07
Mar
2017

Gold Investing 101 – Beware eBay, Collectibles and “Pure” Gold Coins that are Gold Plated

Gold Investing 101 – Beware eBay, Collectibles and “Pure” Gold Coins that are Gold Plated (Part I) 

  • Investors looking to gold again but gold buyers need to exert caution
  • ‘Wolves of Wall Street’ ready to hungrily gobble up life savings of unsuspecting ‘widows and orphans’
  • Like all markets are few bad apples in gold market
  • Need to do due diligence on company buying from
  • Avoid companies marketing gold plated coins as “pure gold” coins
  • Collectible coins do not capture the value of  gold and are not safe havens 
  • Not liquid and pricing similar to art market
  • Own gold bullion coins as insurance, to reduce counter party risk and to preserve wealth

gold-bullion-sovereign-2017
Last year gold demand reached a three-year high and the gold price finished up 8% in dollars, 13% in euros and 31% in British pounds.

2017 has picked up where 2016 left off. Uncertainty with regard to both the political and financial outlook and a growing demand to hold assets outside of the banking system is seeing safe haven demand for gold and gold is 6% higher in dollars and by more in other currencies.

It is little wonder, therefore, that many investors are again looking to invest in gold and sometimes silver in order to diversify their portfolios and reduce risk.

As mentioned last week, when it comes to investment opportunities, the pickings are looking increasingly slim with many markets, including stock, bond and many property markets now at or near all time record highs.

The sale of a Gaugain for just $25 million, 74% less than it was bought for in 2009 and a 17% and 27% fall in sales for both Christie’s and Sotheby’s respectively, shows the air is rapidly coming out of the very bubbly art market.

Many major cities around the world show clear signs of property bubbles and some of them appear to seeing their bubbles beginning to burst – including the over inflated London property market.

Gradually we are again seeing increasing numbers of investors turning to the one market that has endured political and financial uncertainties, recessions, depressions, ‘stagflations’ and ‘hyperinflations’ – the gold market.

When it comes to investing in gold, new investors can feel overwhelmed when it comes to looking at what kind of gold and related products they should go for as there are seemingly so many ‘great’ gold investment opportunities out there.

Despite a performance steeped in history, new investors are put off by media reports of scams and fraudulent activities in the gold space. Occasional frauds cause respectable papers to forget about the importance of balance and write about the ‘murky world of private gold trading, a free-wheeling market prized by legitimate investors and criminals alike for its secrecy and lax regulation.’

The truth is that there are many gold investment companies and professionals who have the highest of standards when it comes to privacy and regulation. Companies such as GoldCore work hard to bring legitimacy to this growing and successful market, hence our near 14 year history, very large international client base and online community and hundreds of unbiased and positive reviews from actual clients.

As with any market, there are a ‘few bad apples’ but we would contend that there are less bad apples in the gold sector then there are in say the property sector or the stock market where there are many ‘Wolves of Wall Street’ ready to hungrily gobble up the life savings of unsuspecting “widows and orphans.”

Having said that, it is so important that investors not only do their research on the gold investment provider, but also make sure that the product or service that they choose is the best one for them and protects them in terms of counter party risk, liquidity and performance – and indeed the value and resale potential.

One of the first routes new gold investors go down is looking at collectible ‘gold’ coins some of which are actually gold plated coins masquerading as “pure gold coins”. Whilst these can at first appear to be a good, affordable way for the little guy to own some gold, they don’t always work as well for the investor or gold buyer when compared to safer forms of gold ownership such as gold bullion coins (legal tender) or small gold bars that can be taken delivery of or  stored in the safest vaults in the safest way.

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Below we take a look at some of the options available to gold buyers and explain why they might not be the gold standard of gold investment.

eBay, to be kept at bay

How to avoid a scam is probably the number one worry of newbie gold investors. It seems that the media love to jump on a gold scam story. Whether it’s one involving Bernie Ecclestone’s son-in-law or the website that transformed the way we shop.

eBay and other sites such as Craigslist put the gold buyer at a huge amount of risk. As ABC News explains
“The terms and conditions that apply to the sale of a gold bar are no more onerous those that apply to somebody who sells a toaster, a football jersey, or anything else on eBay: Small, casual sellers (non-professionals) pay eBay 9 percent of the price for which their bullion sells, when and if it does. There’s no charge for listing.”

Whilst eBay has worked hard to crack down on scam sellers, this is a difficult market to police. Just last year a West Berkshire man was charged with fraud after swindling nearly €3 million out of investors looking to buy rare coins on eBay. In court the fraudster told the jury that he falsely advertised that the coins had been inherited by his family, to create “advertising spin” and make them “more attractive to buyers.”

eBay and other online marketplaces such as Craigslist have also seen a flood of fake coins, from China. Until recently fake Chinese coins were made of real gold but copies of numismatic coins (see below), however the scammers are now focused on volume. Rather than real gold coins with fake minting coming onto the market, buyers are now prey to sellers with lead, zinc tungsten coins dressed up to look like the gold standard of coins.

