The Flying Frisby - money, markets and more Should You Invest in Golden Art and Collectibles? Why Rarity Doesn't Always Pay
Let me quickly flag three things:
* There is a short note at the end of this piece on the subject of bitcoin treasury companies, which I know is of interest to some of you.
* We now have a video version of last week’s thought piece about the housing market.
* I am in Palm Springs, California, all next week. If any readers from that neck of the woods fancy meeting up, I’ll be performing at the Punching Up Comedy Night with Adam Carolla, Thai Rivera and Lou Perez, and also doing various panels at Freedom Fest on gold and bitcoin. You should be able to find me via this QR code. Or send me an email or message.
Right, gold … today we ask:
Should you invest in gold collectibles?
The gold at the Museo del Oro in Bogotá, Colombia, is one of the most stunning collections you will ever see – diadems, helmets and crowns, rings, necklaces and bracelets, beads and breastplates, even fishhooks and penis covers. The smiths of ancient South and Central America were quite brilliant artisans. The Spaniards who saw their work said Aztec goldsmiths were more skilled than their European counterparts.
In Mexico, the conquistadors found life-size figures of men and women, great jars and pitchers, half pottery-half gold vases sculpted in relief with birds, animals and insects, and more. In Peru and Ecuador, the conquistadors found miniature gardens made of gold – earth of gold granules, gold cornstalks, and gold figures of men and llamas.
Unfortunately, what sits in the Museo del Oro is just a fraction of what was made. The Spaniards valued bullion on weight alone, ascribing no value to art, beauty or workmanship. Most got melted down before being sent home. What they sent to their king intact got melted down once back in Europe. “What was being destroyed was more perfect than anything they enjoyed and possessed,” said a young priest travelling with the conquistador Francisco Pizarro.
The conquistadors were by no means alone in this. It has happened repeatedly through history. Though gold may last, art made from gold rarely does. People always seem to melt it down. That should mean ancient gold workings should command an even higher premium for their antiquity, because they have survived the meltdown risk. But for some reason, it doesn’t seem to work like that.
You can’t destroy gold, as I’m sure you know. It lasts forever and never loses its shine. It was present in the dust that formed the solar system, and sits in the Earth’s crust today, just as it did when our planet was formed some 4.6 billion years ago.
That means that little bit of gold you may be wearing on your finger or around your neck is actually older than the Earth itself. In fact, it is older than the solar system. Who knows? It might once have adorned a pharaoh or sat in a conquistador’s treasure chest. Gold may be antique, but it’s very rare that you get vast premiums for its antique value.
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The gold coinage that never was
If you buy a gold sovereign minted recently, you would typically pay £600 to £630. For a Victorian sovereign minted 150 years ago or more – which has the same gold content – you would pay £660 to £680. So, for all that history and antique value, you pay just 10%. Sovereigns are not uncommon. A billion are thought to have been struck. So you get little rarity value. But even so, you’d think you would get more of a premium.
The main exception is the 1937 sovereign struck for Edward VIII. Since he abdicated a few weeks before the coins were struck, they were never circulated. They are often called the “coinage that never was”, and only a few were ever minted. One sold in 2020 for £1 million. That’s quite the premium. But this is rare.
About ten years ago, I picked up a Justinian solidus, minted in 600AD – the solidus was the dominant coin of the Mediterranean after the Roman aureus. I got it for a 20% premium to the spot value of the metal. And I bought it from a shop in W1, so I was paying the Mayfair premium too.
An ingot recovered from the SS Central America, which famously sank off the Carolina coast in 1857 carrying Californian gold to New York (and triggered a financial panic because so much bullion was lost), recently went up for auction. It weighed 649 ounces, but it was only 21-carat gold (.875 purity). If melted down, you would have 568 ounces of pure gold, which, at today’s price of $3,300 per ounce, would have a spot value of $1.9 million. It sold for $2.1 million, including the buyer’s premium – little more than the spot value, in other words.
Antique gold very rarely catches the huge premium you might think it deserves.
Beware graded coins
Unscrupulous coin dealers will often try to flog you graded coins. If a dealer tells you that some recent sovereign, for example, is extremely rare, that it was one of the last coins minted under Queen Elizabeth II, or some such, and that it has been graded and has a special certificate and blah blah... and it therefore carries a huge premium, they are trying to pull a sly one.
The reality is that the extra premium paid is almost impossible to claw back when you come to sell. In almost all cases, they are trying to rip you off.
Don’t pay a premium for graded coins.
A dealer might buy a large stock of coins from the Royal Mint. Coins are often of a slightly different quality. Dealers then send them off and pay a small fee to get them graded according to their “Mint State”. The scale ranges from MS-60 to MS-70, with MS-70 being a perfect, flawless coin. They then charge a large premium for coins with high grades, even though they barely paid any premium when they bought the coins.
The margins when dealing in gold are on the slim side – sometimes just a few percent. But if they get an additional premium for the rarity, that margin can rise to 100%. No wonder there are so many unscrupulous salesman trying to flog graded coins.
Fractional coins – quarter or half sovereigns, for example – or older coins do trade at a higher (though not enormous) premium. These can trade for 15 - 20% above the spot value of the gold content. But you are likely to get that back when you sell.
You are not buying gold to try and be clever and hope that your coin gets some kind of rarity value. In most cases, that will not happen. There are clever people who know this market better than you already playing this game. Don’t get involved is my advice. Your priority is to get as much gold for your money as possible. You are buying gold to preserve purchasing power, not to lose it.
This article was first published in MoneyWeek's magazine.
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