gold bullion buyers beware of coin proof proof

Gold bullion buyers, be very cautious about purchasing coin bullion proofs.

One thing we gold bullion buyers have to keep in mind at all times (especially you newbies) is that all bullion isn’t created equal. Now, that should seem obvious: after all, you’ve got Krugerrands, American eagles, Chinese pandas, yadda yadda yadda. And we all know to be careful with items of doubtful provenance.

But even within formats you might normally consider safe, there are certain items you probably shouldn’t invest in — especially if your intentions are purely entrepreneurial. Bullion coin proofs are a good example.

The Gold Eagle Standard

You know, it’s hard to say anything bad about American eagle gold bullion coins. In addition to being gorgeous (which should not be a factor in your buying decision, as I’ll discuss below), their gold content, purity, and weight is backed by the full force of the U.S. government.

This offers an attractive reason to invest, since you can count on them to be what they’re supposed to be without worrying about paying for costly assays. Plus, they’re relatively easy to get, and come in a nice variety of weights. There is, of course, a premium price over the gold cost.

But Then Again…

The U.S. Mint has to pay for its costs, so it has to charge a premium on its coin bullion. That’s fine, since the premium tends to be minimal. By and large, recent rises in the price of gold have more than covered the premiums on most gold eagle purchases.

Ideally (and this is the line you’ll get from the Mint) coin bullion is minted to have no numismatic value whatsoever, so that it won’t appeal to coin collectors. All that matters, supposedly, is the precious metal content. This is still mostly true, and yet the Mint has clearly heard the siren call of the collectibles market.

The collectibles market is for people willing to spend much more than something’s intrinsically worth just because it’s pretty. There’s nothing wrong with that, necessarily, but it’s not where a precious metals investor should be.

The Allure of Proofs

From the very beginning of its modern coin bullion program, back in 1986, the Mint has also produced proof coins for collectors. This is a holdover from its long-standing practice with circulating coinage; almost without fail, the Mint strikes a relatively small number of uncirculated proofs for each minting run.

For those not in the numismatic know, a proof is a high-quality coin struck multiple times on specially polished blanks, using very sharp, new dies. Often, the features have a “frosted” appearance, and the surrounding fields are bright and mirror-like. Proofs really are little works of art, and fetch high prices.

Collectible, Schmellectible

As an investor, rather than a collector, you must absolutely keep this in mind: as pretty as they are, a bullion coin proof isn’t worth the premium that either the Mint or a secondary dealer is asking for it. You have to be hard-nosed about this.

Now, it’s likely that the value of the gold itself will go up, and it may be possible to recoup your value on a proof later on. But there’s no way to be sure of that, and there’s certainly no way to know if the numismatic value will ever increase. The collectibles market is extremely volatile.

So my recommendation is that if you’re in it to make a profit, you need to make it a rule to avoid proofs and any other collectibles. Serious gold bullion buyers can’t afford to be swayed by a pretty face.