Buying Rare Gold Coins: Important Things to Know

A rare gold coin from the exquisite collection of Charles Mapes, late Reno hotel and casino owner, is up for auction in Los Angeles on September 4, 2011. The high-grade 1870 CC rare gold coin has been a proud feature of the Mapes since 1961, when it was purchased by the hotelier at a New York auction. The $20 Liberty Double-Eagle coin, minted in Carson City, is the largest denomination of US-issued gold coin from that period available in the market today. This rare gold coin is estimated to be worth $150,000 to $180,000 at present.

How are Rare Gold Coins Valued?

There are several factors that contribute to a rare coin’s significance. For an educated collector, these rare gold coins are symbolic of a rich history, which they can treasure and relive through these tiny pieces of metal. What makes a rare coin legendary is its story. For instance, the early commemorative coins accompanied old letters, sales literature and other related souvenirs from the people or event they commemorated.

Auction catalogs also become an integral part of a rare coin’s history over the years. A rarity accompanied by old notes, letters, envelopes, original design sketches significantly adds to the market value of a rare gold coin. For example, the Dexter variant of the 1804 dollar is well known for the affidavits and letters from the US Mint officials, which accompanied the coins whenever it traded hands.

Acquiring Rare Gold Coins: Important Considerations

Rare gold coins can yield fruitful profits over time, depending on their quality as well as timing of the purchase. Attractive rare gold coins bought in the right grades at reasonable prices can be sold at at considerable profits. Take for instance the example of Mr. Louis Eliasberg, Sr. He managed to successfully collect every mint, denomination and date of US gold coin. The estimated value of his total purchase (carried out from 1920s through the 1950s) was approximately $400,000. At a public auction held in 1996, Eliasberg managed to collect over $44 million, thereby managing an annual return of more than 200 percent.

Clearly acquiring rare gold coins is all about timing and proper strategizing. Some important considerations to bear in mind about buying gold coins are:

  • Depreciation: Like any economic commodity, rare gold coins are affected by the laws of supply and demand. By 1996, some rare coin series were trading at nearly 15-20 percent of their late eighties highs. However, more popular rare coins tend to have a more unwavering demand, which makes them less likely to depreciate. In fact, some rare gold coins have surpassed expectations in bear markets.
  • Regulation: The rare gold coin industry falls under the jurisdiction of the Federal Trade Commission’s. These regulations are fairly broad, and cover the purview of fraud and theft, among others. However, several rules and bureaucratic applicable to other investments are not applicable to rare coins.
  • Taxation: In the US, rare gold coins are categorized under the heading of "capital assets" while filing returns, under the Internal Revenue Code Section 1221. Any gains (or losses) incurred while buying rare gold coins is reported under Schedule D on the individual’s tax return Form 1040.
  • Insurance: Rare gold coins, like any valuable collectable, can be insured by a separate policy or as a part of the home owner’s policy. American Numismatic Association also offers insurance on rare gold coins.

Finally, when planning to buy rare gold coins, it is important to take into consideration liquidity. It implies the ease with which an asset can be sold for cash. While rare coins do not offer the same level of liquidity as other assets like securities and futures contracts, they are a highly liquid "collectible."