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The Obscure Certified Coin Bubble of the Late 1980s

The Obscure Certified Coin Bubble of the Late 1980s

Photo Credit: PCGS

In today's age of serial asset bubbles, it is easy to believe that financial history began in the late 1990s.  But this is not the case.  Few investors know this, but the U.S. rare coin market experienced a truly gargantuan certified coin bubble in the late 1980s.

I had my own, personal experience with this certified coin bubble.  In the late 1980s, I was subscribed to COINage magazine, a nationally distributed industry periodical.  Among its pages I found an advertisement for a coin I desperately wanted - an 1872 U.S. three-cent nickel that was certified MS-62 by PCGS.  This eccentric coin was available for the princely sum of $795, an amount that a 13 year old boy in 1989 could never hope to afford.  In the end, that was probably for the best.

The U.S. mint struck the three-cent nickel from 1865 to 1889.  This small, odd-denomination coin was a reaction to a shortage of small change that arose during the U.S. Civil War.  During the war, the U.S. government issued "shinplasters" - cheaply-made, legal tender fractional notes meant to temporarily satisfy demand for low denomination cash.  Once the war ended, the U.S. mint flooded the economy with small-denomination coins to replace the hated shinplasters.  The three-cent nickel was one of these new, post-Civil War denominations.

The three-cent nickel that I badly coveted wasn't in a particularly high condition.  MS-62, otherwise known as Mint State-62, is much closer to the lowest mint-state grade of MS-60 than the perfection of MS-70.  An MS-64 or MS-65 example really would have been much better (and more expensive).  But a mitigating factor was that 1872 was a somewhat less common date for the three-cent nickel series.  The mintage was only 862,000 versus 11 million plus for the most common date in the series.

 

MS-64 & MS65 Certified U.S. Three Cent Nickels For Sale

 
1874 3cN PCGS MS65 3 Cent Nickel
$920.00
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1874 3cN PCGS MS65 3 Cent Nickel
$920.00
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1869 3cN PCGS CAC MS64 3 Cent Nickel
$330.00
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1867 3cN PCGS CAC MS64 3 Cent Nickel
$285.00
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1881 3cN PCGS CAC MS65 3 Cent Nickel
$730.00
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That scarcity didn't stop the coin from plummeting in value when the certified coin bubble burst.  Even today, nearly 30 years later, you can still buy a slabbed MS-62 three-cent nickel for only $200.  That is a stunningly high cumulative loss of nearly 75%.  If you measure the decline in inflation-adjusted terms, the situation is even worse, with a loss of over 88%!

There were several root causes of the massive certified coin bubble of the late 1980s.  First, memories of the 1970s and its dreaded inflation still lingered in the minds of many investors.  In early 1987 the price of silver spiked to more than $10 a troy ounce, almost double its normal price at the time.  Many people thought inflation might be making a comeback and rare coins seemed to be the perfect way to hedge this risk.

Another contributing factor to the late 1980s certified coin bubble was the 1987 stock market crash, widely known as Black Monday.  On October 19th 1987, the Dow Jones Industrial Average collapsed by 22.61%.  It was the largest one day percentage loss in the index's history.  Even though the resulting bear market in stocks was over within a few months, many disillusioned equity investors looked for alternative investments.  Numismatically valuable U.S. coins seemed to offer a good substitute to the treacherous stock market.

But the most important factor in the certified coin bubble was undoubtedly the development of slabbing itself.  Third-party certification was an attempt to impose grading standards on an industry that was famous for its inconsistency.  In 1985, PCGS became the first third-party coin grading company.  PCGS found immediate success in the numismatic industry and soon spawned a close competitor, NGC, in 1987.

 

MS-65 & MS66 Certified U.S. Morgan Silver Dollars For Sale

 
1885 O MORGAN DOLLAR PCGS CERTIFIED MS 65 NICE GEM SMOOTH CHEEK BEAUTY
$150.00
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1884 O MORGAN DOLLAR PCGS CERTIFIED MS 65 GEM OLD GREEN SLAB BEAUTY
$150.00
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1881 S MORGAN DOLLAR NGC CERTIFIED MS 65 GEM OLD NGC FATTY SLAB A REAL BEAUTY
$157.00
Ends: 29d 17h
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1883 P MORGAN DOLLAR NGC CERTIFIED MS 65 GEM OLD NGC FATTY SLAB A REAL BEAUTY
$160.00
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1899 O MORGAN DOLLAR NGC CERTIFIED MS 65 GEM OLD NGC FATTY SLAB A REAL BEAUTY
$175.00
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The advent of independent, third-party certification had a seismic impact on the rare coin industry.  Before slabbing, numismatics was overrun with fly-by-night companies and boiler-room operations that sold severely over-priced, grade-inflated coins as investments to unsuspecting consumers.  The arrival of PCGS and NGC changed the industry nearly overnight.  Now dealers, collectors and investors could buy or sell slabbed coins "sight unseen" because they all trusted the grades given by the major grading services.

