Investing in Gold: Selling coins on consignment can be risky

Most transactions in coins are cash and carry type transactions, meaning a price is set and money is exchanged or terms are set. But another option is to consign a coin, waiting for it to sell before transacting the deal. Let us look at when consignment may be better and why most of the time it is not.

In coins there is usually a fairly narrow trading range, but every once in a while a coin comes along that trades infrequently. In this case it may be better to take the coin on consignment in order to wait for the right customer to come along. Of course a fair price still needs to be established. If a new buyer is relying on the dealer's knowledge to buy the coin, why should the dealer sell the coin for way more than he would be willing to pay?

Consignment should not be an excuse to ask "the moon" for a coin. A dealer has a responsibility to make sure the buyer is not taking on a big downside when buying a coin as well as getting the consignee a good price.

In the rarer instance when consigning a coin makes sense, consider a few things before letting your coin(s) go.

What is the dealer's position? Does he need to get the coin on consignment because he can not afford to buy it outright? Very expensive coins are occasionally sold on terms, but you want to make sure the dealer has financial strength if something were to ever happen to the coin.

Does the dealer your consigning to carry insurance? Unforeseen circumstances such as theft, loss, or fire could leave you with nothing if there is no insurance for your coin. Many shippers including the U.S. Post Office have exclusions for shipping coins. If a package is lost, the sender may not get any compensation even if they have bought insurance from the shipper because of these exclusions. Some dealers have private insurance policies to cover this type of loss. Make sure to ask if the dealer has an insurance policy tailored for coins, or there may be no compensation for your consignment under extenuating circumstances.

Consider this scenario: I had a customer tell me that he once had a wonderful collection that another dealer asked to sell for him. The dealer promised to get big bucks for the collection because he had a client eager to buy it. Enticed by the size of profit he was going to make, he consigned the collection to that dealer. After some time the customer called the dealer to see if it had sold. It had and the consignee asked to get paid. The dealer responded that he did not have the money at that time. As the customer pressed, the dealer said that he had been paid but had to use the money to pay bills. To this day the customer has not been paid.

Consignment can be good, but make sure it is the absolute best way of handling the transaction before letting your coins go. In most cases it is not.

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