Page 44 of 50. Coin Basics and about other precious metals

I sometimes assume people know more than they actually do.

I, in no way, want to come across as condescending here. It is just that when reading comments from people on internet posts about coins, I read statements like: "I bought one of those, but it was made better than the ones this company sells." They were writing about a 2015 American Eagle silver dollar. Anyhow they, and probably others, simply don't know the basics. So I decided to write about some of them here.

If you already know everything, or most everything, simply ignore this post.

I'll begin with the comment I referred to above.

The American Eagle silver dollar coins.

These are ALL made by the US Government Mint. They are all made of the exact same composition, being nearly pure silver. Nothing is ever 100% pure, so the coins have the number .999 on them indicating that they are 99.9% silver. There is always some trace elements and nothing is ever 100%. The Canadian Maple Leaf five-dollar coins are .9999 or 99.99% silver. Still not 100%. Nothing is.

These silver Eagles are NOT minted to be used as currencies. They are minted as a bullion coin and valued for their silver content - to be bought and kept stored away. Anyone foolish enough to "spend" a one-ounce silver coin (or round or bullion) for a dollar, when silver value is $16.95 (at this moment) is insane! Ditto for gold.


Silver American Eagle dollar.
In addition to the mint state (MS) American Eagle coins, the government also mints what is called a proof coin (PR). These are minted with specially polished dies and come out looking much smoother and very shiny. Sometimes they sand blast parts of the die, to create a frosty appearance or cameo on one part or another of the coin. They cost a premium above the usual mint state coins of course. As a rule, unless you want one just to look at them, or you are a serious collector, these are not an "investment" coin. Yes, there are times they maintain better value than the mint state coins, but generally speaking they aren't a better place to invest your paper money.

Proof silver American Eagle dollar.
Coin grading or certification.

Beyond this there are coins, including these American Eagle coins, which have been graded by a professional service like Professional Coin Grading Service (PCGS) or the Numismatic Guarantee Corporation (NGC). These companies employ experts who grade the coins, and the company seals them in special containers (slabs) which are made of a material which will not harm the coin, and the slab protects it from the elements. The industry generally accepts the gradings given by these experts, and it is safe to assume the grades they claim are accurate. I believe this so much so that I have purchased many coins sight-unseen in the past.

Before this system (which began on February 3, 1986) each individual owner/seller claimed his coin grade, and it was up to you to determine if he was right or not. In fact, today we can still see raw coins advertised for sale as bright un-circulated (BU) and other such terms, decided by (sometimes) poorly trained sellers, who can gain money by over-rating a coin's condition. Those coins are, of course, not certified by anyone and usually not in a slab. So, be careful if buying these.

The current certification and grading system has made a major improvement in coin collecting, especially for the average person.

PCGS story can be read in its entirety here:  

This coin grading represents another bump in price, and naturally the higher the grade the higher the price. Graded coins are always sealed in a plastic container called a slab. The slab itself is sealed and removal of the coin will damage the slab beyond repair. This slabbing of the coins gives protection to that coin allowing you to handle it holding the slab instead of touching the coin itself. Plus, the sealed coin stays untarnished far longer, or possibly forever, within the specially formulated plastic used by these services.

As I have said elsewhere, be careful in handling this slab because if it get scratched or otherwise damaged it needs to be re-slabbed at an additional cost. 
Slabbed Certified silver American Eagle,
As always, BE CAREFUL! Coin slabs have been counterfeited! They make a slab to resemble the real thing, and put an inferior coin inside so you will pay a far higher price and get a lower quality coin. Once you have a few slabbed/certified coins you can compare side-by-side and tell if it is a real company slab - usually. Study up and know what you are doing, plus buy only from a trusted dealer

If you aren't willing to take the time to study enough to avoid the various pit falls in this business, then stay out of it.

You can expect to pay the value of the coin in a slab plus the cost of having it certified and put into the slab. However, many times you will find these are sold for less than that. This is partly due to the fact that a dealer or collector will buy a supply of a particular coin and send them in to be certified, hoping to obtain perfect coins. The perfect coins demand a much higher premium and off-set the costs involved with certification, allowing them to rid themselves of the rest of the coins at a price even lower than the value of a coin plus that certification. An example of this is the common date "Mercury" dime. Many are sold for less than the cost of certification! Personally, I don't think this should happen, but the market place determines the prices.


