Coin­ing it

With the end of South Africa’s bull mar­ket surely draw­ing nigh, could the an­swer be to cash- in for coins?

RISKSA Magazine - - CONTENTS - Sarah Bas­sett

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 coins

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.

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