There are quite a few ways to invest in gold, which include paper gold and the physical metal itself.  What you should acquire will vary depending on what your goals, objectives and time horizons are.  Thus, this is where you should start.  If you need help with this consult a precious metals firm.  The only trick here is this: paper metals dealers don’t typically sell the physical metal and vice versa.

If you are looking for short-term price speculation than a gold ETF like GLD is good for you.  Anything put into physical gold should be considered a longer-term hold.  Therefore never put money into physical gold that cannot be held for at least 3-5 years.  For physical gold there are two different types you can acquire: Bullion and Numismatic.

Bullion is coins and bars who’s value is based upon the gold content only.  There is no value added for collectability, quality or rarity.  The price is determined by taking the spot price and adding a premium to it for it being mined, minted and distributed.  The premium can vary coin to coin and dealer to dealer, and can range on average anywhere from $50 to $100 above spot gold.

The other type of gold you can acquire is numismatic gold.  The most popular type of numismatic gold coins are the pre-1933 US mint gold coins.  These coins contain the exact same gold that is in gold bullion coins, but value is added due to its collectability, quality and rarity.  These factors give it some benefits beyond what the intrinsic value provides.  These coins are private upon buying and selling.  They have been excluded from gold bullion confiscations in the past, and with the weakness in the dollar many experts believe that we could experience another confiscation in the not to distant future.  My favorite benefit of owning numismatic/rare gold coins is the growth they have achieved in the past.  According to PCGS data, mint state rare gold coins have outperformed the DJIA close to 11-1 and outperformed gold bullion 4-1 over the last 40 years.  All of these factors combined are the reason why so many people believe it is the best way to own gold.

Whether you are investing in paper or physical gold, do your research, understand the market and speak to a reputable precious metals firm.  This will make for an educated and pleasant experience.

To answer this question we must first define numismatic.  Numismatic is defined by Wikipedia as the study or collection of currency, including coins, tokens, paper money, and related objects.  The government defines numismatics as gold coins having a recognized special value to collectors.  This is the definition that is important when acquiring gold coins for your portfolio.  This definition tells you what is and what isn’t subject to confiscation, which brings us to the question in the title of this blog. 

People in the industry sell certain coins under the name of semi-numismatic.  They claim that these coins have some recognized collectable value (even though they are quite common) and therefore would be excluded from confiscation should it occur.  It should be noted that no one knows for sure if they would actually be excluded if the American people are subjected to confiscation again.  On the other hand, many would agree that graded rare coins again would be excluded.  Semi-numismatic coins have high bullion content and are older coins.  These types of coins are typically gold Swiss francs, British sovereigns and French francs.  The gold content is close to a fifth of an ounce. 

The reason that people prefer them is that they are more affordable than graded rare coins and they are smaller in size.  You can pick up a gold Swiss franc for around $275-$300 today depending on the dealer.  I personally don’t think that investors prefer them; they are just more affordable than an ounce of gold or a rare coin.  They have not performed as well as graded $20 Liberties and $20 Saint Gaudens over the long-term, so to say that investors prefer them would be a false statement (if you agree that investors always want the best rate of return).  These coins are more approachable to new investors in the gold market and therefore are sold as such.

I personally feel that it is important to establish your goals and objectives and acquire the right coins for your portfolio.  If that means gold Swiss francs are a right fit then so be it.  But don’t just buy them because they are more affordable or the sales person tells you to.  These coins are very easy to check prices on so do your research.  Some companies sell these coins for far more than what they are worth in order to make huge profits.  As with everything do your research and make sure you acquire gold for your portfolio that supports your goals.

The $20 Liberty Head was the largest denomination ever minted when it was released to the public in 1850.  It was designed by James B. Longacre and it contains 90% gold and 10% copper and contains .9675 ounces of gold.  These coins were minted from 1850 to 1907 when the design changed to the $20 Saint Gaudens (there was one coin minted in 1849 for design proofing).  The $20 Liberty is one of the most popular rare gold coins to investors and collectors alike.

The 1904 $20 Liberty coin was minted in Philadelphia and it is the most common Liberty coin minted.  The original mintage was 6,256,699 and there are many in existence in mint state grade available for purchase.  Compare that to the 1882 $20 Liberty of which only 571 were minted and there are very few in existence.  The 1904P in the rare coin industry is considered a “common date” coin.  If you call a broker/dealer and ask to buy a common date Liberty this is what they will sell you.

