Safety With Gold and Silver Coins

April 29th, 2012
in gold, silver

Written by Goldfinger

You need to find a store of wealth that is secure, keeps up with inflation, and holds its value during deflation.  Gold is the obvious choice, but silver is very good too.  Platinum, and palladium are possibilities if you want diversity.  At the moment, platinum is cheaper than gold which doesn't happen often, but does it hold its value?  The Yahoo chart below suggests there are better choices at the moment.  Palladium does better than platinum but not nearly as well as gold and silver.

Silver was close to all time highs recently and gold has overtaken platinum in price.  Silver, along with platinum and palladium, may have an advantage over gold in so far as our government has confiscated gold once before.  If you are looking for security, you want an asset that won't be taken away.  I know this sounds crazy, but this happened to our parents and grandparents in 1933.  Who knows if it will happen again.  First, lets look at how these metals hold their value.

Follow up:

Notice that gold and silver went down during the 2008 meltdown.  But they were the only asset class to recover within a year.  As the uncertainty of the banking system heightens around the world and in our own back yard, more and more people and countries are buying and holding gold.  This has caused a nice rise in this asset in recent years.  The metals love uncertainty.  Let's concentrate on gold and silver, as I feel they are the best choices.  How should you own these security nets?

There are basically 4 ways to own these metals: physical bullion, stocks and their options and bullion certificates (ETF's), numismatics and bullion coins, and jewelry.  To determine which is the best fit for you, you must define what your objective is.  Do you want absolute security in case of a global meltdown, safety from a government confiscation, or appreciation?  Each way to own these metals has its own pluses and minuses.

For this article let's focus on numismatics.  I will discuss the other choices in future articles.

The positives according to Kagins Gold & Silver Coin Advisors:

1. Privacy

2. Tax Advantages

3. Diversification

4. Easy Storage & Mobility

5. Emergency Insurance

6. Safe Hedge Against Inflation

7. Liquidity

8. Few External Controls – A Free Market

9. Wealth Transference

10. Beauty, Art & History

Now for the other side of the coin!

First, let's examine the myth that numismatics can't be confiscated by the government.  President Roosevelt issued an executive order in 1933 that specifically excluded coins, but that does not mean any future laws will have the same features.  You can't count on the government to follow previous procedures.  In addition, Executive Order 11824 was repealed in 1974 by President Gerald Ford meaning those regulations are no longer in effect.  That same day congress restored your right to own gold and removed the President's authority to regulate gold during a national emergency.  (Thanks to

Second, rare coins have a high sales premium when buying or selling.

Third, unless you are an expert in this trade it is very difficult to put a value on rare coins.  Plus, in most cases no one knows exactly how many coins are in existence which could dilute your investment, should more surface.

Fourth, most coins do not have enough gold or silver in them to make them as valuable as the cost if they were to be melted down.  Consequently, many investors buy old U.S. gold coins at prices significantly higher than the value of their gold content.

Fifth, the premium over melt can be affected by supply and demand fundamentals as prices depend on the size of inventories.

Sixth, even though coins are considered liquid, they are not nearly as liquid as stocks or ETF's.

Seventh, demand for coins doesn't necessarily follow the demand for gold or silver.

If you like the idea of significant appreciation potential, are wary of the possibility of gold confiscation laws (so just buy silver coins), or just love the beauty of coins, this might be a good fit for a portion of your portfolio.  Both gold and silver coins have been in existence and a store of wealth for the owner for thousands of years.  There is no reason to believe that will change any time soon. To be safe, it is best to buy coins like the American Eagle that have a price based on the amount of gold or silver in them and not for the premium paid for rarity.

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