Precious metal coins are often talked about and described as good long-term defensive investments. In reality this means that an investment in precious metal coinage is unlikely to make you money overnight, but after a decade or so you are likely to start seeing a return on that initial purchase. This happens for two main reasons. Firstly, the commodities market for precious metals tends to be bullish in the long-run. This means that over a period of several years prices show a gradual rise. This is the case even if on a week-to-week or month-to-month basis the price fluctuates significantly.
Gold and silver are great examples of precious metals that have bullish markets in the long-run. Not only are they finite global resources, but in times of economic uncertainty they are also popular investment choices due to their tangible nature. When confidence in businesses and world economies is low or stagnant, traders often run for the safety of precious metal markets as these are more stable.
This was the case during the Global Financial Crisis which began in 2008. Gold prices at the beginning of 2007 were at around 600 USD/oz. Prices then rapidly (rapidly for gold, that is) rose to their peak in August 2011 at about 1850 USD/oz, levelling off somewhat until March 2013 when they fell back significantly as investors regained their confidence in other markets. While the price dropped to around 1200 USD/oz – a trend line around which prices have fluctuated ever since – this price is still double what was seen in 2007, neatly demonstrating the long-term bullish trends of gold.
The stability of a market is known as its volatility – the extent to which the price of the commodity fluctuates over a given time period. Gold is less volatile than silver: silver prices tend to rise and fall a lot more than those of gold, but in the long-run it is common to see the silver price track quite closely to trends in the gold price.
Given the nature of precious metal markets described above, investing in them is logically sound. This is the case whether you buy precious metals as bullion bars, or whether you choose to invest in precious metal coins. However, coins have several added advantages over bullion bars. While coins can be both bullion and proof – with proof coins having a greater collector value than bullion – they are all legal tender in their country of issue. Therefore in the unlikely event that the market for gold or silver crashes and completely bottoms out, the coin is still worth something and retains a certain amount of buying power.
As stated earlier, coins have collector value – even bullion coins, although not to the same extent as proof. Aside from the inherent properties of a precious metal coin, the second reason that they make good long-term defensive investments is that their collector value also rises over time. Proof coins, and also in the case of Chinese bullion coins, are issued with limited mintages. Some global mints do not restrict the mintage of their bullion coins, but the China Mint does, giving even their bullion coins the potential for accruing collector value. After a coin type has been issued, the collector value rises slowly over time. This is because not only are coins lost or melted (to make them easier to sell in times of economic need), but they are mishandled and damaged. Therefore the surviving mintage is reduced and the proportion of those in good condition also falls over time. Simple laws of supply and demand dictate that if the demand stays the same, in a climate of falling supply the price will rise as the resource becomes more scarce.
Gold coins have the added advantage of being chemically unreactive, and so will not deteriorate under normal conditions. Silver, while still unreactive in the grand scheme of things, does tarnish over time as the metal reacts with hydrogen sulphide in the air (it does not tarnish in the presence of oxygen alone), so a little extra care is needed when handling and storing silver. If silver coins have tarnished, it is not recommended to try to polish or clean them, as this will likely destroy some of the coin’s surface features as the tarnish is removed.
All these reasons for investing in precious metal coins, whether bullion or proof, apply to Chinese coins, particularly Pandas which are distributed in both proof and bullion (or brilliant uncirculated) quality. While gold and silver Pandas are the most common investment choices, palladium and platinum Pandas have been issued in the past, and make equally wise options. With private precious metal ownership now legal in China, and an rising affluence among the population, there is an ever-increasing Chinese market for Panda coins, increasing the global demand for these attractive pieces – another great reason to get involved in the market today. Given their suitability as defensive long-term investments, Panda coins make an ideal part of a retirement fund portfolio. They also make great gifts and presents, that keep on giving year after year.