The Best Way to Invest in Gold in Any Economy

by Will Atkinson

There is a way to buy gold that virtually guarantees a return on your investment, no matter what the economy is doing. Historically the price of gold has risen during a bad economy and plummeted when times were good. The exception is when that gold is in the form of previously circulated (or meant for circulation) coins.

Getting Started

We’re not talking Franklin Mint here, but U.S. Mint. Between the years of 1795 and 1933 the United States Mint produced gold coins to be used as legal tender. Due to hoarding of gold during the Great Depression, in 1933 hoarding was made illegal by Executive Order, and gold coins were taken out of circulation, not just in the United States but also in most other countries. This created a built-in scarcity for future collectors and investors, ironically leading to more hoarding. In 1971 the United States officially went off the gold standard, giving economists and political pundits something to argue about for decades to come. In fact, they are still arguing.

Along with scarcity, condition helps to determine the value of a gold coin. Whitman puts out two annual coin guides, assigning designations ranging as low as PO (poor) for the poorest quality and as high as BU (brilliant uncirculated) for the best. There are currently four coin grading services, but the accepted leaders are PCGS and NGC. If investing in coins it would be wise to restrict your purchases to coins graded by either one of these services. Coin shops and collectors place a value on these coins in accordance with the grading service, condition of the coin, and number of units still believed to be in existence. Because they are made of precious metals, gold and silver coins sometimes get sold for their melt value, meeting an untimely end in a furnace.

For example, the 1843 Half Eagle, a five dollar gold coin with a whopping mintage of 611,205 now ranges in price from $490 to $21,000 depending on the designation given to it by PCGS., whereas the 1843c Half Eagle can be picked up for as little as $1,900 or as much as $52,000. The reason? The 1843c Half Eagle is the scarcer of the two, with only 44,277 minted, and far fewer surviving these past hundred and seventy years or so.

Even looking at the poorest quality example of one of the most mass-produced gold coins, the 1843 Half Eagle has almost tripled in value between January 2008 and May 2012. Meanwhile the price of gold has only doubled in the same time period. Stocks and real estate…well, those are a couple of sad tales, aren’t they?

It is important to note that coin investing and coin collecting isn’t necessarily the same thing. By definition, a successful investment calls for a return. Many would-be coin investors find themselves falling in love with the beauty of antique coins, never to part with their newly acquired treasures. Coin design in the United States has become less artistic and more perfunctory during the last fifty or sixty years; once you’ve seen something as elegant as the Mercury Dime and compare it to our current ten-cent piece you’ll have a better understanding of how tempting it is to hang on to your coins forever.

Saving For Your Investment

As with all investments, setting aside a set portion of your income to invest is a smart move. If you are already investing in stocks, bonds and mutual funds you should know that most financial planners recommend that about ten to fourteen percent of your portfolio should consist of precious metals such as gold.

Even if things are so tight for you in this economy that you don’t have a portfolio, or any real savings or investments to speak of, an easy way to earmark money to put toward gold coins (or any investment) is by saving your loose change. Empty your pockets each evening, and at the end of the year trade in those nickels and dimes for cash to put toward the purchase of the best quality gold coin you can afford. Remember, no matter how the fluctuations in the market affect the price of a single ounce of gold, gold coins will almost always continue to rise in value.

Buying smart

First you must educate yourself. Coin investors ultimately need coin collectors. Look for a local numismatic (coin collector) club in your area, and talk to as many experts as you possibly can. It’s a great way to meet new people and to speed up the learning curve when it comes to valuable coins. Coin clubs are especially important if you live in a metropolitan area large enough to support more than one coin shop. You’ll want to know which shop is the fairest when it comes to buying and selling gold coins, and your fellow club members should be happy enough to share their opinions on where you can get the best deal.

A few popular magazines are Coin World, Coins Magazine, and COINage Magazine. These publications are a good starting point for the budding coin collector. While there are many reputable online dealers specializing in gold coins, it’s important to know that there are unfortunately quite a few disreputable dealers out there as well.

Protecting Your Investment

Most valuable coins are sealed in hard, clear plastic cases (slabbed) to prevent tarnishing from the oils in your fingertips and damage from striking a hard surface. In fact, all coins graded by PCGS are slabbed, with the final evaluation of the coin printed on a label that is sealed inside the case, just below the coin.

In the event that you invest in a coin that isn’t slabbed, you can purchase a holder specifically designed for that coin for just a few dollars. Although it may be tempting, never clean an antique coin. The harsh chemicals may help it to look shiny and new, but they will also damage the coin enough to detract from the value.

Once your investment has grown to a certain point you may want to purchase a fire-proof safe, or even rent a safety deposit box at the local branch of your bank. Because it is also a collection, you should have an insurance policy protecting your investment in case of theft.