Gold Coins: How To Determine Their Real Value & Find The Best Prices

by Dr. Steve Sjuggerud

Gold Coins: How To Determine Their Real Value & Find The Best Prices

By Dr. Steve Sjuggerud, Chairman, Investment U

Friday, September 12 2003: Issue #272

Gold coins are incredibly cheap today - they're down 80% in value over the last years, according to the CU 3000 Generic Gold Coin Index (at www.pcgs.com).

And that's music to the ears of readers who recall Investment U  #219 "Why Coins Are Attractive Now." . That's where I shared the triple-digit profit potential available in gold coins. For those who don't remember, it discussed the last three bull markets for gold coins, when the CU 3000 Index alone offered investors the chance to take profits as high as 348%, 665%, or 1,195%.

So today, I'd like to explain the basics of coin industry's lingo - specifically how to size up the real value of a gold coin.

So why bring it up again? Because I'm convinced that the next bull market for gold coins is right around the corner. And that's what I told my readers. Unfortunately some of the coin lingo left my readers confused it's seems that most people are not familiar with coin terms, like "PCGS" and "MS65." But they should be, especially if they want to be one of the investors who score triple-digit profits from the coming gold coin bull market.

The Real Determinants Of Gold Coins' Value

The value of a gold coin really comes down to intrinsic value (gold content) and collector's premium.

  • Intrinsic Value: If you melted a gold coin down, this is the value of the gold content.

Before 1933, when gold coins were in circulation, the price of gold was set at $20.67 an ounce. So if you think about it, a gold coin from that time, called a "$20 gold piece," contained nearly an ounce of gold. A $10 gold piece contained nearly half an ounce of gold, a $5 gold piece contained nearly a quarter ounce of gold and so on.

So today, as a rough rule of thumb, if gold is at $400 an ounce (it's currently around $375), then you can talk about the intrinsic value of a gold coin like this:

  • A $20 gold coin has almost $400 in intrinsic value
  • A $10 gold coin has almost $200 in intrinsic value
  • A $5 gold coin has almost $100 in intrinsic value
  • A $2.50 gold coin has almost $50 in intrinsic value
  • A $1 gold coin has almost $20 in intrinsic value

So let's take a random U.S. gold coin - a $5 "Liberty" from the late 1800s and early 1900s. If it sells for $175 right now, how much of that is REAL gold value, and how much of that is something else?

Well, at current gold prices (around $375), and according to the table above, a $5 gold coin has about $100 of intrinsic or REAL gold value. That leaves about $75 in another type of value. That's what's know as the collector's premium.

But what are the things that make up the collector's premium?

  • Collector's Premium: This is the value of the coin's quality/grade.

At $175, this coin is a good quality coin. By that I mean that it has been graded by one of the two major coin-grading agencies Professional Coin Grading Service (PCGS) or Numismatic Guaranty Corporation (NGC), and it has been sealed in a clear plastic case (so you can't hold this coin in your hand). If this particular coin was a "raw" coin and hadn't been graded for quality and sealed, it might cost you $125 or so.

At a price of $175, this particular $5 Liberty gold piece graded at "MS60" on the grading scale. To explain what this means, "MS" simply means "Mint State," and a range of "60" to "65" is assigned, with 65 being the top or pristine quality. So, MS60 denotes that it that particular coin was the lowest-quality, mint state coin.

To give you an idea of how prices can differ, if that $5 Liberty graded at MS63, it could fetch $600. A MS64 quality coin could fetch $1,000. And a pristine quality (MS65) coin could go for over $2,500.

Why the big price differences? It comes down to rarity and popularity

  • Rarity/Popularity: Rarity pertains to how many of each coin (in a specific condition) exist. While popularity refers to how a particular coin is viewed by collectors.

To give you an idea what constitutes coin rarity, PCGS has only graded 808 of these $5 Liberty gold coins at the highest-quality grade (MS65). So highest quality $5 Liberty coins are somewhat rare.

But this is a tough category to call. As a rough rule, of course the rarer the gold coin, the more it is probably worth. However, popularity among collectors plays a part as well, and these fads can change. We can't mathematically track beauty. But we can track the population of a coin how rare it is in a certain quality

Both grading services, PCGS and NGC, offer "Population Reports" or "Census Reports" to tell us how many coins they've graded of each type in a particular grade. NGC's census report is free at www.ngccoin.com. So it is relatively easy to check on the popularity/rarity of a coin. Many sources also list the quantity of a coin minted, including the popular "Red Book" (A Guide Book of United States Coins by R.S. Yeoman), which is super-cheap at Amazon.com, I've provided a link to it below.

There are many price guides available out there. For free retail coin prices online, you can visit www.pcgs.com, and click on "Daily Price Guide." These are "retail" prices. After a little homework, you'll find that nobody pays "retail." You should easily beat these listed prices by at least 10%. For a more accurate prices, the Greysheet (www.greysheet.com) gives me dealer prices, but it's not free - and you won't pay what the dealer pays. Just make sure you're beating the www.pcgs.com Price Guide price by at least 10%.

Gold Coins: 5 Steps Toward Making Sure You Get The Best Price

Before you set off to buy a coin, arm yourself with as much knowledge as possible. With $40 and a little time, you can prevent yourself from making big mistakes. Here's what you should do:

1. Read our first Investment U  (#219) on investing in coins.

2. Buy the book "Coin Collecting for Dummies," by Ron Guth. It's the best book on the topic out there - even if it is a "Dummies" book. You can buy it here by visiting: http://www.amazon.com/exec/obidos/ASIN/0764553895/theoxfordclub/

3. Read a good deal of "The Coin Guide" by Q. David Bowers at www.PCGS.com. It's a free online book from one of the big names in the industry. And it's very good. Read the section on grading to better understand terms like "MS63."

4. Consider buying the "Red Book" (the retail price guide) or the "Blue Book" (the dealer price guide) or both as a handy reference. They give a short explanation about each coin, a rough price indication, and the number of coins of that type that were minted. Click below to buy them:

Red Book: http://www.amazon.com/exec/obidos/ASIN/1582381909/theoxfordclub/

Blue Book: http://www.amazon.com/exec/obidos/ASIN/1582382018/theoxfordclub/

5. After you've done all that, find a reputable dealer. I'll put a list of them up on our web site in the next week under "Financial Resources."

That's it you're off to the races you should know enough at this point about coins to determine if they're appropriate for you. And if they are, then get ready because I do believe we're just about ready to head into a new bull market for gold coins

Good investing,

Steve

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