Rare Coins: My Favorite "Old Money" Investments

by Mark Skousen

Rare Coins: My Favorite "Old Money" Investments

by Dr. Mark Skousen, Chairman, Investment U

Monday, October 10, 2005: Issue #476

"In the absence of the gold standard, there is no way to protect savings from confiscation through inflation." Alan Greenspan, 1966

One of the things every investor quickly discovers is that there are no sure deals or "can't lose" investments in this wild and wooly world.

There is always risk in the marketplace. Always.

The key to success is to weigh the pros and cons of every investment, and determine the prospects of success.

I remember a time when we were told that old rare coins were a "guaranteed" moneymaker. During the 1970s and 1980s, Salomon Brothers published an investment index that showed that the price of rare coins had never declined.

During this time, Harry Browne appeared in an ad on the Howard Ruff Show holding a silver dollar, and declared, "They aren't making any more of these"

But limited supply isn't the only determination of price. Demand is also important, and demand for collectibles fell sharply after 1989.

The Professional Coin Grading Service produces a long-term rare coin index: the PCGS 3000 Index (www.pcgs.com). As you can see in the chart below, for the past 10 years, rare coins have had their ups and downs. Right now, they are enjoying a major bull market, though they have a long way to go to match the dizzy heights of the late 1980s.

Rare Coins and Their Long-Term Trend Upward

The PCGS3000 Index Reveals an Upward Trend in Rare Coins

(Source: http://www.pcgs.com/coinindex/index10graph.chtml)

Now Is a Good Time to Buy "Old Money"

I've always had a fascination with historical coins and currency, and now is a good time to buy. Old money is hot!

I recommend you buy coins you actually enjoy owning and learning about. For example, several months ago I bought two Roman coins for my wife. She teaches Sunday School, and was thrilled to receive as a birthday gift coins with the image of Caesar Augustus, the Roman emperor who ruled in the New Testament period.

One day, she passed around the coins to her class, and everyone was fascinated to hold coins that existed in Jesus' time. She told the story of when Jesus was asked if it was okay for Jews to pay taxes to the Romans. Jesus asked to see a coin. "Whose image is on the coin?" he asked. "Caesar," they said. Then Jesus declared famously, "Render unto Caesar the things that are Caesar's and unto God the things that are God's."

Roman coins sell for several thousand dollars apiece, depending on condition and rarity. (At a sale of Roman gold coins in May in Zurich, some top-quality coins sold for double their estimates.)

Valuable Coins, Valuable Lessons

Last year, I taught a class on Money and Banking to 120 students at Columbia University. I spent some time educating them on the origin and mysteries of money, and why paper money has value today - even though it's not redeemable in gold, silver or other assets.

The great Austrian economist Ludwig von Mises answered this puzzler with his "regression theorem." Un-backed paper money has value today because it used to be backed by gold and silver - until we went off the gold standard in 1933 and the silver standard in 1964. I drove home the point by giving each student an 1881 uncirculated silver dollar.

Why 1881? Because it is the date that Ludwig von Mises was born.

I buy "Morgan" silver dollars in rolls of 20 - in uncirculated condition - and give them to friends and relatives as gifts, and sometimes as tips for a job well done.

The Rare Coins I'm Buying Now: Unusually Good Deals for Extraordinary Currency

Lately, I've been buying the 2005 American Eagle Silver Dollars, which are slightly larger than the Morgans, and have exactly one troy ounce of silver in them.

  • The American Eagles cost less than $10 each - a real bargain.
  • Common dated Morgan silver dollars in BU condition sell for less than $30. (Lately, rare coin dealers have been hoarding the Morgans and repackaging and selling them on television, thus driving up the price. Buy them now before it's too late.) Your best bet is to buy high quality coins.
  • I also love to collect gold coins, especially the Saint-Gaudens Double Eagles and the foreign gold bullion coins, such as the Mexican 50 Peso, the Canadian Maple Leaf, and the Vienna Philharmonic (with musical instruments on one side and the opera house on the other).

As you can see, you do have some choices when it comes to investing in rare coins. But do be sure to buy high-quality coins, whichever ones you choose. In terms of where to buy them, see today's Investment U Crib Sheet below.

Good trading, AEIOU,

Mark

Editor's Note: Our recent report shows you why silver is the precious metal of choice right now. Plus, 5 ways to buy it. Full story.

Today's Investment U Crib Sheet

  • Where to buy investment-grade coins? Here are a couple of my favorite coin dealers. Both names should be familiar to long-time Investment U readers, as they are also the favorites of Dr. Steve Sjuggerud, too. David Hall Rare Coins, 1.800.759.7575, www.davidhall.com.

    Camino Coins, 1.800.348.8001, or 650.348.3000

  • Publisher's Note: Mark Skousen and Investment U were recently cited in a USA Today article - "Gold profits from war, storms."

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