Relying on patriotism and investment interest, the US government is again minting and selling gold coins

Nation's Business, Oct, 1986 by Ray Brady

Relying on patriotism and investment interest, the U.S. government is again minting and selling gold coins.

When it comes to buying coins,' says Joel Coen, a Manhattan coin dealer, "the naivete of the American people is astonishing.' But Coen, a one-man crusade against the phoniness that he says infests much of the coin trade, cannot keep a certain excitement out of his voice when he talks about an event scheduled to take place this month. For the first time since 1933, the United States will be producing and distributing general circulation gold coins.

Yes, gold. The same stuff Washington decided to swear off minting in the early '30s. Through a variety of retail outlets, it will be selling gold bullion coins carrying $50, $25, $10 and $5 denominations. Although they will be considered "coin of the realm' and can be used as legal tender, resist the temptation to do that. They will be valued according to the gold content (at this writing, gold's price is around $360 an ounce), so the full one-ounce $50 coin will actually be worth much, much more than its face value.

The fact that the United States is issuing the coins is expected to spark intense interest. Notes Luis Vigdor, vice president of Manfra, Tordella & Brookes, a major coin and bullion dealer in New York: "It will bring a lot of people to the market who may never have bought a piece of gold before.'

Public interest in gold and gold coins has fizzled ever since the heady days when inflation kept sending gold prices up, up, up. When inflation dwindled, so did the desire to own gold as a hedge against inflation.

Inflation alone cannot be blamed for the demise of gold's popularity. Just last year, bullion coins got a second blow--this time political. On Oct. 1, 1985, as part of his program of limited sanctions against South Africa, President Reagan halted imports of Krugerrands, a favorite among American investors. The distribution of the coins shriveled away to virtually nothing, and dealers say that in some cases the coins can now be purchased for less than the value of the gold in them. At one point, 5.3 million Americans owned 14 million Krugerrands--an investment experience that presumably has left them with a bitter taste in their mouths.

After the Krugerrand ban, "Congress got interested in the idea of marketing a gold coin here,' says Michael Brown, a spokesman for the U.S. Mint. The new coins will carry a kind of patriotic appeal. The gold to make the coins will come strictly from American mines (foreign coins, except for Canada's Maple Leaf, might contain some South African gold), and the proceeds will help reduce the federal deficit.

"We hope to sell 2 million ounces of gold the first year,' says Brown.

There is, however, stiff competition for coin buyers' dollars, principally from the Maple Leaf. The ill-fated Krugerrand once outsold it by a margin of nine to one. Right now, the Maple Leaf is believed to hold about 65 percent of the worldwide market for bullion coins.

Investors can also choose among such other bullion coins as the Austrian 100 Corona, the Mexican 50 peso and-- an up-and-coming star--the Chinese Panda.

Minted in Shanghai, the Panda comes in sizes ranging from 1 ounce on downward (roughly the same as some of the other bullion coins). It has, in the words of one dealer's sales brochure, an "adorable design,' consisting of a panda on one side and on the other an engraved design of Beijing's Temple of Heaven, one of the architectural wonders of China.

From an investor's point of view, the Panda has also been something of a wonder. When the coin first came out in 1982, its price was about $425. Buyers recently were bidding about $1,550 for that issue. Subsequent issues have not done quite as well; the 1984 Panda has a bid price in the neighborhood of $775. The 1986 coin is selling for about $400.

How will the American coin fare against the competition? After all, there are a lot of bullion coins around now. Even the Australians are coming up with a series.

Bulls on bullion say that if you study the consumer price index carefully, you can see a few signs that inflation might be coming back. "Some smell of inflation,' says Coen, "makes gold coins go up.'

Moreover, Coen and many other dealers believe there is a "buy American' atmosphere that will help the coins. "In fact,' says Coen, "the U.S. bullion coin will probably put the Maple Leaf out of business. The Canadians are going to have a problem.'

But all that glitters is not necessarily gold. Even more than in most fields of investment, it pays to buy coins from known, reputable dealers. Just recently, the Florida comptroller's office put 21 companies in the state under investigation on suspicion of defrauding investors around the nation with coins that were not worth what the telephone salesmen claimed.

In one case, an investor paid $13,130 for 20 silver dollars. Their real worth: just $920.

If you take a shine to the U.S. government's bright new bullion coins, make sure that they are what you are buying--and that you are getting them from a reputable dealer at a price just a fraction over the worth of the gold in them.