This situation is typical of all great bubbles.  A legitimate innovation or discovery takes place that promises the future creation of tremendous wealth.  In this case, the certified coin bubble was driven by the almost religious belief that slabbing would transform the numismatic market.  It was widely thought that certified coins would enjoy greatly improved liquidity generated via massive institutional demand from financial firms.  Proponents at the time felt these factors justified perpetually rising rare coin prices.

As the late 1980s unfolded, the enthusiasm for slabbed coins reached a fevered pitch.  As with so many other bubbles, it didn't take long for Wall Street to join the certified coin bubble.  In February 1989 the respected financial firm of Kidder, Peabody & Co. started a limited partnership, the American Rare Coin Fund.  A year later Merrill Lynch launched a similar fund called the NFA World Coin Fund Limited Partnership.  UBS, another Wall Street firm, created an internal rare coin division dedicated to advising its high net worth clients on numismatics.  The potential for certified coins seemed almost limitless at the time.

 

MS-64 & MS65 Certified U.S. Liberty Head $5 Gold Coins For Sale

 
1901 5 Liberty Head Half Eagle PCGS MS64
$850.00
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1899 Gold US 5 Liberty NGC CAC MS 64 Nice
$835.99
Ends: 27d 13h 31m
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1903 S 5 LIBERTY Half Eagle PCGS MS64 MS 64 OLD GREEN HOLDER OGH
$1,750.00
Ends: 12d 11h 27m
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1899 FS 301 RPD PCGS MS64+ 5 Liberty Gold Half Eagle Pop 3 0 None Finer
$1,750.00
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1882 5 PCGS MS64 Underrated Date Liberty Half Eagle Gold Coin
$1,240.00
Ends: 20d 21h 37m
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And then it all came crashing down.  The U.S. certified coin bubble peaked sometime in mid 1989 and slowly - almost imperceptibly at first - began to weaken.  By late 1989 some categories of high-grade, common date coins, like Morgan silver dollars, were clearly in decline.  But the real, gut-wrenching carnage didn't hit numismatic dealers and coin shows until the 1990 - 1991 timeframe.

The PCGS3000 Index, a key indicator of the rare U.S. coin market, peaked at $181,088 in May 1989.  The index bottomed out in December 1994 at $46,819 - a vicious 74% loss.  Even now in January 2018, the PCGS3000 index rests at $57,076 - a loss of more than 68% since the 1989 peak.

I think it is important to learn the right lessons from the late 1980s certified coin bubble.  It isn't that tangibles are bad investments - far from it, in fact.  I think that tangible assets are, generally speaking, great buys at the moment.  After all, some high-grade, certified U.S. coins are available today for the exact same prices they sold for in the mid 1980s!

Instead, you should be wary of any asset class that is over-hyped by the financial media and Wall Street.  Avoid investing in that hot stock or index fund that all your friends, co-workers or relatives can't stop talking about.  Right now these dangerously overvalued assets include high-flying tech stocks, like Netflix, Amazon and Tesla, along with virtual crypto-currencies like Bitcoin.  Ironically, some certified U.S. rare coins are a great investment at today's prices; it just took nearly 30 years to get there.

 

Read more thought-provoking Antique Sage coin articles here.

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Read in-depth Antique Sage coin investment guides here.

The Long Overdue Death of the Penny

The Long Overdue Death of the Penny

The penny is dying.  I don't use them in cash transactions anymore and I am far from alone in that regard.  Most people regard them as nuisances, fouling cash registers, wallets and purses across the nation with a coin that long ago lost is raison d'être.  Let's face it; one (cent) is the loneliest number.

I first conceived of this article when I was helping to clean out my grandmother-in-law's house.  She owned a beautiful American penny eagle - a wall-hung, decorative heraldic eagle made from hundreds of individual pennies skillfully glued onto a pine-wood backer.  Now, primitive, country-style antiques are not my forte, but this was a magnificent piece of American folk art.  I felt compelled to take it home.

