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Are Rare Coins Part Of Your Gold Diversification Strategy?

Scorpio

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#1
Are Rare Coins Part Of Your Gold Diversification Strategy?

Kira Brecht, CMT

Friday March 10, 2017 15:35
Kitco Commentaries | Opinions, Ideas and Markets Talk

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The case for diversifying your portfolio with gold is clear. Numerous studies reveal that a gold allocation up to 10 percent can smooth out overall portfolio volatility and improve long-term returns.

Non-correlated assets are an essential feature of successful portfolio diversification and gold performance reveals a negative correlation to stocks, especially during bear markets. In recent decades, gold has produced the highest level of returns when the stock market is in a bear cycle.

Since 1968, the average gold return was +14.2%
when the S&P 500 Index fell by more than 20%.

The Next Level of Diversification

Within the physical gold and silver world, there are additional layers of diversification opportunity. Expanding your physical holdings into rare coins could offer increased levels of safety and the potential for even greater price appreciation.

While gold bullion or a typical Gold American Eagle coin tends to track the underlying price of gold higher and lower, rare coins can trade at a premium to spot gold. High quality rare coins, or numismatics, have outperformed the price of gold over the past 38 years, according to an academic study by economics Professor Raymond Lombra at Penn State University.

Here's what Lombra found:

Average Annual Return 1979-2016

Stocks 12.6%
Treasury Bonds 8.0%
Gold bullion 5.2%
Coins (all types – MS65) 11.0%
Coins (all types – MS63-65) 9.3%

New Demand Source Since 2008 Crisis

The rise of Family Offices as an investment force is becoming increasingly known. These family offices, who manage assets for ultra-high-net-worth individuals have turned to both the gold bullion and rare coin market post-2008 global financial crisis in attempt to diversify away from paper investments and to preserve and grow capital.

Early U.S. gold coins have a dual capital appreciation stream. First the high gold content level support gains amid rising gold price periods. Second, the premium to gold bullion can escalate dramatically amid the unchanging supply level and increased demand, which is notably emerging from a new crop of buyers in recent years, namely family offices.

History of Gold Ownership in America

Many gold investors are aware of the events that led up to the dramatic decision in 1933 for President Franklin Roosevelt to suspend the U.S. gold standard.

This occurred after a financial crisis triggered Americans to rush to Federal Reserve banks to exchange their paper money for gold. In March 1933, the Federal Reserve Bank of New York could no longer honor its commitment to convert U.S. paper money to gold and President Franklin Roosevelt was forced to declare a banking holiday. From there, FDR issued the now infamous Executive Order, which demonetized gold and required Americans to surrender all gold to a Federal Reserve Bank.

The Rare Coin Exemption

The Secretary of the Treasury William Woodin was an avid coin collector and is credited for supporting the exception of rare and unusual coins. At that time, Americans were allowed to keep rare and unusual gold coins of "recognizable numismatic value" or collector's items. The provision specified that gold coins minted prior to April 5, 1933 were considered to be of special numismatic value.

From that period forward, Americans were prohibited from owing gold coins and bullion, although jewelry was allowed, until 1974 when Congress once again legalized private gold ownership in the U.S.

Rare coins can provide both additional layers of safety and opportunity for capital appreciation. What's in your portfolio now?

By Kira Brecht, CMT

Contributing to kitco.com

newsfeedback@kitco.com


Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

http://www.kitco.com/commentaries/2...rt-Of-Your-Gold-Diversification-Strategy.html
 

latemetal

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Nope...
 

oldgaranddad

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I do. I try to collect key and semi key dates in a series or truly nice generic specimens that I can get at a great deal.
 

Montecristo

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Kira Brecht is paid by Kitco. It sounds like this is a sales pitch for Kitco to start selling numismatic bullion that they will happily store in their vaults for you that you may or may not get back the next time they file for bankruptcy or get raided by the Canadian version of the IRS.
 

Irons

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#6
I snag the occasional rare and cool coin when they present themselves for a steal of a price. It keeps things interesting and fun.

Here is a great example. A nice worn 1821 Gold Sovereign! Just think of all the hands, pockets and purses this coin was in over it's 196 years.
It crossed at least one ocean and only God knows how many countries it was in before finding it's self in a hole in the wall coin shop in a small town in Northern Michigan.
The guy had 3 sovereigns and he wanted $10 over spot for them if I bought all 3. . . . :2 thumbs up:

1821sov 001.jpg
1821sov2 001.jpg
 

Irons

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I traded common eagles coin for coin for this Britannia set. My LCS was having a hard time selling the set but he can sell eagles all day long.
I waited until he had sat on the set for a few weeks and then came in and offered the eagles. He took it.


brittset3 share.jpg


I got the Sovereign set the same way just a different LCS. Cool it's the same year.

1988sovset 003.JPG
 

edsl48

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#9
I have played around with Ebay bucks and credit card cash backs to pick up some USA gold coins at or very close to melt. The big problem with paying for a collector intrinsic value is that it is difficult to sell at the LCS's here. They tend to under grade when they buy and over grade when they sell. I am not saying they all do this but also recognize that they have to buy at wholesale to sell at retail to cover their overhead.
When you buy at a % of spot at least you know where you stand...on so called investment rarities one has to recognize that the grading is a subjective opinion and if you need to sell things might not be so rosy.
 
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#10
I traded common eagles coin for coin for this Britannia set. My LCS was having a hard time selling the set but he can sell eagles all day long.
I waited until he had sat on the set for a few weeks and then came in and offered the eagles. He took it.


View attachment 89305

I got the Sovereign set the same way just a different LCS. Cool it's the same year.

View attachment 89307
I began diversifying with similar purchases. I was strictly a bullion guy until I noticed that all 5 of my Maple Leafs looked exactly the same, and that there was an entire world out there of semi-numismatic coins available that sold for 1% or 2% above melt, --in many cases less than the premium on a current date bullion coin. I eventually bought a used Krause catalog, and before long was adding truly rare coins that I found interesting and in many cases significantly undervalued. There's no question the numismatic portion of my portfolio has performed far better than the bullion accumulation over the past 30 years. But it is somewhat erratic, some coins go no where for years, and others triple in the span of a few years. This is especially true of world gold coins. Most of the US gold coins have gone no where, and unless a collector/investor was buying extremely rare high-end pieces, chances are they would have been better off in bullion. But for those of us specializing in world gold, the winners in the portfolio can be so substantial, that just selling off a few of them can provide break-even basis for the entire country being collected. World gold coins tend to rally by country, --right now Thailand is very hot after the recent death of the king. In 2008 Russia was at a top, in 2011 Chinese issues were at a top. Right now, Egypt and Austria appear extremely strong. The trick is to have a number of coins from each country that has a solid history of appreciation, and to sell off a portion to recoup the initial investment. It's harder than it sounds, because on the very best material the human tendency is to hold on until long after a top is in.
 

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#11
Diversification is good. It’s really hard to predict things, especially about the future. One should have some capability to sell to the available market, whether that be pre-64 coinage, gold rings and jewelry, numismatic collections, gold or silver bullion, sterling silver, sovereigns or silver eagles. Collect 'em all.


If you need money to feed the kids, it ain’t the time to be agonizing over which pretty piece you gonna have to let go at a big loss.


BF