Coins: Precious Metals, Rare Mints And Tales of Intrigue - Alternative Investing - Special Report

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Coins: Precious Metals, Rare Mints And Adventuresome Tales

Published: Monday, 31 Aug 2009 | 2:22 PM ET

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By: Cadie Thompson
Special to CNBC.com

Stockpiling coins is no longer just for the collector, nowadays even the average investor can find profits in pennies.

The Smithsonian Institute
1822 Half Eagle

Well, maybe not pennies, but some coins are worth their weight in gold, literally.

With bullion prices soaring in recent years, gold and silver coins have become a hot-ticket item among investors seeking to diversify their portfolio.

There’s more to investing in coins than just buying gold, however, so before you try your hand in the market, here are a few tips to keep in mind.

Dealers Rule

First things first, seek an expert’s advice and find a certified coin dealer to work with. Coin dealers are essentially the market managers of the business.

A dealer will help you set a goal and also help you establish an exit strategy so you can see a return on your investments, says Barry Stuppler, the president of the American Numismatic Association.

The best way to invest is to acquire an entire collection of one type of rare coin, as opposed as having a potpourri of rare pieces.

Slideshow: Most Expensive Rare U.S. Coins

“The problem is first time collectors go all over the place; they spend thousands of dollars and end up with a real problem,” says Stuppler, who has 50 years of experience in the business. “They have a wonderful collection of odds and ends, an accumulation, something interesting to look at, but they have no guidance.”

A professional can help you turn those “interesting” coins into profitable ones and also protect you from predators.

“This market is completely unregulated,” says Ryan Denby, owner of Austin Coins. “You can really be taken advantage of. The most critical thing is to do your due diligence.”

But how do you find a credited dealer in a market you know little, if nothing, about?

Fortunately, there are two organizations that can help you sort through the masses of coin dealers, some of whom prey on amateurs.

Dealers who are members of the Professional Numismatic Guild and the American Numismatic Association are held to higher business standards and may be held accountable if a customer is unsatisfied with their service, says Jeff Garrett, CEO of Mid American Rare Coin Gallery.

Both organizations require members to abide by a dealer code of ethics and have an arbitration process to handle disputes between dealers and collectors.

Bullish On Bullion

Last year was a record year for bullion [gold and silver] coins, as fear of inflation and the sudden demand for tangible assets threw the coin market into a frenzy.

“Right now we are looking at a situation where they are increasing the money supply," explains Stuppler, president of the American Numismatic Association. “The only thing that really holds up is precious metals. People are looking for an escape from currency.”

Data appears to back this up. Bullion sales at both the US and Canadian Mints have soared in the last year or so, US sales rose 166 percent in 2008; Canada's were up six-fold year-over-year through the first quarter of 2009.

The Smithsonian
1907 Ultra High relief Double Eagle
Stuppler, who also runs a rare coin company, says his business has experienced an unprecedented boost.

“Last year was a record sales year and this year sales on bullion has doubled,” says Stuppler. “The amount of new buyers coming into bullion market has been dramatically higher.”

Some of them are people who bought into the bullion coin market as a short-term investment and have since gravitated to collectible coins, says Stuppler.

Rare Coins, Tall Tales

With all the hype surrounding sunken treasure, a novice investor might think that the big money is in Spanish Doubloons as well as more ancient coins such as Greek- and Roman-era ones.

Though that market is growing, the best coins on which to turn a profit are US ones, says Garrett, who is also on the Board of Directors for the PNG.

Unlike the bullion market, the price of rare coins is not solely based on their weight in gold or silver. It's also a matter of condition, historical significance and rarity, say experts.

“The good thing about rare coins is there is a finite supply,” says Garrett. “It’s about supply and demand. If a certain series becomes popular, the price goes up.”

The condition of a coin is usually determined by a third party grading agency, such as the Numismatic Guaranty Corporation and the Professional Coin Grading Service, two of the largest.

Historical significance is less of a qualitative exercise in that many investors are drawn to coins because they are unusually rare and often come with a great story.

The U.S. 1933 Double Eagle, for instance, not only happens to be the most expensive coin ever sold ($7.6 million), its story is rich in international intrigue.

Most of the $20-coins were destroyed after the US Government dropped the gold standard in 1933. Of the few thought to be left, one was stolen and bought by Egypt's King Farouk, a major collector, in 1944. The coin disappeared after he was overthrown in a coup in 1952 only to be recovered four decades later when a British rare coin dealer was arrested during a Secret Service sting operation. Ten other authentic Double Eagles were later found and are held in Fort Knox.

Getting Started

If that's enough to whet your interest, a good place to start learning about pricing coins is to check out the coin pricing reference guide, "The Red Book," also known as the “Bible of Coins." The book is released annually and lists the price of every US coin.

ALTERNATIVE INVESTING SLIDESHOWS

Another good way to learn about pricing coins to turn a profit is by attending coin shows, which give investors a chance to compare dealers' prices and learn about market trends. The big annual show is the World's Fair of Money, which is hosted in a different city each year. The 2010 money show will be in hosted in Boston, Massachusetts.

And of course, it’s critical to not only learn about the coins you want to invest in on your own, but it’s also important to discuss all your investment decisions with a certified dealer, Stuppler said.

“Invest your time before you invest your money,” advises Stuppler. “Explain your issues and your goals. Start doing a little bit of reading, start slowly and develop a strategy that makes sense.”