Who Ate My Premium?

When gold was starting to shows signs of life a few years ago, many astute investors choose pre-1933 United States gold coins as an investment. This numismatic category includes common date issues of United States gold coins: mostly half eagles, eagles and double eagles. However, common date gold dollars and quarter eagles are sometimes included as well; they are usually referred to as generic gold. Great hoards of United States gold coins were shipped overseas for international trade beginning in the 1880s and this is where many of the aforementioned coins originated. Luckily, these were coins spared from the melting pots during the Gold Recall Order of 1933 when millions of United States gold coins were collected and then eventually melted by the U.S. Government; Fort Knox was constructed to hold the resulting gold bars. Although the recall made an exception for collector coins, many were undoubtedly destroyed in the great melt. Therefore, the gold coins that had been shipped to Europe and other parts of the world now represented a majority of the supply of United States gold coins that would be available to future collectors.

Beginning in the late 1940s, American dealers began to travel overseas to retrieve this untapped cache of United States gold coins. By the mid 1970s, the importation of United States gold coins from Europe had become a major industry for several large companies. Even today, there are many dealers scouring Europe for United States gold coins. No firm numbers are available, but it can be safely estimated that thousands of coins still return home each month. The population reports of NGC are a good indicator of the quantity of coins that have repatriated over the years; several late date double eagles have seen over 100,000 coins certified.

Generic gold coins have been a very popular investment vehicle for decades. Before the advent of rare coin certification, many companies sold what were known as Eight Piece Type Sets encased in Capital Plastic holders. The set included an Indian quarter eagle, half eagle, eagle, and a St. Gaudens double eagle, as well as a Liberty quarter eagle, half eagle, eagle and double eagle. Tens of thousands of these sets were sold to rare coin investors. Occasionally, there has been a surge of interest in this investment category; in the mid-1980s, generic gold coins were incredibly hot. In 1999, there was an actual gold rush by buyers when gold ranged from approximately $300 to $500 per ounce because they were convinced the world could stop due to the Y2K scare. Historically, gold coins have sold for a significant premium to their melt price. In late 1999, with gold trading at $300, an MS 63 St. Gaudens double eagle sold for around $600. This represented a 100% premium to the melt price.

In the last year or two there has been a tremendous interest in gold bullion. With record deficit spending by the federal government, many have sought the safety of tangible assets. Naturally, common date United States gold coins have been a popular choice by many investors. Some choose United States gold coins in the belief that if there were ever a government confiscation of gold again, coins could possibly be exempt. Others like the idea of the protected downside of owning numismatic coins with high bullion content.

Gold has indeed been a good hedge against inflation and deficit spending. Currently, spot gold prices exceed $1,500 for the first time in history. Unfortunately, the numismatic premium for most generic gold coins is at an all time low which means some very low grade US gold coins are being melted. With spot gold trading at $1,500, MS 63 St. Gaudens double eagles can now be purchased for around $1,700; this is slightly more than 15% above the melt value. Many collectors and dealers do not understand why the premium has fallen so low. Several factors have contributed to this phenomenon: first is the simple law of supply and demand; many gold bugs are cashing in, since gold is reaching record levels. Second, the supply of gold from European banks that is being brought back into the United States is the highest in decades. Many of the current buyers of gold are not interested in vintage coinage; they simply want gold bullion with the lowest possible premium. Finally, the price point for many United States gold coins have put them out of reach for many collectors.

The price premium for United States gold coins usually returns to a more historically reasonable average in the long run. This is not the first or last time that generic gold coins have seen wild price swings. Contrarian collectors and investors should take the time to study this interesting segment of the rare coin market. I personally do not know if gold has reached its peak, or is just getting started. However, I do know that if you plan to buy gold, United States gold coinage represents an incredible bargain at today’s premium to gold prices. Given the time, you could get hooked on collecting, and in the long run collecting is much more fun and exciting than buying a box of gold bullion!

Jeff Garrett bio