Collecting and Investing in Pre-1933 Gold

During periods of increased volatility in the financial markets, there is always a corresponding interest in gold. Gold is seen as the safe haven, the resource of last resort, a hedge that is insulated from other markets. As it was during the Great Recession of 2007-2009, now it is no different. The world is reeling from the devastating effects of Covid-19 and the associated economic harm of social distancing and self-quarantine. As a flight to safety, or maybe just seeking some peace of mind, many investors turn to gold, and to physical gold in particular.

The effects of this are felt in the rare coin ecosystem as well. One of the most direct and immediate impacts is increased interest in gold coins. For the US coin market, that means more demand and focus on bullion coins, the American Gold Eagle and the American Gold Buffalo, and on classic issues, primarily Pre-1933 Gold.

The year 1933 marked the end of circulating gold specie in the United States, the last time gold was used directly to pay for goods and services in everyday commerce. “Pre-1933 Gold” is a shorthand way to refer to US gold coins that were made for use as currency, as opposed to bullion coins that are produced as a way to trade gold.

The NGC Price Guide estimates the value of an 1899-S $20 graded NGC MS 62 at $1,900, about 18% over its $1,612 melt value. Click images to enlarge.

But Pre-1933 Gold doesn’t mean all classic gold coins. Specifically, it refers to the common issues of gold coins struck between 1873 and 1933. Unlike rare coins, which trade singly based on individual merits and whose value is determined by scarcity and desirability, Pre-1933 Gold trades as a commodity. All similar examples of the same type, date and condition have exactly the same market value. Further, this value is largely determined by the value of the gold that they contain with small premiums applied based on condition and availability (called a “numismatic premium”). Years ago, Pre-1933 Gold was called semi-numismatic gold, and dealers often still refer to these coins as generic gold. More recently, Pre-1933 Gold has become the preferred term.

One of the exciting things about Pre-1933 Gold is that certified uncirculated examples have very modest numismatic premiums. Many issues are available for less than 30% over melt. Melt is the value of the gold that the coin contains, determined by multiplying the gold weight of the coin by the current spot price of gold. Unlike bullion coins, Pre-1933 Gold coins don’t contain round units of precious metal. For example, a $20 Liberty gold coin contains 0.9675 troy ounces of pure gold, and a $10 Indian contains half that amount. NGC has a resource on its website that displays the melt values for all Pre-1933 Gold coins.

Coins that fall into this category are $10 Liberty, $10 Indian, $20 Liberty and $20 Saint-Gaudens grading MS 61, MS 62 and MS 63. Of course, in these series there are many rare issues that trade for astronomical multiples of their metal value! But there are also common dates, like 1926 and 1932 $10 Indians, or 1900 and 1904 $20 Liberty and 1924 and 1927 $20 Saints. All NGC-certified examples, of course, are backed by the NGC Guarantee, which guarantees their authenticity and grade, making them easy to buy and sell online. Most online sellers even offer free insured shipping.

The NGC Price Guide estimates the value of a 1911 $20 graded NGC MS 62 at $1,925, about 19% over its $1,612 melt value. Click images to enlarge.

Gold bugs – folks who like to own physical gold – are always debating the merits of various products. Gold has a two-thousand year history, so there are a lot of options. One criticism of Pre-1933 Gold is that it’s .900 fine (not pure gold) and doesn’t come in round units. Pure gold is soft, which is why a mix of metals (and alloy of 90% gold and 10% copper for these coins) was used for pieces that circulated and needed to be hard. Second, it’s not entirely straightforward to determine the value of their gold, since the actual gold weight of the coins is not a round number. For example, each $10 Indian contains 0.48375 troy ounces of gold.

Proponents of Pre-1933 Gold counter that interest in pure gold is recent phenomenon. Even the American Eagle isn’t pure gold, but .9167 fine. No one is melting uncirculated classic gold coins, so how much does fineness really matter? Instead, the contents are more important. Common date Liberty $20 gold pieces contain pretty close to an ounce of gold, but their value is not 1-to-1 tied to the price of gold. Each grade (condition) of each coin type has its own value that fluctuates according to its own factors of supply and demand.

Right now, the value of many of these coins happens to be pretty close to the price of the gold they contain, but that hasn’t always been the case. Instead, enthusiasts argue that Pre-1933 Gold was made by the United States and they are real circulating gold coins, most of which are over 100 years old. What an exciting way to own gold!

The landscape of physical gold products is rather broad. Pre-1933 Gold does layer in the additional complexity of numismatic premium, but it offers a unique combination of history, value and liquidity that isn’t found in modern bullion. When looking for physical gold, this is a product area worth investigating.

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