Its value tends to fluctuate more so with the spot price of gold than other coins because rarity plays a minute role in its value, although the higher the grade the higher the value.  For example (approximate pricing):
 
MS61= $1,530
MS62= $1,600
MS63= $2,100
MS64= $2,600
MS65= $4,400

The lower you go on the  grading scale the closer to the spot price the coin will be and vice versa.  This coin will be the lowest valued coin of all liberty head $20 coins.  Thus all other coins will go up in value from these prices.  For example, a 1903 $20 Liberty in MS65 condition sells for around $5,100.  The original mintage on this coin was 287,270.  The rarity factor for this coin is higher than the common date coin and therefore it is worth more money.  If a coin is in mint state 65 grade and only one is known to exist it will be far more valuable than $4,400 and will probably only be found at auction.

Liberty head $20 gold coins are great for investing and collecting.  Whether you are looking for asset protection, growth or historical significance and beauty there is a coin out there for everyone.

First read the getting started blog posted on July 2, 2010, and if you follow the steps your account rep should be able to help you decide what are going to be the best coins to acquire for your portfolio.  The reason you want help with this process is because every coin will perform differently in your portfolio.  So you want to make sure that you are applying the right tool for the right job.

For example, if your investment horizon is short-term that should rule out any form of numismatic coins.  In that case you will want gold bullion, which is a pure asset inflation hedge.  Gold bullion provides the most amount of liquidity, because it is real money and it is accepted anywhere in the world.  Gold bullion is used more as a safety net than it is as a growth mechanism in any portfolio.  It is first and foremost a hedge against fiat currencies.

If you are interested in a long-term play then you can begin to focus on numismatics.  In my opinion the $20 Liberties and $20 Saint Gaudens are the best option in this arena.  They are the most affordable, liquid, popular and readily available option at this point in the trend cycle.  Some issues have tens of thousands known to exist in a particular grade and some have only a few known to exist.  The rarer the issue the more expensive the coin, but it will also have the most opportunity for growth.  This is where strategy comes into play.  If you are looking for asset protection you will want to focus more on common issue coins and lower grades, if you are looking for more growth you will want to focus more on rarer issues in higher grades (generally speaking).

A general disclaimer, I typically will only acquire coins in the mint state range, and always graded by PCGS or NGC.  Grading by these two companies will add a layer of confidence knowing that you have coins that are guaranteed for their authenticity and level of preservation.  As far as acquiring mint state range coins is concerned, if you look at performance charts on PCGS.com you will find that the mint state range has performed the best over time.  If you have never purchased rare gold coins before I would not try to do it on your own, you need someone you can trust to lead you down the right path.  Good luck!

Choose a Broker Dealer:

Once you know that you want to own gold getting started is a very simple process.  The first step is to pick a broker/dealer that you feel comfortable with.  Typically this is done via radio and television talk show hosts that endorse various gold companies, or through an internet search.  Check out how long they have been in business and how strong their track record is.  Once you feel comfortable, call them and get assigned to an account representative.

Education:

The next step is to get educated.  Have your account rep explain to you the different gold and silver options and how they can be applied to a portfolio.  There are different tools for every job, understanding how to match them up is important.  There are two primary types of gold and silver, which are bullion and numismatic/rare gold coins.  To learn more click on the two types.

Goal and Objectives:

Once you are educated and you are starting to feel comfortable about your options, the next step is covering your goals and objectives with your account rep.  This entails going over your holding periods, your concerns with the economy, whether asset protection or growth is more important to you, etc.  Once the account rep has a good understanding of what your goals are then a strategy can be laid out.  This will help you to determine what mix of precious metals is right for your portfolio.

Taking Possession:

The next step in the process is taking possession of your gold and silver.  Most companies will ship through USPS, UPS or Fed Ex so that your package will have a tracking number, it will be insured and you will need to sign for it.  This provides another layer of protection.  Once you have taken delivery you will need to decide where to store your gold, whether that is in a safe deposit box, home safe or hidden somewhere.  That decision will be based on what you feel most comfortable with.