But this unusual piece of Americana also got me thinking about the fate of the humble one cent coin.  The penny was the very first coin officially struck by the U.S. mint, along with its little brother, the half cent in 1793.  At that time, the over-sized, 13.48 gram (0.48 ounce) coin was known as the large cent because its diameter was only slightly smaller than a modern half-dollar.  By the early 19th century, the iconic large cent had evolved into a slightly smaller, but still hefty 10.89 grams (0.38 ounces) slug struck in almost pure copper.

In those days, a large cent's bullion value as copper was nearly equal to its face value.  By the 1850s, rising cost pressures caused the U.S. mint to abandon the large cent for the small cent format we are all familiar with today.  The last large cents were struck at the Philadelphia mint in 1857.

Early 19th Century U.S. Large Cents For Sale

 
1818 LARGE CENT PCGS XF 40
$169.99
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1838 Large Cent Coronet Head Choice XF++ AU Early Copper
$115.00
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1822 Large Cent Higher Grade
$135.00
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1831 Penny Coronet Large Cent Nice Coin Free Shipping 5981
$125.95
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1818 Large Cent Coronet Head Red Brown Scarce This Nice Near Gem BU++ Gem RB
$306.00 (40 Bids)
Ends: 1d 21h 27m

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The new small cent served the American public well until the late 1970s.  By that time, raging inflation, coupled with skyrocketing copper prices, made the U.S. penny's future existence an open question.  After exploring various options, the U.S. mint finally decided to change the traditional 95% copper/5% alloy composition of the penny to a new and cheaper copper-coated zinc core.  Since 1982, U.S. pennies have been, ironically, made from 97.5% zinc and just 2.5% copper.  The penny has devolved into a small, ugly, debased monstrosity that reflects our modern coinage dark age.

Pre-1982 copper pennies, however, are actually worth more than their face value as copper bullion.  It only takes about $1.54 in pre-1982 pennies to equal one pound, but #1 scrap copper currently goes for about $2.50 per pound, leaving sizable room for profit.  Unfortunately, it isn't legal to melt copper pennies (or nickels) for profit; the Federal government banned the practice in 2006.  Even so, some people stockpile and trade pre-1982 pennies because they are a widely recognized form of copper bullion.

And that brings us to today.  It may have been a long time coming, but the death of the penny is imminent.  This lowliest of denominations has finally, after decades of uninterrupted inflation, become almost worthless.  This wasn't always the case, though.  According to the U.S. CPI inflation calculator, a penny in 1950 had the same purchasing power as a dime does in 2017.

I can actually remember the last time I bought an item that was priced at one cent.  It was 1986 and I was vacationing with a friend in the Appalachian Mountains.  We stopped in at a general store (yes, there were actually a few general stores left back then - usually in remote areas) and I picked out a handful of individually-wrapped candies that were priced at only one penny each!  But even at that time, penny-priced merchandise was an unusual situation.

Old Wheat Penny Rolls For Sale

 
5000 WHEAT PENNIES CENTS 34Lbs pounds100 ROLLS40 50S 185 A ROLL
$185.00
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2500 WHEAT PENNIES CENTS 17Lbs pounds50 ROLLS40 50S 185 A ROLL
$92.50
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Unsearched Roll of Wheat Pennies1909svdb found 1922 plain found 1922d found
$7.50
Ends: 9d 7h 38m
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OLD BANK ROLLS WHEAT PENNIES LINCOLN CENTS TIGHTLY CRIMPED US COINS PENNY HOARD
$9.39
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25 SEALED Lincoln Wheat Roll Box 1909 1958 P D S Cent Penny Pennies 50 Rolls
$196.50 (57 Bids)
Ends: 17h 59m

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Since the 1980s, the penny has collapsed into complete monetary irrelevance.  Inflation has continued unabated for the last 30 plus years, leading to the terminal decline of the penny's real value.  In 1986 the penny was worth an already questionable 2.24 cents in today's purchasing power.  By 1996, it was worth a mere 1.56 cents.  By 2006, that number had shrunk to a derisive 1.20 cents.

The death of the penny as a medium of exchange has already taken place.  Vending machines don't take pennies.  Parking meters don't take pennies.  Toll booths don't take pennies.  Only Coinstar machines still accept pennies, undoubtedly because Coinstar's parent company enjoys skimming 11.9% of the face value of your (and everyone else's) useless penny stash.

