There are Big Bucks to made by Collecting Money

by Rob Carrick
April 2001 R.O.B. Magazine

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This is an article taken mostly from the The Canadian Coin Reference Site! but still very applicable to Australian Collectors

Coin collecting, or numismatics, is an interesting segment of the collectibles market. People collect coins for their aesthetic appeal, but also for their investment potential. More than this, however, people appreciate that they are unique items that have a staying power like few other collectibles. Very seldom do you see a plush toy that is several hundred years old.

The coin market has undergone a number of changes in the last few decades. Enthusiasts and investors have supplanted the professional coin collectors and dealers who once set trends and prices. The recent growth of the Internet has also introduced coins to a much broader audience, many of who do not have the experience the professionals do. As a result, the market has flourished and is much more accessible than it once was.

The most important thing to know is that coins are graded according to their appearance.

In spite of this new 'openness', people need to know where to start when collecting or investing. Coins aren't just found at dealers' stores anymore. They're everywhere, but sometimes you have to look for them. No one would know this better than Mel Fisher, the Florida treasure hunter who has spent much of the last three decades searching for buried treasure in the Caribbean.

Fisher has turned up millions of dollars of sunken Spanish treasure - much of which was gold doubloon coins. While the average coin collector may not have this kind of luck down at the local beach or in their backyard, there are lots of other treasures to be found when collecting and investing in coins.

Before heading out of the house (or to the local coin show, for that matter) with the proverbial shovel and pick in hand, you should arm yourself with a few general facts about coins.

The most important thing to know is that coins are graded according to their appearance. This grade - or condition - of the coin will play a large part in determining its value. Graded coins are divided into two general categories: uncirculated and circulated, and within each of these categories there are different grades. People should be familiar with the relevant grading system when they are buying coins.

Uncirculated coins, or mint state (MS), display no wear at all; they are graded from MS-60 to MS-70 on the American Numismatic Association scale, Unc to Gem in the Australian system. These grades are influenced by factors including luster (shine), the nature of the contact marks made when the coins are minted, the quality of these marks, and overall visual appeal.

Each coin will be assigned a grade when it is appraised, but opinions on the grade of a coin can vary substantially from one appraiser to the next. The result will be different value estimates for the same coin, and an unhappy buyer or seller.

There are 8 basic grades for circulated coins. These grades are an indication of the wear the coin displays, but they omit factors such as dents or scratches. The grades range from Gem (very choice uncirculated) at the top of the scale, which no wear and no major flaws to Very good at the bottom, which is heavily worn. Not surprisingly, value decreases as the grade of the coin decreases.

In some instances, coins may fall between categories. There are a number of contingencies for these situations, including a '/' (slash) when the two sides of the coin differ in appearance, a '+' (plus) symbol when the coin is slightly above one grade but not as high as the next (i.e. VF+), or a sliding scale that would be listed as F-VF.

While the value of a given coin is ultimately determined by its grade, there are also other factors that will affect the price. Demand from collectors and investors for the particular coin, as well as dealer requirements and market price for the metal, influence the price. The combination of these factors has resulted in pricing structures are not as rigid as they once were.

This information will be useful for both collectors and investors, but there are a few things investors in particular should be aware of. As with many collectibles, coins have investment potential. But there are two types of coins that generally provide a better return on investment than others: bullion and rare coins.

Bullion coins are minted from precious metals, and their value follows the market price for that metal. Internationally-produced gold bullion coins include the Australia Gold Nuggets, the Canadian Maple Leaf, the South African Krugerrand, the American Eagle, the Chinese Panda, and the British Britainia. There are also silver and platinum bullion coins.

These coins sell for the market value of the gold plus a premium for the special minting. Bullion coins are particularly attractive to commodities investors because they are easier to buy and sell than gold or platinum bars, which need to be assayed (evaluated) before they can be sold.

Rare coins include items such as medieval, Greek and Roman coins,Australian Pre-Decimal coins and older gold soveriegns coins, and are usually a good investment because of the demand for these coins from collectors. Rare coins often cost substantially more than bullion coins, however, particularly in light of current commodities prices.

Investors should be aware that coins – either bullion or rare – do not normally provide the same type of return as something like tech stocks would, nor do they appreciate as quickly. Like these other investments, however, there are risks involved when investing in coins.

One of the risks for investors is counterfeit coins, where the coin has been forged or altered to appear more valuable than it actually is.

Another, more common, risk is buying an overgraded coin - a coin that is incorrectly graded to be in better condition than it actually is.

The best way to minimise your risks when buying coins is to learn everything you can about them.

A third pitfall for coin investors - particularly those who choose gold or silver coins - is the possibility that the price of the metal will fall after they purchase the coin. Both metals are only worth a fraction of what they were in the 1980s, and as a result, the value of gold and silver coins has declined as well. On the other hand, the low price does provide an opportunity for people to buy coins at the lower end of the market.

Finally, people need to consider the costs involved when they try to sell their coins. Commissions to sell coins may be higher than for other investments, thus eating into the seller's profit margin more than stock or mutual fund commissions would.

Regardless of whether you want to collect or invest in coins, you need to factor in all of these risks before buying coins. The best way to minimize the risks is to learn everything about the type of coins you are purchasing, and the best way to do that is to be familiar with grading scales or work with a dealer you trust

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