Last month I mentioned that Peter Schiff,the CEO and Chief Global Strategist for Euro Pacific Capital wrote a column warning against ownership of rare coins and paper money. In my judgment, his warning is about 90% correct, but I didn’t have space to go into full details where we agree and disagree. Let me do that now.
A sales tactic that has been used for decades by national marketing companies is to provide good information on the value of owning bullion-priced physical gold and silver, but then tout owning rare coins as the means to accomplish this end. Schiff and I agree strongly that this is a bait and switch tactic meant to make profits for the marketing company which often results in poor or horrible results for their customers.
Competitively-priced companies cannot make enough profit margin from selling bullion-priced products to pay for any substantial marketing program. In order to pay for all that advertising (and also the sometimes high employee sales commissions) these companies must sell rare coins which have a larger spread between their buy and sell prices than bullion-priced items. Even worse, we have repeatedly seen bullion -priced issues marked up to sell as rare coins, rare coins sold at prices far higher than most dealers charge, and various other deceptive practices. In the ugliest circumstances, we have been told by some customers of these companies that they thought they were purchasing bullion-priced items but were really overpaying for collector coins that were completely unsuitable for the purposes for which they made their purchases.
Far too many times we have been contacted by customers who have already made inappropriate purchases from such companies. They find out too late that they could have purchased the same merchandise from us at a much lower price. It is common that the price we offer to purchase their items is also higher than they are offered by the company who originally sold them the items. Even more, they learn that they could have made alternate purchases better suited to their goals.
Some of the marketing materials are very persuasive. Customers have told me that the sales representatives are so skilled and persistent that it almost impossible to tell them “No.” Still, the buyers should have the common sense to at least do some double checking of claims and prices before making significant purchases.
Schiff also correctly points out that in the current market, where unemployment is high and people are struggling to pay down debt, that discretionary purchases tend to decline. That is mostly true. There has been some reduction in collector demand in a number of numismatic niches, where some prices have actually declined. It does not make sense to try to collect everything. Instead, savvy collectors watch different coin markets to ascertain peaks and valleys for trading parts of their collections. At any time, there are numismatic niches that will be rising.
In the current market with rising gold and silver prices, there will be times when popular “Blue Chip” (or generic) coins may outperform even the bullion prices. That is because these national marketing companies pretty much can only offer to sell rare coins that are available in large enough quantities to make the promotions profitable enough to cover marketing costs. It is quite possible that US Morgan and Peace Dollars over the next year will be among the star performers.
Many Classic US Gold Coins that are less widely available than common-date $20.00 Liberties and St Gaudens also have past track records of outstanding performance.
Rare coins have the potential to outperform gold and silver prices at times. However, along with this higher potential return is a greater risk of a smaller gain than on bullion and even an outright loss. Rare coins have wider buy/sell spreads, are less liquid, and have a greater risk that you might purchase something where the quality is not as good as described. In addition, purchasers need to be comfortable with a longer holding period, often at least three to five years, before they might see good results.
Because of these additional risks, I do not consider rare coins as an appropriate “investment” for a high percentage of the general public. Even for those who are more aggressive and willing to take on greater risk, I still think that rare coins should only cover a modest fraction of what is devoted to owning hard assets such as gold and silver.
The staff at Liberty Coin Service has centuries of combined experience as collectors who have seen numismatic market peaks and valleys. Because of this, we seek out rare coins and paper money that look to have the best appreciation prospects—because we want a happy customer to resell the items to us down the road. However, we are not perfect and markets sometimes take strange detours. As a result, even the assistance of competent numismatists is no guarantee of exceptional results.
So, as to Schiff’s contention that ownership of rare coins is to be avoided entirely in this market, I can only mostly agree. I agree that most of the public should not be purchasing rare coins now. But, for those willing to take serious interest in their collection, there are opportunities in weak markets to make some wonderful acquisitions that could have profitable outcomes.
Patrick A Heller is the owner and General Manager of Liberty Coin Service, Michigan's largest rare coin and precious metals dealer since 1971. Mr Heller is the editor of the Liberty's Outlook Newsletter, and gold market commentator for Numismaster. In addition he is a columnist for The Greater Lansing Business Monthly, and has a radio show on WILS-AM 1320.