I paid $20. Someone paid that or more just for the certification!
The grading system.

This system uses numbers ranging from 1 to 70. A number 1 being a coin which is known to be a coin, but so worn as to not be able to determine anything else about it. A 70 being a perfect coin which has zero defects and, of course, zero wear.  The numbers from 60 to 70 are reserved for mint state coins. Mint state (MS) does not imply perfect. Mint state means simply that the coin was not placed into circulation as far as can be determined visually. However, it may well have nicks and scratches on it due to handling and shipping to branch banks from the mint.

Proof coins generally have almost no nicks or scratches since they are never made for circulation in the first place and not shipped out in bags banging up against each other inside the bag. Proofs are made from the beginning to be sold to collectors. Proofs are seldom, if ever, graded below a 64 or 65 number due to their original purpose and subsequent "white glove" care and handling. On the other hand, mint state coins from 60 to 70, were not originally made to be collected but intended to go to the bank drawer and be distributed. The current American Eagles are an exception to this, since none were ever made to be circulated.

A mint state coin, with nicks and rub marks, is graded based mostly on the number and severity of small nicks and marks. A heavily handled coin with a number of marks, even though otherwise never circulated, may be graded an MS60. One which has very few marks may come back as an MS69. One which is absolutely perfect, with zero defects, becomes the coveted MS70. There is a saying in the industry that only God creates an MS70! They are quite rare and of course costly. Absolutely none of the older coins are 70s.

Any natural coin toning has no direct effect on the coin's grade nor value. In fact, many collectors will pay a slight premium to obtain a coin with toning. I am not one of those people. I prefer a coin without any patina or toning. But, that's just me.

Silver coins which were made by the US government mint for circulation were made of 90% silver mostly. There are numerous exceptions but, if you can just manage to remember that all US "silver" coins stopped having any silver in them as of 1965 you will be fine. Those coins which are the exception are just as valuable (all else being the same) but if you go to sell one be prepared to educate the average buyer!

Silver in general.

Silver coins were among the first coins ever used, thousands of years ago. The silver standard was used for centuries in many places of the world. And the use of silver for coins, instead of other materials, has many reasons:
  • Silver is liquid, easily trade-able, and with a low spread between the prices to buy and sell. A low spread typically occurs when an item is fungible.
  • Silver is easily transportable. Silver and gold have a high value to weight ratio.
  • Silver can be divisible into small units without destroying its value; precious metals can be coined from bars, or melted down into bars again.
  • A silver coin is fungible: that is, one unit or piece must be equivalent to another.
  • A silver coin has a certain weight, or measure, to be verifiably countable.
  • A silver coin is long lasting and durable. A silver coin is not subject to decay.
  • A silver coin has a stable value and an intrinsic value. Silver has been an ever rare metal.
  • Because silver is not nearly as valuable as gold (for now), it is much more practical for small everyday transactions.
On the topic of gold.

Remember that most of what applies to silver also applies to gold. Today gold is much more valuable than silver. Many experts feel this may change in the future due to the enormous industrial usage for silver. Personally, I doubt that will come to be. What I do know is that with the current prices I can't afford to buy much gold, and besides gold is far less liquid - hard to use as money. Gold's advantage is that it stores a lot more value per space taken up. So probably some combination of both metals would be wise.


1924 St. Gaudens twenty-dollar coin. Today's cost about $1,600.00.
Modern gold American Eagle fifty-dollar coin. Today's cost $1350.00.
 Metals besides silver and gold?

Platinum: This is traded and not bad to own. This is normally priced on a par with gold. The US mint makes platinum coins as well as silver and gold.

Copper: Copper is not weighed in troy ounces but avoirdupois ounces, like butter or corn. Copper isn't valuable enough for investing, in my opinion.

Palladium: This is OK I guess. But, not something I know much about. Some jewelry is made of it, and it resembles white gold or silver. Try asking people at random how much an ounce of palladium is worth and see what they say. Probably that they don't even know what it is. And, if the economy crashes and you are buying with precious metals, when you try to use palladium you better be ready to educate the buyer and convince them it is valuable.


Copper round, $3.95 with free shipping.
Palladium one ounce bar for $885.00.


