Other than setting up the nuts and bolts of a drawdown scheme for my main pension fund, in the past few weeks I have taken a break from thinking about the stock market, individual shares and asset allocation. Instead, I have looked again at my tangible asset portfolio.
One perennial problem for investors in precious metals and collectibles is a shortage of good-quality stock. It is certainly true of Isle of Man coins, one of my collecting areas. A few specimens turned up in an auction catalogue recently. But a recent visit to my dealer yielded nothing more than an interesting conversation about life in general.
When stock is short, collecting addicts look for something new. And one area that I am now considering combines my enthusiasm for gold and numismatics – sovereigns.
My interest was sparked by a recent auction I attended. It saw a lot of gold sovereigns snapped up by dealers and collectors, some at more or less their bullion value, but some for considerably more.
Sovereigns have a long history and are among the most widely collected UK coins. The first were issued in the reign of Henry VII in 1489, but the “modern” sovereign dates from the reign of George III in 1817.
After 1914, gold coins ceased to circulate in most countries and production of sovereigns was stopped in the 1930s. Production of gold sovereigns as bullion coins restarted in the UK in 1957.
From 1817 onwards, all sovereigns have had the same physical charact-
eristics – the bottom line being gold content of 0.2354 troy ounces. Four sovereigns are roughly equal to one krugerrand. Many earlier sovereigns had a reverse side with a shield coat of arms, later ones having St George and the Dragon.
The so-called shield-back sovereigns, other things being equal, sell at a premium to the rest. They date from the reign of George IV (the first was issued in 1825) and run as far as the “young head” issues in the early and middle years of the reign of Queen Victoria. The St George and the Dragon motif was reintroduced in 1871.
Most sovereigns, especially recent ones, were produced in their millions. They sell at a standard price that reflects their bullion content. Adjustment is sometimes made for condition. But some fetch higher prices: shield-back sovereigns of most types command a significant premium over bullion, implying some numismatic value. There were also proof sovereigns produced in very small quantities. Coins such as these fetch an appreciable premium over bullion.
So, do I take the plunge and start buying? One attraction is liquidity. Sovereigns are more homogeneous than most collectable coins and generally easy to sell at a predictable price.
Later in the month, I also plan to reinvest in the stock market. But in the meantime, a short story about the long-term returns from collectables.
In 1975, I bought an old “busted bond” for £5 from a colleague who was selling a batch in the stockbrokers’ office where I worked at that time. It was a Chinese Government 1913 Gold Loan.
I had it framed and it has hung on my office wall for the last 20 years. Six such bonds sold at auction recently for £2,400. On a pro-rata basis, that suggests an annual return of close to 14 per cent compound. So over 34 years, this long-defunct bond has probably produced better returns than the actual gilt and equity markets.
Peter Temple is an active private investor writing about his own investments. He may have a financial interest in any of the companies, securities and trading strategies mentioned.