One might imagine that if you’ve been collecting coins for some time, then fakes are easy to spot. Unfortunately technology is on the side of the scam artist. Not only does tungsten mimic gold closely in terms of density, but lasers are also used to create the fake imagery. This means any laser-crafted, tungsten-filled coins are confusing the market and can make it very difficult to sell.

Reports show that these counterfeit coins have been appearing on sites such as eBay and craigslist. Sellers of the coins may well be based in countries outside of China such as the UK or US, but they are likely to know they are selling fakes. Especially when Chinese manufacturers sell so openly on other marketplaces such as Alibaba. China Tungsten Online’s own website is keen to promote it “gold-plated tungsten coins.”

The problem of fake coins is so great that the US Federal Trade Commission had to create the Collectible Coin Protection Act:

“The law stiffens penalties and makes it illegal to make or import imitation numismatic coins that are not plainly marked as such. Congress approved the bill, and it was signed into law by the White House in 2014.”

In 2015, eBay told CNBC that sellers were buying between $1 to 2 million worth of gold each day, thanks to a fall in the gold price and deals on ‘branded coins’ including the infamous Superman ones from the Royal Canadian Mint.

What buyers were unaware of was that these coins struggle to sell at a higher price, at a later date. This is in marked contrast to actual gold bullion coins which are legal tender and issued by national government mints. These coins are investment grade gold coins of a purity of at least 22 karats or 91.66% and generally being 24 karat or 99.99% pure.

A complete lack of understanding in regard to their value and properties means that new buyers can easily believe they are buying something that will gain far more in value than it realistically will.

The Telegraph reported on the problem of buying coins, including bullion coins, through eBay, writing that not only did prices start at a higher premium to spot price than you might normally find from an experienced and trustworthy bullion dealer but that inexperienced investors were likely to push prices higher. This was especially the case on so called rare coins where buyers carried out little research in regard to the market that supposedly supported the rare coins.

Collectibles…not so profitable

Even if you are able to avoid the Chinese fakes on eBay, does this mean that collectibles are the best way to invest in gold?

Rare and collectible coins are often referred to as numismatics. Instead it means that the minter has minted a coin which they assume will one day be a collector’s item. See the Royal Canadian Mint’s Superman coin, or the UK’s Royal Mint Olympic run-up coins for examples.

The best way to look at collectible coins is that they are an item that commemorate a certain person or event and may or may not happen to include an amount of precious metal. The value is not based on the amount of gold or silver that they contain, but instead on both their rarity and condition. At a later date they may have some value if associated with a particular event. The resale market and valuations is similar to that of art – is the coin in fashion at the time? If not then the seller should expect to sell for a loss.

In the same way a painting’s value is not based on the canvas or the paints that were used but instead on whether the style or the painter is in fashion, a numismatic coin’s value is not based on the precious metal it contains or the work that went into creating it. The value is perceived by the market, and the market size for particular coins can be very small.

This means that it is possible that whilst the price of gold and silver bullion climbs, the value of your numismatic coin may fall in value. This can particularly hurt given that the mark-up on numismatics/collectibles is similar to that on jewellery, and yet regular sovereign bullion coins do not experience these issues – they are highly liquid and trad-able globally when financial markets are open.

Here at GoldCore, we do not sell numismatic coins for this reason. However, we do cater to gold and silver buyers who are keen to have some element of history and collectibility attached to their gold and silver investment. We do offer Classic European and World Gold Coinage in the form of beautiful and very old UK, European and U.S, gold and silver coins upon request. These include the old Victoria Gold Sovereigns from the 19th century (1836 to 1901), French 20 franc (Angels, Roosters and Napoleon) gold coins and U.S. Morgan and Peace dollar gold coins. We also offer $20 Liberties, St. Gaudens, Peace and Morgan Silver in collectible certified form. These rare coins are carefully hand selected by numismatists for their eye appeal and quality. They are certified for grade & authenticity by PCGS (Professional Coin Grading Service) & NGC ( Numismatic Guaranty Corp.) .

The prices of these beautiful coins are only slightly more expensive than modern gold bullion but offer many advantages. These include increasing scarcity and historical significance. Through both their high gold content, their historical significance, their scarcity and collector demand for them, these coins can appreciate by more than actual bullion.

It is worth noting that many of the older bullion sovereign coins can be bought in the secondary market. Despite their age, and perhaps status as an older coin, they still trade at a similar premium to the spot price as newer coins.

When investing in coins, the buyer must ask themselves if they are investing in gold in order to diversify their portfolio and to add some insurance to their savings, or if they are hoping to own a piece of history that may or may not deliver a return.