What about "coins" other than silver and gold?

Some of these are good investments as of today. I have a few pennies and a few other things myself. But as far as buying coins to be a hedge against inflation, I would be hesitant to advise you to buy any coins besides gold and silver. Gold and silver are the standard against which anything of value is weighed.

As I have said many times in here, we need to begin to value silver and gold against the commodities which we may need to purchase. Silver and gold are the standards not paper. When the dollar goes up or down it effects the amount of precious metals you can invest in - for today. But take away the paper dollar and what is left is the store of value contained in silver and gold. Keep this in mind when you see the silver market fluctuating. It is the dollar that is volatile not a chunk of silver/gold!

I've mixed up a few terms herein. 

Coins and rounds for example. The government wont allow me (you) to make a silver round and call it a coin. It is just a round piece of silver with no printed value on it. That is what a silver "round" is. The silver American Eagle is a coin - a silver dollar. I consider it to be a silver round as well. It does have a stated value on it of one US dollar, but is that its actual value? Absolutely not!

The gold American Eagles are fifty-dollar gold coins (and some other denominations). Want to sell one for that? Probably not! It too is a gold round for all intents and purposes. Neither of these were ever produced with any intention of them becoming US coinage for use to buy and sell for the dollar amount stamped on them.

Ditto for a Canadian Maple Leaf five-dollar coin/round. And a few others.

Older US coins, like the Morgan dollar, were always produced as a currency for daily use, and are coins, and not considered to be a round at all. Today, because they are 90% silver, they have become far more valuable than what was printed on them as a coin/currency, and very few are still in circulation due to that fact.

Bullion.

Both gold and silver come in many different shapes and sizes. Just to confuse the issue a little, I'll state that in addition to being a coin and a round an American Eagle is also a bullion coin! Bullion coins describe contemporary precious metal coins minted by official agencies for investment purposes. Historically, most currencies were in the form of bullion coins, silver and gold being the most common metals. Some bullion coins have been used as currency throughout the 20th century, like the Maria Theresa thaler and the Krugerrand. However, modern bullion coins generally do not enter common circulation.


Bullion round by Sunshine Minting.


Bullion ingot or bar, also by Sunshine Minting.

Compared to numismatic coins, bullion bars or bullion coins can typically be purchased and traded at lower margins and their trading prices are closer to the values of the contained precious metals. See photographs of the two gold coins above for a comparison.

Occasionally consumers who are unaware of the intrinsic value of a coin, will use it as normal currency. If a coin is taken to a bank, the bank can only pay the face value of the coin. However, as noted, if it has intrinsic value it is worth much more. I bought 17 silver half-dollars at a bank once when I found out some guy had given them to the teller to pay for something. She seemed not to understand what she had. Thank you!

What makes a coin have value?

There are several factors which apply to add value to a coin.
  1. Age. When was the coin made? All else equal this matters a lot. Older coins are, of course, more valuable just because they are older. But, wait! Lots of other things are as important or even more important!
  2. What is a coin made of? Gold is more valuable than copper. Silver is less valuable than gold but more than copper. Basically, gold or silver are top in value. However, for additional reasons some copper coins are quite valuable. Read on...
  3. How many were produced? These figures are sometimes hard to determine. Very old coins were produced and no records were kept. So, estimates are made on the number in existence based upon how many are in circulation or in collections. Very old bronze coins were made by hand and as a result there are very few in existence. However, those very old coins are not always very valuable! Read on...
  4. How many exist? This is much different from how many were made. For lots of reasons coins become scarce beyond what the production figures would imply due to being confiscated by governments and other things like destruction of large numbers of coins by a disaster like a ship wreck etc.
  5. Condition. How well was the coin preserved? The grading system has taken most of the guess work out of this factor. Usually any better conditioned coin is more valuable. There are variables in this like toning.
  6. Eye appeal. People simply like the looks of certain coins. They like the look of one coin better than another one with the same grade. This is a personal matter but it does effect the value.
  7. Demand or interest. This is probably the most important factor! The really old coins from Rome aren't very valuable even if low numbers exist and they are in good shape and made of gold. If there is no demand for a coin it tends to be valued closer to the intrinsic value of the materiel it is made of.
 

NEVER TAKE MY INVESTMENT ADVICE! 
Consult the professionals