Generic US Gold Coin Commentary

'Generic' U.S. gold coins
11/7/2005

By Mark Ferguson
COIN VALUES Market Analyst

There are various ways to collect gold coins. Older common-date gold coins may be a good way to get into the bullion-related gold market, and they provide additional benefits beyond the joy of collecting. These days, buyers who want to invest or speculate in the gold market by owning the real thing, rather than paper-related stock investments, often choose the United States Mint's gold American Eagles.

The American Eagle gold bullion coins were introduced in 1986 to offer investors and collectors a U.S. alternative to the South African 1-ounce gold Krugerrands, which the U.S. government banned from import in 1985 in response to South African apartheid. American Eagle gold bullion coins are available in four sizes - 1 ounce, half ounce, quarter ounce and tenth ounce. The smaller sizes offer collectors on a limited budget gold coins priced at levels they find easily affordable.

However, with few exceptions, American Eagle bullion coins are worth only bullion value: nothing more, nothing less. They are really not meant to be graded by third-party grading services and collected like other numismatic coins (although if you want to collect them, go ahead; others do). Such large quantities of these legal tender coins are minted each year that rarity isn't a factor in their value, and grading them incurs a fee while, in the eyes of many, adding no value.

But a good alternative is available to buyers who want the combined benefits of gold bullion ownership and the potential for increasing numismatic premiums over the gold price. These are the common-date, older circulating U.S. gold coins minted through 1933, many of which are available for premiums of just 5 to 10 percent over the gold bullion price.

These include the Coronet type, the Indian Head types, and the popular Saint-Gaudens double eagles. The denominations purchased most often for this purpose are the $2.50 quarter eagles, the $5 half eagles, $10 eagles and the $20 double eagles. Gold dollars and $3 coins are available, but their collector premiums are very high in relation to their bullion content.

Keep in mind that there are key dates in all these series that sell for very high premiums over their bullion value, depending on their degree of rarity and grade. The market is currently very strong for such gold coins.

Long ago, large amounts of U.S. gold coins were transported over to European countries. Gold, as a hard asset, was considered "real" money, rather than the paper transactions that we're all used to now. After the tragic inflationary experiences of the Germans between World Wars I and II, for example, the Europeans have attained a greater respect for real gold than Americans have.

Gold coins are also very portable and liquid - in other words, easy to buy and sell. Prices for the common dates change daily and many dealers across the country regularly post buy/sell price spreads.

Dealers often refer to common date older gold coins as "generic" gold, meaning their individual dates are irrelevant to their values and they sell for very small premiums over their bullion values. Such generic gold coins are often traded in bulk lots, such as 100 similar pieces at a time. They are very popular with telemarketers and television buyers. And such coins are being widely dispersed to people buying one or two at a time, for example.

"Generics are a great place for people to start collecting gold," according to dealer Jeff Bernberg of Rarcoa, located in the Chicago suburb of Willowbrook. "Margins are just 5 to 10 percent, and the coins are immediately saleable with very tight spreads." His company is also one of a handful of firms that regularly imports these U.S. coins directly from Europe.

Probably dozens of companies have imported U.S. gold from Europe since it became legal in 1974 for U.S. citizens to again own all forms of gold, but it takes years of cultivating the right European contacts and a knowledge of how to get the coins into and out of various countries. Today just a handful of companies are left that do this type of business, because of logistics and dwindling supplies.

Higher grade circulated gold coins from the Very Fine grade and up are traded as "generics," as are Mint State gold coins from the MS-60 grade through MS-65. Of course the Mint State grades are typically graded by third-party grading services. All things considered, "generic" gold coins offer great buys with low premiums in relation to their bullion content. They offer the potential for numismatic premiums to grow as they get more dispersed over the years, and they provide yet another avenue for coin collectors to explore.