The death of the penny isn't just an American phenomenon either.  New Zealand ceased minting pennies for circulation in 1988.  Australia wisely abandoned its penny in 1991.  Even the United State's northern neighbor, Canada, finally gave up the penny in 2013.

There are good reasons why the death of the penny is spreading throughout the Anglo-American world.  In addition to its miniscule buying power, rising commodity prices have rendered penny production a losing proposition.  In 2016, it cost the U.S. mint 1.5 cents for every penny struck.  These elevated mintage costs aren't temporary either.  The last year the U.S. mint actually made a profit on the striking and distribution of pennies was back in 2005!

In a rational world, the U.S. would have withdrawn the penny from circulation sometime during the 1990s.  Unfortunately, this didn't happen for two different reasons.  One is good old-fashioned pork-barrel politics.  Zinc producers have a lot to lose from the death of the penny.  Over 9.1 billion pennies were struck in 2016 alone, using more than 22,000 metric tons of zinc worth an estimated $70 million.  Unsurprisingly, one particularly vocal supporter of the U.S. penny is Jarden Zinc Products, the sole supplier of the copper-coated zinc planchets the mint uses to strike the coins.

Pre-1982 Copper Pennies For Sale

 
50 Face Value US Copper Pennies Machine Sorted 1959 1982 34 LBS 5000 Coins
$75.00
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10 lbs 15 Face Value Copper Pennies Cents Bullion 1959 1982
$28.50
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30LBS of copper pennies cents bullion 1959 to 1982 copper only Invest Free Ship
$69.95
Ends: 18d 11h 28m
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15 of 95 Pre 1982 Copper CU Memorial Pennies Bullion 1500 pennies 10+ 1785
$21.50
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Copper Pennies 10 Pounds 1959 1982
$27.99
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But I personally feel that the real reason for the agonizingly slow death of the penny is that killing the smallest U.S. denomination would be a tacit admission of inflation by our political overlords.  After all, the penny is the United State's longest running denomination, having been used by Americans more or less continuously for 225 years.  Being the politician under whose watch the penny finally dies sends all the wrong messages to your constituents.

It would be tantamount to announcing to every middle-class, voting American that inflation is alive and well and their money isn't worth what is used to be.  These are not the themes that successful re-election campaigns are made of.  So instead we put on a happy face with talk of low inflation and ever rising stock prices.  And the inevitable death of the penny is deferred for yet another day.

In many ways the looming death of the penny is just a symptom of much deeper monetary problems facing both the United States and the entire developed world.  Global central banks have been recklessly expanding their balance sheets for years now, ostensibly to fight non-existent "deflation".  The total aggregate assets of the U.S., European and Japanese central banks have increased from around $4 trillion in 2008 to about $14 trillion in late 2017.  This represents an almost 15% annualized expansion of the base money supply over the last 9 years.

While the negative monetary and social consequences of these actions have been largely deferred, they will come due at some point.  This is one of the reasons I advocate the purchase of fine art, antiques and other tangible assets for investment purposes.  The penny may be dying, but that doesn't mean your financial dreams have to die with it.

Should You Invest in Proof American Gold Eagles?

Should You Invest in Proof American Gold Eagles?

The American Gold Eagle coin is one of the world's most successful bullion issues.  Since the inception of the U.S. Mint's Gold Eagle program in 1986, over 25 million ounces of these coins have been released to precious metal investors.  However, there are important questions regarding these beautiful coins that surface repeatedly.  Are modern gold bullion coins - even proof versions - truly collectible?  Should you invest in Proof American Gold Eagles?

Proof coins are carefully struck collector's versions of existing "business strike" coins.  In the case of American Gold Eagle coins, the vast majority of pieces minted are intended for the bullion market.  These bullion business strike coins are struck quickly in a highly automated fashion in order to satisfy the considerable quantities demanded by precious metal investors.

In contrast, proof American Gold Eagles receive special care.  The actual minting process is very involved and occurs exclusively at the U.S. Mint's specialized West Point facility located in the Hudson River Valley of New York state.  Specially selected, hand-polished coin blanks are individually hand-fed into a press fitted with the best coin dies available.  The coins are then struck a minimum of two times at low speed to ensure the best impression possible.

