A fortune in coins

PORTFOLIO POINT: The rarity of a gold coin outweighs the value of its metal content. One recent sale showed a steady capital gain of 12.5% over 20 years.

The search for a safe haven for wealth has sparked a resurgence in the investment potential of gold coins. They will never produce a dividend cheque, but the allure of gold coins has been well documented throughout the ages, partly because their value is driven by the most elementary of market forces: supply and demand.

In today’s market, there are just two types of coins in hot demand: those that are sought after for the gold bullion content; and rare coins that command a collector’s premium.

Gold’s reputation as hedge against economic instability has been a factor behind the increased interest in numismatics, or coin collecting. Vadim Ozeransky, of Sydney dealer Monetarium, says: “Collectors hear about gold prices on the news, see how gold is going up in value and are attracted to the market.”

While the prices of gold coins priced very closely to their gold bullion value have risen steadily, Ozeransky says the real value in gold coins is tied to their rarity.

“You might have a piece for auction that fetches $500,000, even though it might only contain about $350 worth in gold. The price of gold doesn’t really matter; it’s more about quality and rarity of the coins and, more importantly, the demand for that item,” he says.

At Monetarium’s latest auction, on June 4, pieces worth $15 million went under the hammer, including those pictured below. The standout result was a Port Phillip pattern gold sixpence minted in Melbourne in 1860. The coin (bottom right), which had been valued in 1989 at $13,500, sold for $160,000, representing an average annual increase of about 12.5%.

Left: 1852 Type one ingot, Adelaide Assay Office. Right: 1852 Type two ingot, Adelaide Assay Office. Each sold for $760,000.

Left: 1853 pattern, Queen Victoria, Sydney Mint Type 1 ($660,000). Right: 1860 Kangaroo Office pattern, Port Phillip Mint ($160,000).

The other key elements for the valuation of gold coins are their historical significance and physical condition. Belinda Downie of Melbourne-based Coinworks, says all numismatic items are essentially valued from this point of view.

“This is a supply and demand market and when demand slows down, it’s the really important and rare pieces that still command respect,” she says. “A coin could be rare but if it does not have a historical importance there wouldn’t be much demand.”

Gold coins also have a distinct advantage over other investment options, such as gold bars and jewellery, in that they are far more flexible and offer much more “bang for buck”, says Peter August, of the Melbourne-based Universal rare Coin and Banknote Company. “They are easily stored, there is a very buoyant market, both locally and internationally, and there is capital gain,” he says.

Unlike, say, gold jewellery, which is subject to the vagaries of personal taste, labour and marketing costs, gold bullion is a good safe investment but the returns are tied solely to the gold price and are unaffected by they collectable value of coins (see Frosty LINK).

The key advantage with coins is that not only do they hold the intrinsic value of gold but the fact that rare, historically significant coins also hold a significant collectable appeal that acts as a multiplier when it comes to resale.

For budding investors, gold sovereigns and half-sovereigns are the most accessible entry into the market, available for as little as $200. Monetarium’s Ozeransky cautions that only a small portion of coins struck at the Perth Mint are collectable, with sovereigns only struck on special occasions the jump in the gold price has seen their prices double in the last 14 months.

“A standard gold sovereign costs about $400, while you can get half-sovereigns for about $200. The prices of both have risen sharply and this is directly linked to their gold value,” Ozeransky says.

However, this curious corner of the investment community also carries its own set of risks and pitfalls, such as authenticity, grading and evaluation and, most importantly, finding the right broker.

Tim Bishop, of The Rare Coin Company, says buyers must pay careful attention to the condition of the coin and that although certification services do provide some security to investors, they are no guarantee when it comes to an auction.

Belinda Downie says: “Investors really need to do their homework before diving into the market as the uninitiated is liable of making some very serious mistakes.”

Apart from the necessary research needed on a particular coin, interested investors also need to ask the right questions, especially about a coin’s provenance and past auction performance.

“The pieces that sustain their prices are the ones supported at an auction level, and this is the sort of information that an individual needs to get from dealers,” Downie says.

There is always a risk of counterfeit coins and someone new to the sector would struggle to identify the various techniques used. With the proliferation of online auction houses such as eBay, the uninformed can be easily duped.

The potential of making new money from old money is a tempting proposition, but it’s important to realise that, like any asset, the value of a coin is derived solely from what someone else is willing to pay for it.

While the numismatic sector has managed to live up to its recession-resistant credentials so far, it is certainly not a suitable sector for anyone unable to withstand the often volatile price of gold or a fickle collectors’ market.