Those of us who purchase coins know that coins usually incur higher premiums compared to bars. We know it and yet we continue to do so, sometimes even incurring premium differences of more than 15%. The question is why? Today, we’ll discuss a few of the possible reasons and see if they continue to remain valid during this period, when precious metals come back into the spotlight.
Coins are usually minted differently from bars. Detailed designing goes into the coins, which increases their aesthetics (and premiums also). Designs change annually, resulting in a novelty factor. Take for instance the China Panda Silver Coins, where the design of the pandas, the backdrop of the coin setting and even the number of pandas present on the coin are highly scrutinized by avid investors. Different designs each year have also led to investors “collecting” them annually and then reselling the entire set for higher premiums. The different designs sometimes lead to higher demands for certain years also, for instance only the 2013 year has 3 pandas on its coins or the 2015 year which has no weight or fineness inscription and being the last year with 1 oz weight (subsequent years are cast in 30g basis) These years are highly sought after by investors who deem them as “rarer” than usual years. Hence, investors who purchase them possibly on the second hand market, are willing to pay a higher premium than average for these coins.
Bite sized amounts
Coins have generally been minted and stacked in denominations of 1oz whereas bars are usually of much larger denominations (10oz, 100oz). Investors value the small denominations as it allows them to buy and sell in smaller “amounts”. If say I have set aside SGD$1000 monthly for precious metals investments, I would be able to purchase approximately 22 pieces of 1oz silver coins at the current prices, compared to having to save up 4 months for a $4100 100oz silver bar. Bear in mind that I am only able to purchase a smaller quantity due to the higher premiums of the silver coins but I am also able to have spread out my purchases across multiple points. Prices might also have moved against me in that time period. (I wont complain though if it moves in my favour!) Similarly I am able to sell off my 88 x 1oz silver coins at different market prices, compared to having to sell 1 x 100oz silver bar.
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Coins produced by the refineries have a legal tender value on them too, which bars do not have. If you present a American Eagle Silver coin 1oz to the banks in the US, they will be bound to buy it back at a tender value of $1. Its significantly low compared to the current silver market price ($26+) yes, but in the scenario where Silver drops below $1, you have a guaranteed buyback of $1. Silver bars on the other hand, don’t have a legal tender value on them. This form of insurance might appeal to the cautious nature of us and some investors do consider this when purchase coins.
There are also cons to purchasing coins though and should be considered also.
High premium coins may not necessarily translate to higher selling prices when you are looking to sell it off. Precious Metals dealers look to provide liquidity in the physical market by offering two way prices. In order to do so, they usually peg their buyback prices to the market bid spot prices and the current physical demand supply equilibrium also. As the premium portion is a “subjective” one, there is no guarantee that you will be able to obtain a higher sellback price for your silver coins compared to bars at any point of time.
Think of an HDB flat in Singapore, its actual value could be worth $800,000 dollars and it is a prime location, but its actual selling price could be much lower than its “value”. The same could also happen for your “rare beautiful designed” coin. It could be a full collection of all the surviving coins in the world, but if no one is willing/able to bid a high enough price for it, you will have to choose to either accept the lowered price or hold onto it some more.
Hence, if you are looking to solely buy silver coins, you might look at having some silver bars as well for liquidity purposes.
Side note, if any dealer promises you a higher buyback price indefinitely, get that down in black and white writing because when market conditions take a turn, their policies might change too!
So, that’s it! A very quick look into the different reasons one might choose a coin over a bar. Bear in mind that much like other investments, technology in the precious metals industry is advancing and continues to alter the form of our precious metals investments. Even today, we have tools that allow customers to enhance their precious metals portfolio through various means, such as automated DCA strategies, fractionalized ownerships etc.
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