By Dana Samuelson and Dr. Bill Musgrave
As the gold and rare coin markets have been heating up, legions of new investors and collectors have been entering our marketplace. That’s wonderful news! When purchased intelligently from a reliable dealer, rare coins can be a superb investment and collecting them a supremely enjoyable pastime. Unfortunately, we’re hearing reports about some shoddy practices on the rise among some dealers. Many of these practices seem sensible enough on the surface but they’re designed to take advantage of uninformed investors. The purpose of this article is to alert you to some of the most common numismatic canards, or falsehoods, now circulating in the market. Once you know what to look for, these misleading tactics are easily avoided.
Like coins themselves, all coin dealers are not created equally. Although many dealers are extremely scrupulous, others place their own profits above the interests of their customers, bending the truth to the detriment of the entire industry. Because coin dealers are all independent operators doing business in an unregulated industry, it’s important to know who you’re dealing with. In reality, some of these so-called dealers aren’t genuine rare coin dealers at all, but merely marketing companies that happen to be selling precious metals and rare coins. Their goal is simply to move as much product as possible by whatever means necessary, and often at inflated prices. Unfortunately, they give the rest of us a bad name.
Here are several classic examples of marketing schemes now afoot in the marketplace. If you run into one or more of these canards, your “dealer” is, most likely, simply trying to separate you from your hard-earned cash. Our advice is to hang up and call someone you can trust!
Canard #1: “Building a set enhances your investment.”
Some dealers will try to talk you into building a “set,” or a mini-collection organized around some unifying theme. Among the more commonly pushed sets are the "eight coin U.S. gold type set” and the “$20 Liberty gold coin type set.” The unifying theme of sets might seem quite reasonable, but in most cases the real goal is simply to sell you more coins.
The hook used by dealers pushing sets is the claim that a complete a set will increase the value of all coins in the set. In most cases, this claim is an absolute canard. The only sets that truly enhance the market value of the coins that comprise them tend to be very expensive, time consuming, and difficult to build. Typically these sets would make any seasoned collector's mouth water because of the quality and scarcity of the included coins. The added value of a set like this represents the immense time, effort, and expertise -- not to mention investment -- required to locate and assemble the individual coins.
For example, we’ve been building a very special proof set for one customer for more than seven years now. We add to it whenever the right coin comes into the market, which is seldom, and we’ve passed up hundreds of coins over the years because they didn’t measure up. When completed, this will be one of those “knock me over with a feather” sets that experienced collectors will drool over. Why? Because all of the coins are very rare, from the same year, from same mint, and all are superb proofs with the same “look.” In other words, this set will be unique and compelling, and when offered on the market, serious collectors will be happy to pay a premium for it. But sets like this are rare. Sets that are relatively common and easy to build or replace, however, offer no real enhanced market value at all.
The classic set pushed by marketeering dealers is the “Eight Coin U.S. Gold Set,” featuring one each of the following coins:
You’ll be told that a complete set of this kind can be resold for more than the individual coins. But unless the Liberty or Indian coins are all the same date, grade, mint mark, and grading service, this set is simply a small, random collection of eight gold coins representing the major denominations, and it’s worth no more than the sum of its parts. If you’re a new hobbyist, and if your dealer has sold you some nice coins, this would be fun little collection to build. But as an investment, the simple fact that you have one of each denomination does nothing whatsoever to increase the value of the coins. If your dealer tells you otherwise, you’re being misled.
If you suspect your dealer is trying to play this game, or if you have any questions, please call us at 1-800-613-9323 and we’ll be happy to help you.
Canard #2: “Certified Gold Eagles are worth more.”
Some dealers (and one huge dealer who certainly knows better) are building their profits by selling high-grade, certified modern issue gold eagle and platinum eagle bullion coins at exorbitant prices. They claim these coins are scarce and worth a premium because of their certified high quality. Another canard!
2002 American Gold Half Eagle,
certified by PCGS in MS69
Because of today’s excellent minting technology, virtually every coin produced by the U.S. Mint, whether for circulation or as bullion, is almost perfect. Nonetheless, some dealers are now sending gold eagles and platinum eagles to grading services like PCGS and NGC, having them “slabbed” in plastic holders with a certified grade, and marketing them at ridiculous mark-ups. These dealers claim that certified gold and platinum eagles are rare and therefore worth the high prices. It's true, they are relatively rare -- but only because so few (so far) have been submitted to the certification services! These dealers are simply trying to create a premium market for what are, in reality, common bullion coins.
