Should You Invest in Proof Coins?
It is very easy to get excited about proof coins, seriously. What is not to like about proof coins? After all, you are dealing with coins that have precious metals in them.
Whenever you have precious metals, you always have some level of protection. Sure, the price of gold or silver might keep going up or level. But at the very least, if inflation spikes up or there is a market crash tomorrow, or there is some calamity, you are sure that your coins will have some value. This is the tremendous advantage that investing in precious metals brings to the table.
Precious metals are not going anywhere, and they will always have value. At the very least, people will use them for jewelry. At the very least, industries would use them as raw materials for industrial products. These two uses are the reason why precious metals tend to have a base value.
This base value sets the floor value for the particular precious metal. It cannot seem to get below that base value because of the huge demand that underlies that value. It is easy to get excited about proof coins because not only do you get protection by investing in precious metals that constitute these coins, but you are also investing in proof coins.
In other words, you are investing in three sources of value: Precious metals, collectors' items, and special collectors' items. Despite all its attractions, you need to have a clear idea of what you are getting into with proof coins compared to alternatives like uncirculated. While it may seem like a good idea to get into proof coins now, it might not be a good idea at some time in the future. Keep the following discussions in mind so you can make an informed decision.
What Are Proof Coins?
Proof coins are specially produced coins that are stamped twice—stamped twice? What is the big deal? Well, typical coins are stamped once. So if you look at a particular US coin, you would see its certain level of detail, a certain level of clarity because it has been stamped once.
However, proof coins are stamped twice so that these coins are very-very detailed. The coin's overall look is very clear, and the lines are crisp, the designs shine through. Whenever you have such beautiful coins, there is going to be a huge collector's demand for such coins.
Ever since these coins were created, there has always been a big demand for them. Proof coins have value because not only do people collect regular coins, but proof coins are not regular coins. In other words, they have added a layer of collector's appeal. This is why many people were looking to diversify their investment portfolios by getting precious metals—diversifying precious metal's portion of their portfolio by investing in proof coins.
They are betting that the extra collector's value of these coins and the coins' precious metal component will result in higher gains as time goes by. This may not always be a good move. It all depends on the underlying economy and the underlying collector's market.
Higher Initial Price From Government
When you invest in proof coins, especially platinum-proof coins that special mint produce, you have to keep in mind that you would have to pay an extra premium for them. However, if you play your cards right, the extra that you would have to pay is nothing compared to the amount of money that you would make by investing in these collectors' items.
Keep in mind that the US government produces proof coins, but they are not meant for circulation. In other words, they are just meant for collectors. There are certain mints that the US government has approved to produce commemorative coins, so keep your eyes on those types of coins.
Grading Rules Still Apply
Whenever you are dealing with collector coins, you still have to deal with grading rules. Grading determines the value of your coin. Even if you have a coin from 1700s, if the grade of that coin is very-very bad, the value might not be as high as you would like.
Even if you have a gold coin or even if you have a silver coin, if the grade is very-very low, you might have a coin that really does not have much value despite the fact that it contains precious metals. In fact, there are huge numbers of silver coins in America that have such low grades that they are called junk silver coins.
In other words, their only value is the amount of silver that they contained. You have to keep in mind that these rules also applied to proof coins. Just because they are not circulated does not necessarily mean that they are immune from grading rules, no. You have to make sure that your proof coins are in proper containers, they are stored properly, and as much as possible, they are not handled.
The more people handle coins, the higher the likelihood that these coins will get worn down, cut, and be exposed to elements. This can all erode the overall appearance of proof coins and reduce their value.
Invest Wisely In Proof Coins
As mentioned above, you have to diversify your portfolio in many ways than one. It is not enough to diversify your stock holdings in terms of different industries. It is not enough to diversify your stock holdings by investing in bonds or commercial paper. It is not enough to invest in precious metals. Within this diversified portfolio, you have to do further levels of diversification.
For example, in precious metal components of your investment portfolio, do not put everything on gold, do not put everything on silver, do not everything on platinum. If you are investing this way, you are basically being lazy. You are not doing the hard analysis that is needed. Why? Different precious metals go up and down in price, and they follow different trajectories.
In fact, silver has shown quite a bit of promise because it is appreciated higher than gold. Sure, silver is worth less than gold, but silver is looking quite attractive in terms of appreciation and ratio of values. The same with platinum, platinum often goes in cycles.
So, when you are trying to pursue a diversification strategy and precious metal components of your investment portfolio, you have to pay close attention to the investment life cycle and investment qualities of particular metals you are getting into. It is not enough for you to take positions in precious metals.
You have to pay attention to whether it makes sense to get into proof coins or stay with bullion or invest in regular coins. It makes sense to analyze whether you should go to precious metal miners or go to ETFs.
Recommendation: Gold Coins vs. Bullion: Advantage of Each Investment's Worth