Should I buy bullion or collectibles?

Should I buy bullion or collectibles?

Condition of Collectible Coins Versus Bullion

In coin collecting, the numerical grade of a coin can be a vital factor in determining its value. However, there is a huge difference in the importance of grading between precious metal coins for the investor market and precious metal coins for the collectible market.

To state it in the simplest terms, the condition of a bullion coin is not a factor in the investor market. It's all about the precious metal itself. A coin is silver, gold, or platinum...or it's not. The value is based entirely on its precious metal content, not its numerical grade. Essentially, it's irrelevant whether a coin is in pristine condition or not.

For example, the Gold Eagle and Silver Eagle bullion coins from the United States Mint are made for the investor market. Gold coins are struck in one-ounce, half-ounce, quarter-ounce, and tenth-ounce sizes, while the silver coin is made only in the one-ounce size. The value of each coin is based solely on its amount of gold or silver.

In the collectible market, a coin's condition or numerical grade is extremely important. A general rule of thumb is the higher the grade, the rarer and more valuable the coin.

Quality of Collectible Coins Versus Bullion

The quality - and therefore the value - of a collector coin is comparable to the diamond market. A low grade diamond will always be worth much less than a D Flawless diamond. In almost any collectible market, you will see a similar focus on quality. In the case of the Gold Eagle and Silver Eagle bullion coins, collectors eagerly search out coins in higher grades. Certified coins in high grades are no longer purely "investor" coins, but become "collector" coins instead.

For example, a 1996 Silver Eagle contains one ounce of silver, but on the collector market it's valued at $4,940 in perfect MS70 condition. That figure is not based just on the silver bullion value, but due to the fact that only a handful of coins have been certified as MS70. The coin's value is therefore based on its condition and rarity, not only its silver content.

The rarity and quality of a coin can make the difference between a coin that might be worth a few dollars for its metal value, and the same coin in superb condition that could be worth tens of thousands of dollars. A silver or gold coin for the investor market will never experience that magnitude of value increase. The type of coins you purchase will depend, in part, on whether you are an investor or a collector.

What is the difference between bullion and collectible coins?

Precious metal coins fall into two broad categories: bullion and collectible. The two share many similar qualities and the differences can be confusing. Bullion coins are generally defined as coin struck in precious metal, such as gold, platinum, or silver, which are of defined weight and purity. The market prices of bullion coins fluctuate daily depending on the current precious metal markets. It is irrelevant whether a bullion coin is in pristine condition. A bullion coin can be scratched, dirty, or worn and it will not affect its intrinsic value. Collectible coins have historic and aesthetic value to collectors. The value of most collectible coins exceeds their metal or their melt value. This numismatic value is determined by factors like the type of coin, the year it was minted, the place it was minted, its scarcity or rarity, and its condition or grade. Because of these factors, many collectible coins are submitted to professional coin grading companies. Seemingly minor differences in grade or detail can have huge impacts on the collector value of a coin.

Which is right for you? Deciding between buying bullion or collectible coins is a personal decision based on a wide variety of factors and objectives. Some collect both kinds of coins, although it is important to clearly recognize the differences between the two.

Here are a few things to consider when making your decision:

  • The value of bullion coins rises or falls immediately based on that day’s metals market.
  • The value of a collectible coin may rise or fall somewhat due to its metal content even though these changes are generally slower and less reactionary than bullion coins.
  • Certain bullion coins can become collectible, especially when they are of top quality and greater scarcity than others within the same bullion series. Some examples include U.S. eagles, China pandas, and Australian kangaroos. For example, a 1999 silver eagle contains one ounce of silver but on the collector market it is valued at up to $22,500 in perfect mint state 70 condition. That figure is not based on the silver bullion value but because only a small handful of coins from that year have been certified as mint state 70. The coin value is therefore based on its condition and rarity and not on its silver content.
  • When buying collectible coins, look for respected third-party graders by PCGS (Professional Coin Grading Service) or NGC (Numismatic Guarantee Corporation). This will assure that you are buying authentic, professionally graded coins.
  • When buying modern, newly issued collectible coins, make sure to work with an authorized mint distributor and ask for the official mint certificates of authenticity if they are issued.

As in all collecting, it is vital to clearly define your goals and to work with a trusted numismatic expert to help you achieve those goals, whether that be through bullion, collectible coins, or a combination of both.

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