According to gold coin broker Peter Schiff, you should not buy numismatic coins as your first purchase. Rare coins are for collectors. The person who is seeking a safe haven for his money should buy bullion coins, such as American gold eagles, South African Krugerrands, or Canadian maple leafs.
But what about the threat of confiscation by the American government? Aren’t numismatic coins immune? Schiff responds.
The Confiscation Con
One of the main techniques a metals broker will use to “switch” you to numismatics is to talk about President Roosevelt’s “confiscation” of gold – and then claim that only their coins are exempt. This is baloney.
When Roosevelt issued his order, the US was on a gold standard, so confiscation was a necessary part of his plan to devalue the dollar. Now, the dollar is backed by nothing, so that reason no longer applies. If the government finds another reason to confiscate your assets, they will likely be coming after everything (land, stocks, cars, etc.), and at least gold is easy to conceal.
The reality is that no gold was forcibly confiscated in the 1930s. There was a single case of a New York attorney prosecuted for trying to withdraw gold from a safe-deposit box, but it was thrown out on a technicality. Yes, the law made it impossible to conduct official business in terms of gold for some 70 years, but the average investor’s personal stash was safe and sound.
However, to debunk this claim on its face, all you have to know is that almost all of the “numismatic” coins being sold by these scams dealers wouldn’t have qualified as “rare and unusual” under the terms of Roosevelt’s order. Most are simply old coins that were minted en masse by historic empires, like Austria-Hungary, the British Empire, and the French Empire. They are genuinely old, but about as rare as a ballpoint pen.
Then what about proof sets? Aren’t these special?
Proof Sets and Commemorative Sets
Be wary of anything using the term “collectible,” “proof,” or “commemorative,” as they often indicate a severe rip-off.
Proof Sets – Many of these sets consist of legal tender coinage, which contain no precious metals at all! After attempting to invest in gold and silver, you might be left with a nicely packaged set of US coins worth about 91¢.
Commemorative Sets – You’ve probably seen commercials for commemorative coins “plated with gold or silver recovered from the vaults beneath the Twin Towers after 9/11.” This is all part of the strategy to distract you from the fact that the coins are essentially worthless.
Then there is leverage: more bang for your buck.
The Leverage Trap
In a leveraged account, the dealer lends you money to buy gold. This can be very hazardous.
Gold can be volatile in the short-term, and if it drops in price, you’ll likely be asked to send in more cash for a margin call. If you don’t, the dealer will sell your gold at wholesale prices to cover the debt.
Further, you’ll have to pay commission on the entirety of the purchase, eating into the amount of metal you receive. And let’s not forget the interest and various fees which you’ll pay, even if the price of the metal falls.
A quick Googling of the subject will show many people who have lost their entire investment by getting involved in these schemes.
The simple rule is: you shouldn’t purchase financial services from a metals company.
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