October 7, 2010

If You Buy Gold Coins : Shop Around

Bargaineering recently talked about plans for a company to introduce  ATMs Dispensing Gold Bars in USA
They already have the gold vending machines setup in Dubai and plan to expand.   With a little digging I found a news report that said the machines sell gold at 30% markup over the spot prices.   That is not a good deal.   But what is a good deal for markup on gold?   I realize there is going to be a transaction cost to buy bullion but I don't know if I should expect 1%, 5% or if 30% is even common.

First let me step back and say that I don't think investing in gold is a good ideaMy personal opinion is that gold prices are in a bubble that  gold prices could easily drop substantially within a year or two.   But I recognize this is just my opinion and many people like investing in gold.   I would at least caution anyone interested in gold investing against putting more than 10% of your assets into gold.    Any investment portfolio should be diversified and you don't ant too many of your eggs in one basket.   Having said all that, if you want to invest some of your money in gold either as an out right speculative investment, hedge or more for personal enjoyment reasons you should certainly make sure you aren't paying too much.

On the other hand I'm a coin collector so owning a gold bullion coin might be fun.  So lets say that I want to buy a 1 oz of gold.     Lets do some window shopping.

First I go to Goldline cause I see them advertised on TV...

I find on their site they're talking about the American Eagle gold coin sold in 1 oz. or $50 face value.  The face value is kinda meaningless as the metal is worth much more.  I guess you could use the $1300 worth of gold as $50 in cash but you'd never want to.      They have a 'buy online' button so I click on that which takes me to a different website that is actually a Yahoo Store.    They have the proof 1 oz. American Eagle there for $2,650.   Its a 'proof' version which means that it is a more appealing collectible coin.   $2,650 for 1 oz proof American Eagle.

non-proof American Eagle prices
I don't know if I want a 'proof' coin.   If I'm shopping for gold I would like to just buy gold and not pay extra for a collectible coin.  So I shopped around for just American Eagle coins that are not 'proof' or otherwise collectible.   I found a local dealer near my city.   They sell American Eagle gold coins but they don't have collectible versions, just plan coins.   They quoted a cost of $1,365 for 1 oz American Eagle.   An online site Blanchard also sells the plain non-proof or collectible quality 1 oz American Eagles for about $1,360

Costs for proof American Eagles at Other sites
I didn't know if the $2,650 for a proof coin was reasonable or not.   It depends on how much being a proof adds to the value.   I found another online store named Golden Eagle coins selling a proof 1994 1 oz. American Eagle for $2,350.   But thats a 1994 coin and I don't know what year the Goldline coin is.  I double check the goldline site and they do not say what year their proof coin is.   Next I found American Precious Metals Exchange who has 1 oz. proof "random years" for $1,725 or a 1986 proof 1 oz. PR-69 PCGS for $1,609.

So far we've got various sources with prices all over the place ranging from $1,360 all the way up to $2,650.   But we're not exactly comparing apples to apples either.  Some are proofs some are not and they are various years.

Proof, PCGS, PR-69, MS-70 ... Whats all this Mean?

When looking at the proof or otherwise collectible quality American Eagles I ran across all these acronyms.  PCGS, PR-69, MS-70 and others.    PCGS is the Professional Coin Grading Service.   They have professionals who will give you a certified appraisal of the quality of your coin by 'grading' it.    Grading a coin refers to the different quality levels like the 'proof' level coins we can buy.  

PCGS also has a price guide for the coins at different grades.   We can see there that the MS grade coins from 1986 to 2006 all have the same prices if the MS grades are 69 or lower.   All the MS-63 to MS-68 coins are valued at $1,365 or marginally above spot.   The MS-69 coins are valued at $1,550.   Only the MS-70 coins have higher values.   For the proof coins the PR-63 to PR-68 are worth $1,650 and the PR-69 are worth $1,925 to $1,975.  The PR-70's range from $2,650 to $7,500.   Now keep in mind that these values are not what you can sell them for, but just what a grading services says they think the value of the coins are.   Proof 1 oz. American Eagles range in "book" value from $1,650 for a PR-63 all the way up to $7,500 for a 1991 PR-70.

Spot gold = $1,309

1 oz. American Eagle costs

plain American Eagle = $1,365  (4.27% over spot)
proof American Eagle "book value" = $1,650 and up
unknown year or quality proof American Eagle at Goldline = $2,650
1994 proof American Eagle at Golden Eagle = $2,350
random year proof American Eagle at American Precious Metals = $1,725
proof 1986 PR-69 American Eagle at American Precious Metals = $1,609

Couple basic comments here:   If you aren't especially interested in coin collecting or investing in collectible gold coins then theres not reason for you to pay a large premium to get a proof coin.    Second, if you are looking to buy collectible quality gold then you should definitely shop around as the prices from various vendors vary significantly with  up to a $1000 premium over book values.

Best choice to buy direct from the Mint.
Here's the kicker.   You can just buy the current year gold proof or uncirculated coins from the U.S. Mint directly.   American Eagle proof coins will be on sale October 7th at Noon.   According to this pricing grid, the cost of an American Eagle proof coin would be $1,585 if gold spot prices are $1300 to $1350.   Gold is just about at the top of that range right now as I write this.

American Eagle image from the U.S. Mint.

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