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June 18, 2010
Alert 47-2
Why Buy a Buffalo?
Many of you have already acted on our April 30th alert, announcing the release of the 2010 American Buffalo coins from the U.S. Mint. Congratulations on snapping up one or more of these beautiful, 24-karat ounce gold coins. It has only been a month since their release and we have already shipped thousands of them across the country.
However, some investors still wonder if they should buy a Buffalo, as opposed to other popular gold coins, such as the American Eagle. It’s a good question. And the answer is simple … it depends. When deciding which coin to purchase, there are many factors that you should consider: cost, production, purity, packaging, and resale value. This article will not only help you decide if the Buffalo is the right coin for you, but also help you determine which coins to purchase in the future.
Cost
All things being equal, you want to get the most gold for your money. That usually translates into buying the coin with the lowest premium. Just because a coin is attractive, or 24-karat, or even the most popular, doesn’t mean you should purchase it. It needs to be priced right. Currently, ASI is offering the Buffalo at very competitive premiums: 6.5% over spot for orders of one to nine coins, 6% for orders between 10-99 coins, and 5.5% for orders over 100 coins. Of course these premiums are subject to availability and price fluctuation.
These premiums are comparable to the ones for American Eagles and other popular gold coins. Some dealers charge more than these rates (some much more). So be sure to check around for the best deal. Always ask for the “all-in” price that includes handling, postage, and insurance. A premium may sound good, but if the shipping is too expensive, your actual cost will be higher.
One quick note … for those of you who store your coins at Diamond State Depository, you already know how to take advantage of the “free” shipping charges to and from this very secure facility.
Sometimes, because of supply and demand considerations, Buffalos can be more expensive than other coins. When investors snapped up all of the Buffalos in the 2009 release, premiums shot to 9% or higher. Will a customer collect that additional premium when he goes to sell? You can’t be sure of it.
Production
Coins with lower production numbers tend to become more valuable. I am not referring here to any numismatic value (which may come into play down the road), but rather simple supply and demand economics. The one-ounce 24-karat gold Buffalo is the only 24-karat gold bullion coin produced by the U.S. Mint. And the Mint has only done so since 2006, when the 2005 Presidential $1 Coin Act authorized production of this beautiful coin.
Even though the act gives the U.S. Mint permission to produce the Buffalo, it is not required to strike coins each year, as it is for the American Eagle. The Mint will only produce the Buffalo when it knows it has enough gold to meet production targets for the 22-karat Eagles and sufficient 24-karat gold “blanks” to produce a sufficient quantity of Buffalos.
For these reasons, you cannot take for granted that Buffalos will be produced every year. Last year, the Mint did not release any 2009 Buffalos until October. This year they were earlier, but the 2010 Buffalos weren’t released until May. There is no guarantee when or if the U.S. Mint will release gold Buffalos in any given year.
Packaging
The proper packaging can help to protect your investment, but may not always be the best for looks and touch. The 2010 Buffalos being offered now come individually sealed in heavy plastic shrink-wrap with the words “U.S. MINT” on it. They come in sheets of 20 but can be cut apart for smaller orders. While this may not be the most eye-appealing presentation for your friends and family, it is an excellent way to protect the coins.
By comparison, American Eagles, Canadian Maple Leafs, and Austrian Philharmonics all come from their perspective Mints in plastic tubes that allow the coins to have contact with each other. This type of packaging makes for easy access, so you can remove one or more of the coins to admire them. But be careful not to scratch them or allow them to rub together. In fact, professional coin dealers insist that anyone touching their coins wear cotton gloves, so no moisture from hands gets on the coins.
Resale Value
Just like any investment, it’s important to understand the resale value of your coins. Although it’s easy to determine the spot price of gold when you want to sell, it’s important to know that your coins may not command the same premium when you sell that they did when you purchased them. There can be many reasons this can happen, including many of the points we discussed above: popularity, production, damage, etc.
Most coins will command a premium that is a percent of the gold spot price. It may be a percent or two above or below what you paid when you purchased them. Be aware that those few percentage points can add up. Currently, Buffalos will bring the highest premium of any coin when you go to sell them; right now they will bring about 1% more than a gold Eagle. That’s about $12 at today’s prices, so it’s nothing to sneeze at.
What’s Next?
When deciding between coins, there’s no question in my mind that the one-ounce, 24-karat gold American Buffalo is the best value. It wins, hands down. That may not be the case tomorrow, but it is today.
However, things can always change. At a later time, another coin may be the better value. In most cases, the premium you have to pay is the most important variable to consider. So shop around to find out what other firms are charging. Then give us a call at 1-800-831-0007 and see how our numbers and our service compare.
Many of you receiving this alert are very familiar with the ordering procedures and have purchased coins from us in the past. If this would be your first order, understand that we will “lock-in” your price when you call, based on the spot price of gold at that time. For transactions under $10,000, you can send ASI a personal check. We will ship your coins to you, via insured registered mail, as soon as your funds have cleared.
For transactions over $10,000, we will ask you to wire funds. In this case, there is no delay in shipment. Your coins go out as soon as our bank tells us that your wire has been received.
We strongly believe that gold belongs in everyone’s portfolio, either for “wealth insurance” or for investment. Whether bars or coins, and from which mint, can be a highly personal choice. But you won’t go wrong with gold mined in America and turned into coins by the U.S. Mint. The 24-karat Buffalos and the 22-karat Eagles are both lovely coins that will do an excellent job protecting the purchasing power of your savings.
We will be glad to help you own more of either one … or both.
Steve Emerick
If you’d like to talk with me about your precious metals needs, please call me at 1-800-831-0007. Or click here to send me an email and tell me the best time to call you.
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