The resulting gold coins are then hand-inspected, one-at-a-time, by white-gloved mint employees.  Any coins showing even the slightest imperfection are immediately rejected and condemned to be melted down.  Proof coins that pass this rigorous inspection process are sealed in plastic capsules for preservation purposes before being mounted in a satin-lined, luxury presentation case that includes a certificate of authenticity.

Proof American Gold Eagles are a sight to behold.  The exacting production steps adhered to by the U.S. Mint create a coin with a mirror-like field - the flat "background" area - and highly frosted devices - the raised design portion.  This highly desirable effect, a mirrored field with contrasting frosted devices, is known by coin collectors as a cameo proof.  Third-party grading services, like PCGS and NGC, will note the cameo effect on proof coins they certify with the designation CAM (for cameo) or DCAM (for deep cameo).  While the highly desirable cameo effect is normal on proof coins today, it was rare before the invention of highly advanced minting technology in the late 1970s.

Proof American Gold Eagle Sets For Sale

 
2005 American Gold Eagle 4pc Proof Set Super Nice Original Packaging 1 owner Set
$2,550.00
Ends: 29d 12h 28m
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1989 4 Coin Proof American Gold Eagle Set w Coa
$2,899.99
Ends: 11d 8h 37m
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2004 AMERICAN GOLD EAGLE 4 PC SET PROOF IN THE ORIGINAL US MINT PACKAGING WITH
$2,625.00
Ends: 13d 16h 50m
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1995 W 4 Coin Proof Gold American Eagle Set w Box  COA
$2,899.94
Ends: 8d 10h 8m
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Amazing 2017 W American Eagle Gold Proof Four Coin Set RN555
$2,551.98 (12 Bids)
Ends: 1d 21h 52m

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In addition to proof coins, the U.S. Mint's West Point branch also strikes another variety of collector's coin, called burnished American Gold Eagles.  These burnished uncirculated coins are specially struck using many of the same exacting procedures as proof coins, including individual handling.  However, the resulting burnished American Gold Eagles are not proof issues and do not have the mirror-like, cameo finish of proof coins.  Instead, burnished American Gold Eagles look similar to matte proof coins, with both the fields and devices possessing a softly frosted appearance.  For the purposes of this article, proof American Gold Eagles and burnished American Gold Eagles have very similar attributes and can be viewed interchangeably.

In spite of the incomparable beauty and technological triumph of proof American Gold Eagles, there are some people in the bullion industry who don't like them.  If you search the internet for information on these paragons of modern Americana, one of the first results you will see is an article titled "Hidden Dangers in Buying Proof American Gold and Silver Eagle Coins".

This article contends that many bullion dealers selling proof American Gold Eagles mark up the coins excessively, leaving clients with overpriced collector's coins that are actually worth only a modest premium above their spot values.  There is an element of truth to this charge.  Some unscrupulous gold dealers, especially fly-by-night companies that advertise aggressively on television or talk radio, do charge far too much for these coins.  But, of course, all industries have their share of morally questionable business people who wish to take advantage of the ignorant.  An informed coin investor buying proof American Gold Eagles from a reputable dealer will have nothing to fear.

Proof American Gold Eagles are aesthetic gems that echo the golden age of American coinage.  The obverse design of the American Gold Eagle was borrowed from one of the most iconic U.S. coins ever produced - the Saint Gaudens double eagle gold coin.  In the early 20th century, President Theodore Roosevelt strongly believed that a great nation deserved great coins.  Therefore, he commissioned renowned sculpture Augustus Saint-Gaudens to create a circulating gold coin modeled on the Greek numismatic masterpieces of ancient times.  The result, minted from 1907 to 1933, was the incomparably beautiful Saint Gaudens $20 gold coin.  Its front displays the personification of Liberty boldly striding forward as the rays of the sun burst forth around her.

