A Better Way to Buy Precious Metals

Smart buyers know that the time to purchase precious metals is when prices are down.  With gold at a 5 1/2 year low, demand for physical gold coins is extremely strong right now.  

But I would recommend having a strategy that seeks to minimize your risks while maximizing your potential gain.

First, if this is your goal I would not follow the advice in a July 26 article on the web site, The Street.com, which is affiliated with CNBC stock guru, Jim Cramer, at least on gold coins.  The article recommends purchasing numismatic gold coins from the U.S. Mint like the 4-coin American Gold Eagle proof set, the 2015 American Gold Buffalo proof coin, and the Jackie Kennedy gold first spouse coin as a long-term investment.

The article also recommends the collector versions of the 5-ounce silver American the Beautiful issues and 1-ounce American Silver Eagle.  

In my view the bullion versions of these coins are a better deal currently given the price of gold and silver, and the much lower premiums over spot for these coins.  There is no bullion version of the Jackie O coin though both versions (proof and BU) are cheaper now than when released due to the drop in gold.  The collector version of these coins are gorgeous pieces, to be sure, and if bought as collectibles, they are sure to delight.  Just remember that the premiums are several times what you pay for the bullion coins, and if you sell one of the collector coins because you need the money, you will lose almost all of that premium unless gold has increased by hundreds of dollars an ounce for the gold proof coins. 

If you purchase the bullion versions now, your downside risk is much lower than it is with the proof coins, and you have good potential for increase if gold goes up from here.  And then there is the low mintage factor, which has given certain bullion coins a nice premium over melt value, but rarely helps much with the proof unless you own the key to a series like the 2008 American Gold Buffalo.

In fact, one of the best ways to buy gold is to purchase the half ounce, bullion version $25 American Gold Eagle the year it is issued since buyers usually purchase fewer of this denomination than other gold eagle bullion coins.  As a result several issues have acquired numismatic premiums that amount to several times the gold content of the coins.  

Similarly, coins such as Mexican gold and silver Libertads the year they are issued at bullion-related prices are a great deal.  These coins are minted in much smaller numbers than other bullion coins and are therefore harder to find. They sell out from the Mint and dealers extremely quickly, and they then acquire substantial premiums over their bullion value.  Chinese gold and silver Pandas are also in this category.  It is also important to know which kind of coins are in demand, and all these issues do well precisely because they combine low supply with high demand.  

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