Investing in Gold: Bullion vs. numismatic: convenience or possible larger returns

When a person is looking to buy gold they have a couple of choices: Bullion gold or numismatic gold.

Bullion gold is made today to facilitate commerce in gold. It can be struck by government mints or private mints. Coins struck by governments are always denominated, but usually at much lower denominations than the coins actually trade for. An example is the 1-ounce American Gold Eagle that has roughly $1,100 (spot) worth of gold in it but is only a $50 denomination.

Bullion struck by private mints do not carry denominations, but rather are in sizes or weights.

Numismatic gold coins were struck to actually be money. Prior to 1933, when we went off the gold standard, the United States struck $1, $2, $3, $4, $5, $10, $20 and even $50 gold coins to be used in commerce. These coins were denominated at the current price level of gold when they were struck.

Gold coins were used as money then just as we would use a $20 or $100 bill to buy things today. Due to this fact, many of the coins actually saw circulation and therefore have been worn down to varying degrees.

Coins that were stored in vaults or collections and were spared getting worn are termed Uncirculated. The degree of Uncirculated will vary based on contact marks received in the coining process or being transported from vault to vault.

Bullion is designed to be traded at prices close to the spot price of gold. Premiums will vary based on demand, and one can actually get relatively high premiums for popular or rarer bullion items.

Conversely, numismatic coins trade for premiums over their actual metal content. Some trade for just a little over when demand wanes and some trade for many multiples based on the fact that very few were made or survived.

Numismatic coins can range widely as they can be considered a true collectible.

If you are looking at buying gold, bullion is by far the easiest to trade in. The price of gold is the main factor. Numismatics are recommended for those looking to expand their horizons in gold or for those who are truly collecting coins for not only the metal value, but also the rarity factors.

Consider this example. When gold first reached $800 a couple of years ago one could buy average circulated $20 gold coins for about $25 over the spot price of gold. As demand in gold heated up, and was first worth $1,050, the $20 coins reached a point where one could have sold those same coins for $250 over the spot price of gold.

If that person would have bought bullion gold they would have made roughly $250 per ounce, but by buying $20 gold coins at that same time, they could have sold them and made $475 per coin.

Numismatics may offer much larger rewards if the buy and sell are timed correctly.

• Allen Rowe is the owner of Northern Nevada Coin in Carson City.