I recently received an email from Wealth Daily's Brian Hicks which was supposed to warn us about the dumb ways to buy silver that we should avoid. The article was entitled "The Best (and Worst) Silver Coins". In my view, this is a good example of partially good information that leads you down the wrong path. In this helpful sounding email we are told about all the stupid ways that people are being conned in the silver coin market but then at the very end the author throws out the suggestion (and a web site) to go buy “graded” silver coins. While its true that graded coins can appreciate faster than un-graded coins, it's also true that they can be very risky unless you are an expert who is very plugged into the coin collecting scene. The premiums paid for grades can and do vary greatly with market conditions and that is a level of additional volatility that serious metals investors will seek to avoid.
Now hear this: graded coins are for coin collectors, not those looking to store their long term wealth in metals. Unless you are an expert, avoid using graded coins (or subjectively graded objects of any kind) as a mechanism for storage of wealth. The problem with graded coins is that the grades become very speculative at the high end while the prices at the high end rise exponentially. In other words, they are asking you to invest in someone’s opinion. If the person selling you the graded coin pads his opinion by only 1 grade the price difference can be more than the price of a new un-graded coin (by perhaps many times).
That is like investing in diamonds because someone told you that a certain stone has a certain color and clarity. The evaluation of these subtle characteristics can and do vary between stones. When dealing with graded stones or coins the biggest problem comes when it’s time to sell. This is exactly the time when you want there to be no problems at all! With graded items, you need to find a buyer who is also a collector who will appreciate diamond color or fineness of unmarked coins. Unfortunately, in a crisis the market for this type of collector becomes very thin. The big market is and will always be people like me who place no value whatsoever in the grading process. The vast majority of metals investors value coins by weight and purity alone. Even if you can find a buyer of graded coins you have to be very careful with how the coins are stored and handled or you could degrade them (and the puffed up value of the coins will fall right along with the grade). If you have bullion coins then people will not mind minor nicks and scratches that do not obscure the stamped maker, weight and purity of the coin. Calipers and digital scales are the tools of the intelligent bullion coin buyer.
Bottom line: don’t let the lure of the potential for big profits affect your metals buying plan. Stick with bullion coins that sell at only a slight markup to the spot bullion price (it costs something to stamp raw metal into coins and you will get that premium back out when you sell). Buy coins in bulk from a bulk dealer, not one at a time on Ebay where premiums of 25-40% on single coins are common. Save up and buy 100 silver coins at a time from an online dealer and you will get the best price. Avoid local coin shops for either buying or selling as they have to make a living somehow. Be extremely aware going forward of the sales tactic of mixing a bunch of true info with a small amount of BS and then getting pointed to the BS part for your actual purchases. Buy from Monex or other reputable sources and avoid even the reputable sources that are having any sort of legal problems which could temp them to cheat their customers.
