Gold Coins: Buy or Bye?

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". . .handling costs on collector coins are very high. The difference between the buying and selling price is often as much as 20%, or even higher."

The prices of gold coins, especially the Protea series and the Nelson Mandela ones, have risen very sharply over the past couple of years—particularly the 2004 commemorative coin of South Africa's former president, with its price increasing by more than 500%.

The doubling plus in the gold price, especially in rand, obviously helped to push up the return on collector coins to a level stock market investors can only dream about. But just as with shares—regardless of whether they're banks, IT or resources—investors must remember such a sharp increase is very often followed by an equally sharp correction.

Be extremely cautious with new investments in collector coins. Study the market and all the options thoroughly before investing any short-term money or money that must earn a dividend in gold coins. Remember also that the handling costs on collector coins are very high.

The difference between the buying and selling price is often as much as 20%, or even higher. You should allow for the difference, plus the handling costs being as much as 30% of the selling price. That could easily eat up a large share of your profit, if not all of it.

Prospective investors in gold must decide exactly what they want to buy. The cheapest way of obtaining direct exposure to gold is to buy Absa's NewGold on the JSE. Recently, that piece of paper was trading at R93 for one-tenth of an ounce of gold. Handling costs are very low and the difference between the buying and selling price minimal.

Absa's gold certificates are as safe as gold, as they're fully covered by physical gold held by a third party. If the investor still doesn't trust the banks—and I can understand why—the next best option is to buy ordinary Krugerrands. Some brokers are still prepared to trade in Krugerrands.

The other option, of course, is to visit the SA Mint and obtain as much information as possible about proof coins and the different collector sets issued from time to time. But do your research first—correctly—and build up the necessary knowledge before you venture into the field of numismatics.

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