Bullion or Numismatic Coins – Which is the Best Investment?
If you are considering the addition of precious metals to your investment portfolio, at some point you’ll find yourself weighing the pros and cons of traditional bullion assets against those of the more complex numismatic coins. Eye-catching headlines, like the one about a single silver shilling selling for $350K, make it clear that numismatic coins can yield tremendous returns. But, does that make them a better investment than bullion, which has a reputation as a safe bet?
As with any investment, the answer depends on your individual investment strategy and needs. Your starting capital, risk tolerance, and liquidity requirements all influence what will work best for you. To properly assess these factors, and find your answer, you’ll first need a working understanding of both bullion and numismatic coins.
What is Bullion?
Bullion is any metal that has been purified to the highest practical degree. For instance, gold bullion must be at least 99.5% pure to count as investment quality, and for silver the number is 99.9%. The tiny amount of alloyed metal helps when forming the metal into bars, ingots, or coins – the main 3 forms of bullion.
Any metal that has been purified and separated into measurable, uniform pieces counts as bullion. However, investors tend to focus on the precious metals – gold, silver, platinum, and palladium – because of their consistently high valuation.
What are Numismatic Coins?
Numismatic coins are rare, collectible forms of currency. These coins are distinguished by their historical value, or physical properties that set them apart from other coins of their era. They could have been minted in small amounts, have reversed or offset stamps, or be ancient coins of which hardly any examples remain.
It is possible for a numismatic coin to also qualify as bullion, but, crucially, the metal purity is not a deciding factor in the identification or value assessment of these coins. Their worth exceeds that of their face value, or their melt value. Think of them as collectibles, with the same sort of subjective valuation as a painting or a comic book.
Comparing Value and Liquidity
Comparing the valuation of commodities to collectibles can seem a bit like comparing apples to bananas. Commodities like gold and silver have practical uses and limited supply that ensures a baseline level of worth. Collectible coins have a purely speculative value that depends on the whim of collectors. At least, that’s the easiest way to look at it.
The reality is that commodity values are also highly speculative in nature. The spot price for gold is constantly fluctuating, and is determined less by the actual physical supply and demand, and more by futures contracts. Perceived threats to the market such as political turmoil, changes to trade policies, and anything else that spooks investors can impact these prices.
Conversely, the most common numismatic coins have values that are surprisingly static. Look up the price of an 1889 V Nickel over the years and it holds steady at around $10. However, as the coin in question becomes more rare, the markup increases dramatically. Since each such coin is essentially unique, using existing market data to determine actual demand and realistic pricing is very difficult.
The result is that it is much easier to lose money on numismatic coins. If you, or your trusted agent, are not very knowledgeable, you are likely to overpay for a rare coin. There is no guarantee it will retain or regain value over time – in fact, the opposite is far more likely. Misjudge the market by too much, and you may not be able to find a buyer at all.
Bullion, over the long run, tends to rise in price. Between 2012 and 2022, gold prices increased by $184.48, despite some precipitous drops along the way. Yet silver fell by $6.71, a 22% loss, illustrating that there is always risk even in “safe” investments. Either way, you will always be able to find a buyer for your bullion, making it by far the more liquid option.
Which Investment is Best for You?
The stability and liquidity of bullion make it the more attractive investment option for the majority of portfolios. It has the more consistent long term performance, and it’s a safer way to store value. It also doesn’t require the same level of specialized market knowledge as numismatics to be profitable.
However, if you have that knowledge, access to particularly rare coins, and can handle the risk involved, numismatic coins could yield better short-term returns by many, many times. The more common coins are also fairly stable in terms of value, but the question of their liquidity is still entirely unpredictable. In short, numismatic coins are more of an enthusiast’s investment, while bullion suits traditional investment strategies.