballpark price for a coin, before you call a dealer, spend four bucks – buy a Greysheet (see today’s IU Crib Sheet below for instructions).

If you’re buying a semi-numismatic gold coin (one under $1,000), add 10% to the Greysheet price. If you’re buying a prized rare coin, take the Greysheet dealer price, and add 25%-plus to it. That should give a rough indication. If a dealer is way off of that price, get a quote from another dealer.

A Coin Dealer’s Strategy And an Investor’s Opportunity

One way Paul earns a profit is markup. As detailed above, he makes less on a common coin than on an extremely rare one. The other way is through auctions. If an estate wants to sell its coin collection, for example, Paul sells the collections at his next auction, and collects a 15% fee from what he sells. That’s basically it.

Now you know how it works from the inside You know how a coin dealer like Paul makes money, and you know how to find out the ballpark price ahead of time (using the Greysheet). Now some dirty coin dealer out there won’t be able to take YOU to the cleaners.

And isn’t that worth four bucks?

Good investing,

Steve

Today’s Investment U Cribsheet

To purchase a Greysheet, like the one I mention above, simply to go www.greysheet.com and follow the instructions you’ll find there. This will get you started on the road to understanding prices in the gold coin world.
For more information on investing in gold and rare coins, you can also check out Paul Montgomery’s company Bowers and Merena Galleries by visiting www.bowersandmerena.com.