The Wall Street Journal had an interesting article today covering the ongoing shortage of 2008 Silver Eagles.
The article explained that the US Mint has been so overwhelmed with orders for the popular bullion coins that they were forced to stop taking orders. They recently resumed sales of the coins last month, but are rationing how many each authorized dealer can order.
Overall year to date sales of 2008 Silver Eagles are running at more than double the pace of last years sales.
The article linked the shortage to the “growing love of commodities” and took quotes from some new collectors of the series and silver bullion. The people interviewed were not coin collectors, but a judge and an accountant seeking an investment alternative to the stock market and real estate.
On the whole, the coverage is factual and pretty balanced. It ends with a reminder of how the last boom in silver ended. In the 1980’s speculation pushed the price of silver over $50, only to plunge soon afterwards. I don’t think the market is anywhere near this kind of speculative peak, but its always good to keep the lessons of the past fresh in our minds.
Reaction 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.