Individual Proof American Gold Eagles For Sale

 
2007 W American Gold Eagle 50 PROOF Coin w Box  COA
$1,449.00
Ends: 4d 18h 20m
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1999 W American Gold Eagle Proof 1 10 oz 5 in OGP
$179.57
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1998 W 5 Proof Gold Eagle 1 10th oz US Mint with Box  COA FREE Shipping
$142.50 (20 Bids)
Ends: 2d 18h 7m

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1987 W American Eagle Gold 1 Oz Proof Coin
$1,300.00 (1 Bid)
Ends: 5d 11h 30m

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1990 P American Gold Eagle Proof 1 10 oz 5 in OGP
$178.50
Ends: 21d 14h 47m
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In addition to their rich history and meticulous striking process, both proof American Gold Eagles and burnished American Gold Eagles have mintages that are far lower than their bullion counterparts.  With the exception of its first two years of production when mintages were higher, 1 troy ounce proof American Gold Eagles have averaged fewer than 40,000 specimens issued per annum from 1988 through 2016.  After 1987, no year had a proof mintage greater than 100,000 pieces and over half of the series sports mintages of fewer than 40,000 examples.  And the fractional 1/2, 1/4 and 1/10 troy ounce coins often have even lower mintages than the 1 troy ounce pieces.

These low mintage numbers for proof American Gold Eagles are in sharp contrast to the business strike, bullion version of the coin.  The average mintage of bullion 1 troy ounce American Gold Eagles is over 600,000 pieces struck annually (from inception through 2016) with several individual years exceeding 1,000,000 coins.  The proof versions, on the other hand, have dramatically lower mintages - often 1/10 or less of the bullion coins.

Burnished American Gold Eagles, like their proof cousins, also have shockingly low mintages.  Mintages for 1 troy ounce burnished American Gold Eagles have averaged a scant 13,000 examples per annum through 2016.  These modest mintage numbers are absolutely dwarfed when compared to those for circulating U.S. coins, which generally vary between millions and billions of examples.  Simply put, burnished and proof American Gold Eagles are some of the rarest modern U.S. coins in existence.

Burnished American Gold Eagles For Sale

 
2008 W GOLD 1 10 Ounce BURNISHED Gold Eagle Box COA KEY DATE
$240.00
Ends: 7d 21h 14m
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2011 W Burnished Gold Eagle 50 1 Oz Gold
$1,795.95
Ends: 11d 9h 50m
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2006 W US American Gold Eagle Burnished Four Coin Set
$2,812.58
Ends: 27d 14h 56m
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2011 W American Gold Eagle 1 oz 50 Uncirculated Coin Burnished
$1,854.71
Ends: 14d 17h 52m
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2015 W 1 oz Burnished Gold Eagle w Box  COA SKU 90081
$1,577.08
Ends: 29d 9h 56m
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Another little known advantage of proof American Gold Eagles is that they are the only type of proof gold coin eligible for ownership in a precious metal IRA account.  While collectibles and antiques are specifically prohibited in U.S. retirement accounts, a carve-out was made for holding physical bullion bars and coins in a precious metal IRA.  Luckily for the savvy tangible asset investor, the U.S. Congress overlooked the numismatic potential offered by gold bullion coins held in a precious metal IRA.

With premiums generally ranging from a modest 10% to 40% over spot for common date coins, burnished and proof American Gold Eagles have a lot of hidden investment potential.  Despite possessing little numismatic potential, regular bullion American Gold Eagles have premiums that aren't much lower, ranging from around 4% to 20%.  Paying a slightly higher premium for the aesthetically desirable proof or burnished versions makes a lot of sense when you consider their inherent numismatic optionality.

Now there are situations where burnished or proof American Gold Eagles don't make sense.  If you are simply interested in buying the most gold bullion possible for your money and don't have any interest in generating higher investment returns via numismatic potential, then you should pass on these coins.  But, provided you pay a reasonable premium above their bullion value, burnished or proof American Gold Eagles represent a wonderfully low-risk, high-return investment.  Not only that, but they are some of the only collector-oriented coins that can be legally purchased in a precious metal IRA.

The Precious Metal IRA Loophole

The Precious Metal IRA Loophole

The precious metal IRA (Individual Retirement Account), also known as a gold IRA, was a great leap forward for U.S. retirement savers.  Since its inception in 1998, the precious metal IRA has allowed U.S. citizens to invest funds either tax free (Roth IRA accounts) or tax deferred (traditional IRA accounts) in gold, silver, platinum and palladium bullion.  This has been a boon for U.S. investors interested in tangible assets but, unfortunately, it did come with one big drawback.

The U.S. government currently prohibits the purchase of art or antiques in IRA accounts - basically any asset that can be considered "collectible".  This depressingly complete ban includes, but is not limited to, artwork, rugs, antiques, gemstones, stamps, coins and alcoholic beverages (like fine wines).  This is a pity, as this misguided policy bars U.S. retirement savers from an entire investment asset class that is tremendously undervalued right now.

