There are several important decisions you have to make before choosing what to buy:
Bullion vs. Numismatics
“Bullion” is a term that refers to precious metals which are owned, bought, or sold for the value of its metal content, not a special historical, collectable or numismatic value. Numismatic, rare, or semi-rare coins on the other hand, are being bought and sold for higher price than the metal is actually worth because of some special value. While some bullion will carry a small premium over other forms of bullion (e.g. 1 oz coins versus 100 oz bars), the idea behind bullion remains the same – the coin or bar simply represents the weight and purity of precious metal which was stamped on the surface of the metal.
We believe bullion makes the most sense for most investors. For example, at the end of 2008, certain semi-rare gold coins were selling at 50-60%+ premium over the spot price. While the spot price saw a double-digit percentage increase over the following 6 months, the price on these semi-rare gold coins dropped over 20%. That’s right – the price of gold increased, but the price of these semi-rare coins dropped during the same period. In our opinion, inexperienced investors should be cautious of non-bullion precious metals.
Bars vs. Coins
As a rule, smaller, recognizable coins are better if you expect to be using coins as a barter or money item in a worst-case scenario. If you expect to be trading, bartering, and using your coins as money, consider 90% junk silver, American Silver eagles, 1 oz gold coins, fractional gold coins (less than 1 oz in size), and 1 oz generic silver coins. Be cautious of very large bars or numismatic gold pieces which have a higher premium that can be difficult for average investors to determine.
For a larger investment you expect to buy and sell in large amount, small coins can actually be difficult to count and transact when you sell. For a single $10,000 silver transaction, (50) 10 oz bars are far easier to count than 8,000 silver dimes.
American vs. Foreign coins
As a rule, American coins are more popular in America than most foreign-minted coins. Gold Eagles, Gold Buffalos, and Silver Eagles are favorites with many investors and coin collectors in America, giving them greater name recognition and demand than other coins. US minted bullion gold eagles, gold buffalos and silver eagles (though not the 90% silver coins) are also currently exempt from 1099 requirements if you decide to sell your precious metals.
For all investments, here’s our biggest recommendation. If you have trouble recognizing or understanding the value of a coin or bar, don’t buy it. If you don’t believe in the value, it’s unlikely you’ll do a good job convincing someone else of it. Buy what makes sense to you.