The sleight-of-hand in this classic canard might fool some of the people some of the time, but the reality is this: if the entire mintage of gold or platinum eagles were to be submitted to the grading services, perhaps 90% would be certified as MS68 or higher, the grades for which these dealers are charging so much. Basically, all modern bullion coins are just about perfect; and because they’re minted every year in virtually unlimited quantities, none of them are scarce enough to justify any significant premium. The extra money you pay for one of these certified bullion coins goes directly out of your pocket and into the dealer’s. Later, when you try to sell it to anyone other than the dealer who sold it to you, you’ll be very disappointed.
We believe the market for certified eagles coins will eventually collapse on itself due to over-saturation, much like the market in modern world gold and silver issues, so much the rage in the mid-1980s, collapsed on itself in 1989. Just think about it: if prices for certified eagles move substantially higher, a tidal wave of coins will be sent to PCGS and NGC for grading; the certified populations will simply explode; and the prices will plummet because of the abundant new supplies. Don't be fooled! An eagle is an eagle, except when it's encased in plastic -- then it's a canard!
Canard #3: “All grading services are the same.”
Have you heard this one yet? “Psst! Hey buddy! I’ve got coin certified in MS65 and its half the price of other coins certified in the same grade! But you gotta buy it right away before I sell it to someone else!”
It’s the same old scam in a different holder. If something seems too good to be true, it probably is! Sure, the coin might be real. And sure, it’s certified – but by whom? That’s the question.
Only two grading services are fully supported by U.S. rare coin dealers: PCGS (Professional Coin Grading Service) and NGC (Numismatic Guarantee Corporation). When its time for dealers to pull out their checkbooks to buy your coins, only these two services make the grade. (Read more about PCGS and NGC.)
$20 Liberty certified by NGC
$20 Liberty certified by PCGS
Other grading services (which, for legal reasons, shall remain nameless) are also in the market to “authenticate and grade” classic U.S. coins. But coins graded by most other grading services simply do not carry the same market value and trust as coins from PCGS and NGC. Remember the cardinal rule: only buy PCGS and NGC certified coins! It’s that simple.
Canard #4: “Shipwreck coins are a good investment.”
In recent years, new technology has enabled the recovery of some incredible shipwrecks laden with gold and silver coins from the 1850s and 1860s. When they come to market, the coins recovered from ships like S.S. Central America and the S.S. Republic create immense excitement. But later, when the hoopla dies down and they've been absorbed into the market, shipwreck coins generally turn into immense disappointments for the investors who paid the exorbitant prices commanded at the time of their initial sale.
Often coins recovered from shipwrecks are marketed in ways that artificially inflate their initial value, usually by exaggerating the hype and romance surrounding wrecks while carefully controlling the distribution and pricing of the coins themselves. One recent example is the S.S. Central America shipwreck, which contained virtually the entire mintage of 1857-S $20 Liberty gold coins. The coins survived in remarkable condition and were sold into the market by a tight cartel of dealers at high initial prices. The shipwreck story was exciting and the advertising campaign was immense. However, far too many coins were released into the market to support their dispersal prices.
Marketing logo for S.S. Central
America hoard dispersal
Recognizing at the time of their initial offering that the S.S Central America $20 Liberty 1857-S coins were likely to be poor investments, we published an extensive report, Hoard Coins Past & Future, predicting that these coins would probably drop by about 50% in value before they found natural market equilibrium. Within eighteen months they fell by about 45% in real dollar terms. Investors who spent $14,000 on a coin saw it drop to under $10,000 while similar, non-hoard gold coins gained in value with a rising market.
If you’re a history buff or a nautical hobbyist or a collector of numismatic oddities, go head and buy a newly released shipwreck coin--but just one! If you're looking for a numismatic investment that's likely to appreciate in value, however, we strongly recommend that you wait until the initial buzz has worn off and the excessive premiums have evaporated. In general, if you’re tempted to invest in shipwreck coins, always remember that it’s far more prudent to purchase the last hundred coins of the dispersal than the first. Give the market time to absorb the new populations and determine their true value. Don’t buy on hype!
AGE Core Principles
At American Gold Exchange we have three core principles by which we live:
1. We treat our client’s money like it is our own.
2. We only offer what we believe to be good value in the marketplace.
3. We stand behind our products.
Unlike some dealers, who push their program coins and run, we’ll be here for the long haul. Whatever coins we sell today, we hope to buy back in the future when you liquidate your hard assets. We go to exceptional lengths to be certain that all of our coins are accurately graded, problem free, and fairly priced. And we always give the best advice we possibly can. You can buy with confidence from AGE!