However, there is one small exception to this ironclad no art, antiques or collectibles policy.  And it is found exclusively in the small print of the precious metal IRA.  It is a loophole so small that I'm certain the faceless IRS bureaucrats and uncaring D.C. politicians never though anybody could squeeze through it.  They were wrong.

First we need to have a primer about the complex rules surrounding a precious metal IRA.  An account may only purchase certain gold, silver, platinum and palladium coins and bars.  These coins and bars must all have a minimum fineness of at least 99.5% or 995 fine.  In addition, the prohibition on "collectibles" disqualifies any proof coins, which are specially struck under ideal conditions to appeal specifically to coin collectors.

As a logical extension of this rule, any coin that has been third party certified or slabbed, even a bullion issue that meets all the other qualifications, is not allowed.  This is because third-party grading indicates a coin is meant for the collector community and is thus a "collectible".  Although it isn't specifically written into the tax code, it is also a fair bet that any coin issued with a pre-determined mintage limit would also be forbidden, as this would imply the coin was intended for collectors.

The clear intention of all these rules is to strictly limit your precious metal IRA to bullion coins and bars only.  The minimum fineness requirement alone automatically disqualifies all old gold or silver coins.  All older precious metal coins were originally intended for general circulation.  Because of this they had to be alloyed to increase their hardness and wear resistance.

For example, old, pre-1933 U.S. gold coinage is only 90% fine.  British sovereigns, which have been struck continuously from the early 19th century right up until the present day are 91.67% gold.  Most other old gold coins from the early 20th century or earlier are 90% fine.  Because of the precious metal IRA fineness requirement, all of these gold coins are disallowed.

That removes most gold coins - especially any antique coins with collector's value - from contention for your precious metal IRA funds.  Effectively, only modern, 24 karat, pure gold bullion coins (and bars) are allowable.  There is, however, one small exception to this rule: American gold eagle bullion coins, with a fineness of 91.67% or 22 karat gold, are exempted.

Interestingly, American gold eagle coins (along with their American silver eagle brethren) possess another important exemption as well.  Proof specimens of these coins are allowable in precious metal IRA accounts.  This is important because these are the only proof coins of any type that can legally be owned in a precious metal IRA.  Apparently, congress carved out a legal niche for these proof coins in a bid to increase the popularity of the U.S. mint's gold and silver eagle program.  It worked, as these two coins dominate the global gold and silver bullion coin market.

So with all this information about precious metal IRA requirements we can build a list of permissible gold and silver coins:

 

Precious Metal IRA Approved Gold Coins:

  • American Gold Eagles (uncirculated and proof)
  • American Gold Buffaloes
  • Australian Gold Kangaroos
  • British Gold Britannias (2013 to present only)
  • Canadian Gold Maple Leafs
  • Austrian Gold Philharmonics
  • Mexican Gold Libertads (1991 to present only)
  • Chinese Gold Pandas

 

Precious Metal IRA Approved Silver Coins:

  • American Silver Eagles (uncirculated and proof)
  • America the Beautiful Silver Coins
  • Australian Silver Kookaburras
  • Australian Silver Koalas
  • British Silver Britannias (2013 to present only)
  • Canadian Silver Maple Leafs
  • Austrian Silver Philharmonics
  • Mexican Silver Libertads
  • Chinese Silver Pandas

 

Now, this list of gold and silver coins that are allowable in a precious metal IRA might be academically interesting, but I promised you a loophole.  Well, here it is.  When the U.S. Congress created the precious metal IRA, they intended to completely exclude art, antiques and anything that could remotely be considered a "collectible".  But some of the gold and silver bullion coins listed above are actually stealth collector pieces that have strong numismatic potential!

The implications of this revelation are staggering.  It means that you can legally purchase and own some numismatically-oriented, collector's coins in your precious metal IRA.  Suddenly, the full promise of tangibles investing in a precious metal IRA is within your grasp.

Now, if you're the canny type, you might well ask how modern bullion coins can be desirable to coin collectors.  They are supposed to be lumps of gold or silver with their weight and fineness guaranteed by a government.  They are supposed to trade as nothing more than bullion.  But reality has a funny way of interfering with the best laid plans of national governments.

In short, some modern bullion coin issues are far rarer and more desirable than you might think at first.  In addition, coins, like any art form, heavily rely on aesthetics to appeal to potential collectors.  And modern bullion coins, which often adapt renowned historical designs, are undoubtedly the most beautiful coins of the current age.