Portfolio Reviews:

After you have owned your gold for a while you will want to get updates on its performance and educate yourself with market intelligence.  This will help you determine when the best time to buy, sell and trade is.  Physical precious metals are a long-term hold and therefore you should not concern yourself with the day-to-day action, but you should be concerned with the trends.

The spot price of gold that is reported everyday on the Comex does affect the value of rare gold coins-because they are made of gold.  But each coin is affected differently depending on its rarity and quality.  Generally speaking, the lower the quality or lower the rarity of a particular coin, the closer it will be to the spot price of gold.  Vice versa the higher the quality or rarer the particular coin the further away it will be from the spot price.

Rare coins are graded on a scale from 1-70.  This is called the Sheldon scale (quality scale).  Each level in grade represents a higher level of quality.  Investors and collectors alike generally try to achieve high levels of quality for their purchases.  If a coin is a low grade and is a common issue its value will be more affected by the price of gold rising and falling.  If a coin is a high grade and is a rarer issue its value will be less affected by the price of gold.  There are many combinations of quality and rarity, so you can see there are many variables in how the value of a coin can be affected by the spot price of gold.

The most valuable US rare gold coin is the 1933 $20 Saint Gaudens.  It sold for over $7.5 million in 2002.  This gold coin contains one ounce of gold, and at the time of its sale at auction the value of the gold content was around $400.  This specimen at the time was thought to be the only 1933 $20 Saint Gaudens in existence, thus it was extremely rare.  Because of this coins rarity, the value of the gold content is negligible. On the other hand a very fine graded 1924P $20 Saint Gaudens with a population in the tens of thousands, sells for around $1,600 which is only a few hundred dollars more than an American Eagle gold bullion coin.  You can see that the value of its gold content dominates the value of this coin.

Typically, individuals looking for a combination of growth and affordably look to acquire coins in the mint state range with rarity numbers between 1,000 and 15,000 specimens known to exist in a particular grade.  Again, quality levels mixed with rarity will determine value, as well as how fluctuations in the spot price of gold will affect a coins value.  To understand more on how this works speak with a reputable dealer.

In an article dated June 18, 2010 on CNNMoney.com, central banks around the world have been buying into the gold rush as fears of Europe’s debt crisis mount in conjunction with a slow worldwide economic recovery.  All of this fresh buying has pushed gold to new record highs.  Gold closed at a new record high yesterday at $1,248.70 and so far today has reached a new intraday high of $1,263.50.

For the first time since 1997 foreign central banks are net buyers of gold.  Prior to last year they were all pretty much net sellers with the exception of China who has increased its gold reserves 76% since 2003.  Most central banks like to diversify their holdings in order to decrease risk, but with the US dollar and the euro under extreme pressure due to money printing, central banks are turning to gold as a hedge against paper currencies.  Because unlike fiat paper currencies, gold has an intrinsic value that cannot be manipulated by any governments’ economic policies.

The countries that are buying the most gold are Russia (26.6 tonnes 2010), Kazakhstan (3.1 tonnes 2010), Philippines (9.6 tonnes 2010), India (200 tonnes last year) and China (454 tonnes last 7 years).

Look for the trend to continue as sovereign debt crisis continue to mount.  As the gold prices continue to rise rare gold coins will benefit as they tend to lag behind spot gold in their price action (this is not always the case but has been lately).  As spot gold rises in value it signals the general public to buy, and most buyers of rare gold coins are private individuals not large institutions.  The supply of rare coins in the market is limited by the fact that there are only so many of them in existence.  Therefore relatively small changes in demand can have big effect on value.  The more new private buyers that enter into the market for rare coins the faster the prices rise.  This simple set of circumstances explains why rare gold coins tend to out perform gold bullion in the long-term.

Numismatic Guarantee Corporation known in the industry as NGC, announced in May that it reached an important industry milestone-20 million coins graded.  NGC is the first grading company to reach this mark, which underscores its position as an industry leader.

Chairman of NGC Mark Salzberg is more excited about what this number means which he states in this way, “We would not be here without the support and trust of the numismatic community.  We are so grateful to the collectors and dealers who have entrusted their passions and livelihoods with us.”

NGC is one of the top two grading companies in the world, the other being PCGS.  They are both independent third party grading companies.  Their contributions to the numismatic world have been instrumental in establishing standards for grading, valuation and authenticity.  This has created a level of confidence amongst collectors and investors alike which has added a level of liquidity and a higher level of demand for rare gold coins.

