Entries from May 2008 ↓

Dolley Madison First Spouse Gold

Dolley Madison First Spouse Gold CoinThe Dolley Madison coin was the fourth release of the First Spouse Gold Coin Program. The series is currently awaiting the release of the sixth coin on May 29, 2008.

The Madison coin features her portrait on the front of the coin. The reverse shows her most famous act of heroism while serving as First Lady. She saved the White House cabinet papers and the Gilbert Stuart portrait of George Washington just before oncoming British Troops burned Washington DC in the War of 1812.

Like all coins in the series, this one has a $10 face value and contains one half ounce of 24k gold. Coins are available in both proof and uncirculated versions. The maximum authorized mintage is 20,000 coins each for proof and uncirculated versions.

Reaction to WSJ: Precious-Coin Market May Lose Its Luster

Gold EagleReaction to the Wall Street Journal Article: Precious Coin Market May Lose Its Luster.

Overall, the article takes a generalized look at seemingly every type of coin investment, from bullion coins to gold doubloons to gold plated State Quarters. However, most of the examples to support the title’s claim refer to the price movements of bullion coins, which usually only sell for a small premium above the spot price of the precious metal. As a result the prices of bullion coins rise and fall in direct proportion with the rise and fall of the precious metals spot prices. If this is supposed to be the point of the article, it is hardly a point worth making in the first place.

Here are some thoughts, questions, and observations about specific aspects or claims made in the article:

What does the term “Precious Coin” mean? Does the author use this term to represent any rare or valuable coin? Any coin with precious metal content? Or any coin at all?

At various points in the article, the author refers to bullion coins, “old coins,” and even gold plated State Quarters. Each of these cursory discussions carries a different conclusion. Bullion coins are selling very quickly, but prices have declined in tandem with the spot price of gold. “Old coins” are supposed to increase in value faster than bullion coins, but this hasn’t been the case. Gold plated State Quarters are sold by aggressive marketers for high premiums but are only worth face value.

Back to the title “Precious Coin Market May Lose Its Luster.” If precious coins are bullion, then there is really no point to the conclusion as prices track the spot price of the metal. If precious coins are “old coins” there is not much luster to lose, since prices haven’t outperformed in the first place as claimed in the article. If precious coins are gold plated State Quarters- well let’s hope not.

Coins are apparently an attractive investment choice since they fit into the small number of asset categories that are “less bulky than a barrel of crude oil and more affordable than a gold bar.”

The picture included with the article shows a 1933 Gold Double Eagle. Although not noted in the inset or the article, this coin holds the record for the highest price paid for a single US coin at auction. It sold for $7.59 million. Is this coin pictured as an example of a coin that has lost its luster?

ETFs are called an “easier and potentially more lucrative” way to invest in precious metals. I agree that purchasing an ETF, which trades like a stock is easier, but it is not more lucrative. Since the Gold ETF tracks the spot price of gold, it will move up and down in exactly the same proportion as an equal amount invested in bullion coins. “Potentially more lucrative” would better describe shares in gold mining companies, which can move up or down many multiples of a move in the price of gold.

The final paragraph states that coins and Gold ETFs are considered “capital assets” by the IRS and are therefore taxed at 28% compared with a 15% rate for long term gains on stocks and bonds.

The facts are correct but the terminology is wrong. According to the IRS, a capital asset is “Almost everything you own and use for personal purposes or investment” including stocks and bonds. So the classification as a capital asset is not the reason coins and gold ETFs are taxed at 28%. They are taxed at that rate since they are considered collectibles, which are a type of capital asset.