With the end of South Africa’s bull market surely drawing nigh, could the answer be to cash- in for coins?
For investors looking to diversify their portfolios with an investment in coins, the options are split between investing in gold bullion coins, linked to the value of the gold price, and investing in rare coins which derive their value from their scarcity. Gold bullion coins, such as the South African Kruger Rand, are minted by national governments and are not collectibles, deriving their value from the underlying value of the metal. They can be bought and sold through reputable gold dealers for a price relatively close to the commodity price of gold, with the addition of a dealers’ commission. “The gold bullion medallion market is very liquid and value is tied to the gold price. This means investors can track value daily by looking at the gold price and can convert the investment whenever desired,” explains Craig Nicholls, treasurer of the South African Association of Numismatic Dealers. According to Nicholls, this type of coin buying is much less risky since the price of gold or silver is more stable than the price of a rare coin, and the gold market is liquid. “People continue to buy gold when the price is up and when the price is down,” he says. “There is a sense of security in gold investment and people tend to turn to it when the market feels risky. Immediately after 9/ 11, for instance, the price of gold and hence gold bullion coins shot up because people weren’t sure what would happen next; they feared world war would break out, and they turned to the security of gold,” he adds. “Gold coin investments provide an easy and low- entry option for diversifying an investment portfolio.”
Rare coin investment is much like any other rare collectable asset class, with value driven by rarity, sentiment and demand, the key determinant being rarity. “As a broad rule for assessing the value of a particular coin, the total number of a coin originally minted interacts with the number of coins remaining in existence and the condition of the particular coin,” Nicholls explains.
How grading works
The condition of a coin is indicated by its grading. In the Sheldon scale system, used internationally, the prefix MS stands for mint state and refers to a coin that is uncirculated. The number of imperfections that an MS coin has is shown by its score on a scale from 70 to 60. An MS70 is a perfect uncirculated coin, an MS65 has minor imperfections and an MS60 has scratches prominent enough to see with the naked eye. The rarity of a coin in a particular grade can be determined by checking the population reports, available from the grading companies. For example, a member of the Numismatic Guaranty Corporation ( NGC), the most popular grading company, can log on to the NGC website and find out how many of a particular coin have been awarded a particular grade by the NGC. Circulated coins, as their designation suggests, are coins that have been used as currency for a period. The grading scale for such specimens stems from Poor- 3, applicable to an example so worn its features are barely visible; to About Uncirculated- 58, which denotes a near- to uncirculated appearance. While theoretically the better the condition a coin is in, the greater its value, Nicholls explains that this is more to do with rarity than the condition itself. “Often there will be fewer near- perfect coins, making them more valuable. But if there are in fact more MS69 versions of a coin than there are MS68, the lower graded coin would be rarer and therefore more valuable.” “Buy first for rarity and then for condition,” Brink Laubscher, a partner at Cape Town Coins and Collectibles, agrees. “The third consideration should be how many of the mintage still survive.”
Supply and demand
Another key factor in value is demand. According to the South African Mint, “How many collectors want it and how badly they want it will greatly influence coin values. Some
coins that are relatively plentiful but are more popular with collectors may command higher prices than scarcer coins.” Demand may be driven by sentiment, as in the case of the Mandela R5 coins released for his 90th birthday in 2008, or may often be because of historic interest. “Veldponde coins, for example – coins manufactured by the Boers under siege conditions in the veld in 1902 – are among the most iconic South African coins. They have obvious historical interest; they have a story. And provenance ( the chain of ownership) is one of the defining characteristics, along with rarity, of any object that is a true collectable,” Nicholls explains. But this does not indicate that demand is driven by enthusiasts. According to Nicholls, 90 per cent of buyers are investors rather than collectors. Age can also be a factor in value, however, investors should be careful not to assume that a coin is valuable because it is old, warns Laubscher. Ancient Roman and Chinese coins, for instance, are worth very little because there are so many of them still to be found. On the other hand, the 1913 Liberty nickel is worth millions of Dollars because there are only five known specimens.
Learn the market
Ultimately, a coin is worth whatever a buyer is willing to pay. For an investment buyer, establishing a fair value is crucial. Annual catalogues provide guidelines to what prices have been realised for the sale of coins and medallions. “Prices are regulated by the regular publication of catalogues. These reflect prices being realised at coin shows and auctions and by dealers who are members of the South African Association of Numismatics Dealers,” says Nicholls. A further important way to establish an estimate of the value of a coin or medallion is to speak to people who know the business and to recognised dealers. “Investors need to do their homework and price check across a number of dealers. See what they would pay you if you were selling the coin that you currently want to buy. If the price they offer is 10 to 15 per cent less than the price you’re considering, then it’s not a bad buy.” Good collectible coins appreciate slowly over time, and should be treated as a longterm investment, says Nicholls, to factor in a reasonable buy/ sell spread and time for growth. This means committing to at least five years in the investment. If done right, Nicholls suggests that investors can expect to see returns of 40 to 50 per cent a year on rare coin investments, if a willing buyer can be found.