Tuesday, August 5, 2008

Collecting Gold Coins - Part 3

Choosing Gold Coins Based on Market Potential

Let's suppose you're choosing between two gold coins and you want to add one of them to your collection. You like them equally well and the amount of fine gold that each contains is about the same. What other factors can you consider to help you make your decision? One additional factor, but a tough one to evaluate, is a coin's future market potential.

It has been said that the coin that every collector would like to have would be a coin with a mintage of only one. Certainly the rarity of such an object would be really attractive. But it would be an ironic situation because with only one such coin in existence there would be no real market, with multiple sellers and multiple buyers. When the owner of such a coin wanted to sell it, how would he price it? There would be no direct comparisons on which to base the price.

For a real market to exist for a coin, there has to be more than one example of a given coin. There's probably no magical number here in terms of the minimum number needed to make a real market, but there are many examples of coin issues where the known and confirmed population is as few as 10 pieces. Almost invariably such coins are older pieces when the question of grading also has a pronounced effect on a coin's market price, and at that point the discussion really gets complicated.

The other part of the equation, of course, is demand. No coin will appreciate in the marketplace unless there is a demand. More specifically, the demand needs to be greater than the supply. Whenever the demand exceeds the supply, prices go up. Some coins minted in the 10's of thousands have gone up in value even though it appeared that they were not especially rare. It turned out, however, that they became rare just because the demand was greater than the available supply.

So the bottom line in all of this is that when you, as the collector, are looking at a coin's market potential, do not fail to consider the mintage, or supply. You also need to think about the potential demand for that coin. Generally, the lower the mintage the better, as long as the demand works out to be higher.

If after thinking about a coin's future market potential you still can't decide, then go back and reconsider the aesthetics. Because regardless of a coin's precious metal content and regardless of its future market potential, if you like that coin chances are you'll always like it. And that's the best reason of all to collect gold coins and coins in general.

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