With the advent of these two companies the sale of rare gold coins has been allowed to expand.  No one needs to be an expert in the field of valuing rare coins in order to safely acquire them.  Because these two companies guarantee a coins quality and authenticity investors and collectors can rest assured knowing they have the real deal.  This has created another layer of demand that would not have otherwise been achievable.  It allows the novice to enter the market safely.  Because the numismatic market is so small in comparison to the bullion market, higher levels of demand has a bigger impact on prices of rare coins.

NGC has graded some of the most valuable coins in the world, including the highest known quality US 1804 $10 gold coin valued somewhere around $5 million.

Congratulations to NGC for not only being an industry leader but also for achieving this historic mark.  Thanks for creating a safer environment for us to put our money.

There is a lot of concern worldwide that the U.S. Dollar is weak and facing tumultuous times ahead.  This concern is justified, as we have printed 2.5 times the money supply in just 18 months, and anytime in history when a government has turned on the printing presses to pump liquidity into the markets, eventually that currency inflates dramatically.  There have been times in history where printing lead to hyperinflation and eventual collapse.  The most famous example is Germany from 1919 to 1923 when gold went from 170 Deutsche Marks to 87 trillion Deutsche Marks.  The most recent example would be Zimbabwe whose currency was inflating over 1 million percent a year until the currency died in April of 2009.

What is most interesting about the case of Zimbabwe is that we actually got to see what happened when the currency collapsed.  Citizens of Zimbabwe began panning and digging for gold in rivers and mountains in the hopes of obtaining mere grains.  They would then take this into the city and buy products with it.  Gold as an alternative currency to the dollar is very viable option, and some would say the only viable option to fiat paper currencies.  Gold and silver are both considered to be monetary metals and are a good option for bartering.

On this site we frequently talk about rare gold coins.  But in the instance of bartering rare gold coins are not the way to go.  Rare gold coins are typically used for growth in a portfolio which can later be converted to quantity if so desired.  But under the circumstances of a currency collapse gold and silver bullion in small denominations is what will be most desired.  The smaller the denomination the easier it will be to barter with.  For example, if you have a 1 ounce American Eagle gold coin and gold has shot up to $50,000 per ounce because the dollar is worthless, it will be harder to barter with than 1/10 of an ounce worth $5,000.  Now prices will have inflated along with gold going up, but I wanted to draw a picture in your mind.

Silver will be even easier to use as an alternative currency due to its low value.  Bartering with 1 ounce of silver today with a spot price at $17.41 makes buying anything with that easy.  It is prudent to have some barterable gold and silver in your portfolio.

Richard Russell has been writing the Dow Theory Letters and daily market commentary for 52 years.  He is well respected around the world for his knowledge of the markets.  He uses technical analysis to forecast action in the stock market.  He recently wrote this to his subscribers:

“Yes, everybody is searching for the ultimate safe haven. I pick gold. The ironic problem with gold is that it is quoted every minute against currencies. If you have a safe haven item like a Picasso, do you quote its “Possible” price every hour?  No, you relax knowing that it will always represent wealth. The same can be said of a great diamond. But because it is quoted hourly, investors worry about gold. I’ve said, and I’ll repeat it, figure your gold in number of ounces, not dollar value. When the dollar is history, gold will still be here, and it will still be an eternal item representing WEALTH.”

This is such a great statement.  Gold has always held its value.  People get nervous with the day-to-day price action in the market, but gold needs to be thought of in terms of the big picture.  If you are a day trader then you need to be concerned with the day-to-day, but a typical investor needs to use gold as a safe haven first and foremost, and a safe haven is a long-term investment.

Rare gold coins are even more so a long-term acquisition.  Rare gold coins/numismatics do not typically fluctuate every day, therefore they are less volatile in their price action.  They tend to lag behind bullion in terms of timing.  If the price of gold rises dramatically, rare gold coins typically take a few days to respond.  It should be noted that the more common a coin, the more it will fluctuate with the spot price of gold.  The rarer issues will not be affected as much by the spot price of gold’s rising and falling.

Rare gold coins, are like a Picasso, “you can relax knowing that it will always represent wealth.”  So stop watching the day-to-day action and relax with the peace of mind that you own something that will always represent wealth.