Some of the most popular bullion coins in the world are Canadian Maple Leafs, American Eagles, South African Krugerrands, Gold Britannias, Chinese Pandas and Austrian Philharmonics.

With gold bullion coins as those sold by GoldCore, the value is based strictly on the gold content, which means not only is the pricing very straightforward (as it is based on the global gold price) but also that there is a global market which makes it easier to sell with need for little knowledge or research of the marketplace.

In contrast, numismatic and collectible coins’ pricing is subject to many variables that are often changing. This makes for a smaller market, where liquidity is low and it is easy to be deceived if one does not have the adequate knowledge. Not only is education a must but also a strong stomach for when claims of much bigger future worth do not materialise.

When it comes to buying collectible coins the US’ Federal Trade Commission says they have three words for you, ‘research, research, research.’ We would probably add to that phrase – avoid collectible gold coins from private mint companies including gold and silver plated coins and focus on bullion coins and some semi numismatic gold and silver coins – coins which are minted by government mints and whose primary value is derived from bullion.

Tomorrow in Gold Investing 101 (Part II) we will explore the risks inherent in unallocated gold and storing gold with indebted institutions.

Gold and Silver Bullion – News and Commentary

Gold steady amid Fed rate hike expectations (Reuters.com)

Caution Prevails for Asian Stocks; Aussie Climbs (Bloomberg.com)

Stock market retreats as financials, geopolitical jitters weighs (MarketWatch.com)

Wall Street slips on wiretap accusation, geopolitical worries (Reuters.com)

Midas touch: China’s tech, financial firms eye virtual gold rush (Reuters.com)

Audio: The Fed’s Impact On Gold Is Vastly Overrated – Sprott (Bloomberg.com)

Wall St. is misreading Trump, and a market bloodbath is imminent: Stockman (CNBC.com)

Price of gold has been heavily suppressed – Giustra (Vimeo.com)

The Second Dumbest Kind Of Money Is Pouring Into Stocks — “With A Vengeance” (DollarCollapse.com)

This Is The Only Chart Americans Should Be Worrying About Right Now (ZeroHedge.com)

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Gold Prices (LBMA AM)

07 Mar: USD 1,223.70, GBP 1,003.56 & EUR 1,157.62 per ounce
06 Mar: USD 1,231.15, GBP 1,004.74 & EUR 1,162.82 per ounce
03 Mar: USD 1,228.75, GBP 1,005.12 & EUR 1,168.05 per ounce
02 Mar: USD 1,243.30, GBP 1,013.17 & EUR 1,181.14 per ounce
01 Mar: USD 1,246.05, GBP 1,007.18 & EUR 1,182.50 per ounce
28 Feb: USD 1,251.90, GBP 1,006.90 & EUR 1,180.79 per ounce
27 Feb: USD 1,256.25, GBP 1,011.16 & EUR 1,187.41 per ounce

Silver Prices (LBMA)

07 Mar: USD 17.70, GBP 14.52 & EUR 16.74 per ounce
06 Mar: USD 17.81, GBP 14.53 & EUR 16.83 per ounce
03 Mar: USD 17.66, GBP 14.44 & EUR 16.76 per ounce
02 Mar: USD 18.33, GBP 14.93 & EUR 17.42 per ounce
01 Mar: USD 18.33, GBP 14.89 & EUR 17.40 per ounce
28 Feb: USD 18.28, GBP 14.70 & EUR 17.24 per ounce
27 Feb: USD 18.34, GBP 14.77 & EUR 17.33 per ounce


Recent Market Updates

– “Think About and Prepare For” Euro Catastrophe
– Silver On Sale – 4% Fall On Massive $2 Billion of Futures Selling
– Trump Avoid Debt Crisis ? “Extremely Unlikely” – Rickards
– Art Market Bubble Bursting – Gauguin Priced At $85 Million Collapses 74%
– Gold’s Value – Weight, Beauty, Rarity, Peak Gold and Secure Storage – Interview
– Oscars Debacle – Movies More Costly As Dollar Devalued
– Gold Up 9% YTD – 4th Higher Weekly Close and Breaks Resistance At $1,250/oz
– The Oscars – Worth Their Weight in Gold?
– Gold To Benefit from Rising Inflation and Higher Than “Official” China Gold Demand
– Russia Gold Buying Is Back – Buys One Million Ounces In January
– Gold The “Ultimate Insurance Policy” as “Grave Concerns About Euro” – Greenspan
– Sharia Standard May See Gold Surge
– Gold Price To 2 Month High As Fiery Trump Declares World Order

Interested in learning more about physical gold and silver?
Call GoldCore and speak with a Gold and Silver Specialist today!

Mark O'Byrne
Executive Director