I won't go into all the details surrounding why some modern bullion issues have great numismatic potential here.  Instead, I'll encourage you to read another article I wrote titled: Chasing Perfection - Collecting Gold Bullion Coins.  But this premise isn't just my opinion; there are a significant number of modern bullion coins that already trade for hefty premiums over spot prices on the open market.

Maybe the best examples are proof and burnished (a special type of uncirculated strike) American silver eagles.  Even common date issues for these one troy ounce silver coins currently sell for well over double their bullion value.  That is a far cry from the average silver bullion coin, bar or round which might sport a modest premium of only 5% to 20% over spot.

However, I believe the best appreciation potential resides in gold bullion coins, which generally have much smaller mintages than their silver counterparts.  The stunningly beautiful Mexican Gold Libertad series, for example, has never had an annual mintage that exceeded 15,000 over the last 20 years.  They are ridiculously rare and undervalued, yet you can still add one ounce "bullion" Libertads to your precious metal IRA for 15% to 20% over spot!

The only better buys are proof Mexican Gold Libertad coins, which often have mintages in the hundreds.  Their mintages are insanely low, considering many circulating issues of coins are struck by the millions or even billions these days.  Unfortunately, the proof Mexican Gold Libertad is considered a "collectible" coin and is not eligible for inclusion in precious metal IRAs.  Only the uncirculated version can be safely purchased in a precious metal IRA.

 

Mexican Gold Libertad Bullion Coins For Sale

 
1 4 oz Mexican Gold Onza Libertad AU BU Random Year
$379.58
Ends: 16d 16h 56m
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1 oz Mexican Gold Onza Libertad AU BU Random Year
$1,472.81
Ends: 27d 16h 46m
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2013 Mo Mexico Gold Libertad 1 oz 1 Onza PCGS MS70
$1,801.00
Ends: 21d 15h 27m
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2016 MO 1 Onza Oz Gold Mexican Libertad Proof NGC PF 70 UCAM
$2,295.00
Ends: 21d 21h 52m
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2015 Mo Mexico Gold Libertad 1 oz 1 Onza NGC MS70 Early Releases
$1,759.00
Ends: 21d 15h 27m
Buy It Now
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If Mexican Gold Libertads don't excite you, there are many other modern gold bullion coins with excellent return potential for your precious metal IRA.  American Gold Buffaloes, Australian Gold Nuggets/Kangaroos and Chinese Gold Pandas all have that winning combination of great design and relatively low mintage.  And their prices are often only modestly above their bullion melt values.

But a special mention should be made for American Gold Eagle coins.  While I don't believe the normal American Gold Eagle bullion issues have much numismatic potential due to their excessively high mintages, the special uncirculated "burnished" strike and proof examples offer tremendous value.  Proof American Gold Eagle mintages are usually fewer than 50,000 specimens per annum, sometimes dramatically so.  But, in spite of their rarity, premiums are normally quite reasonable at only 15% to 30% over spot, provided you aren't chasing rare dates.

There is, however, one important detail to note if you decide to add numismatically-oriented gold bullion coins to your precious metal IRA.  It is critical that you choose a custodian that offers segregated storage.  Segregated storage, also known as allocated storage, means your gold is physically separated from the holdings of other precious metal IRA customers kept in the same vault.  This means that if you deposit a certain type and date of gold bullion coin into your IRA, you can pull the exact same coin out at a later date.

In comparison, the more common method of gold storage is referred to as commingled or unallocated storage.  This means the custodian dumps all its customers' precious metal holdings into a single pile.  If you request to withdraw or sell a coin, they will reach into the pile and randomly pull out whatever date of that type of coin they find.  Commingled, or unallocated, storage is cheaper than segregated storage, but it invalidates any attempts to buy numismatically-oriented coins and must, therefore, be avoided.  Although I haven't had the chance to use their services yet, Noble Gold is a precious metal IRA trustee that emphasizes their high-security, segregated storage facilities.

In spite of its strict requirements, a precious metal IRA is one of the few ways to invest in tangible assets (other than real estate) in a U.S. retirement account.  And while your local congressman has done his best to shut you out of the lucrative art and antiques market in these accounts, he and his political friends overlooked one small detail.  Take advantage of this little-known opportunity to invest in numismatically-oriented bullion coins in your precious metal IRA while you can.