In the precious metals world, the term proof refers to special runs of coins using enhanced production processes.
These runs are usually intended for collectors, rather than investors, and designed to highlight the coins’ exquisite beauty and production quality.
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‘Proof’ Coins and Bars vs. Ordinary Bullion
Intended for collectors
intended for investors
Derives additional value from collectors for rarity and beauty, over and above the spot value of the metal content itself.
Valued based on spot price of the metal content itself. Aesthetics and collectors’ value is a secondary concern.
U.S. Mint sells proofs directly to consumers (commemorative coins and sets, etc., gifts, etc.).
U.S. Mint does not sell bullion to the general public. Instead, bullion is distributed through the U.S. Mint’s network of dealers throughout the U.S.
Loses value when scratched, worn or damaged.
Doesn’t suffer significant loss of value through ordinary wear and tear.
Normally trades at a premium compared to bullion.
Can be bought and sold efficiently with minimal premium - especially with larger coins or bars.
Coins are made from specially polished "rounds."
Struck at least twice.
Special frosting for finish.
High quality packaging and certificate of authenticity.
Ordinary minting techniques and strike quality.
Usually not suitable for IRAs due to premium.
Suitable for IRAs and other retirement accounts.
Because proof coins are popular with collectors, their prices get bid up higher in the market than ordinary bullion products. For example, a proof version of a 1-ounce American Gold Eagle coin sells at a premium compared to an ordinary bullion 1-ounce American Eagle, even though they have precisely the same gold content.
Because proof coins command a premium, we say they have semi-numismatic value. That is, they have value over and above that indicated by the spot price of the precious metal they contain. Numismatic value can come from rarity, historical significance, pure beauty, or a combination of all three – especially if the coins are in good condition.
Proof Coin Production
Among U.S. Mint products, the term proof indicates the highest-quality precious metals products. Every proof coin is made from rounds, or planchets, that are specially treated, polished by hand, and cleaned to exacting standards.
These special blanks are then fed into separate presses with specially-prepared dies, designed to imprint a ‘frosted’ quality to the entire striking surface. Historically, this was done using acid. Today, the ‘frosting’ is added using laser etching techniques.
The dies themselves also undergo some special preparation. Engravings may be sharpened, and the background may receive extra polishing, to ensure a smooth, brilliant, mirror-like surface on the background of the end product.
With proof runs, the die pressure is sometimes increased, and the die is slowed down, resulting in a longer press time for each strike.
Then each proof coin is struck at least twice to ensure the highest-quality imprint. After each strike, Mint technicians clean and inspect the die for any debris or imperfections.
The extra strike helps provide each of these proof coins with a frosted appearance to the foreground, and a luxurious, highly-polished background.
Each proof coin is hand-inspected as it comes off the line.
Because of the exacting manufacturing standards and quality control, manufacturing capacity is limited – potentially boosting scarcity value for collectors. The Royal Mint in the UK, for example, can only produce about 50 proof coins per hour, maximum. In contrast, the Royal Mint can produce up to 250 gold bullion coins per hour, and up to 3,000 silver coins per hour.
From there, the U.S. Mint uses durable, high-grade packaging to separate each proof product from others and protect them from wear and tear. This is especially important with gold products, because pure gold is a relatively malleable and soft metal and prone to scratching and wear – especially “four-nines-fine” products made from 0.9999 pure (24-karat) gold, such as the American Gold Buffalo.
Each U.S. Mint proof comes with an official Certificate of Authenticity, which may help you get a better price at resale.
What is a 'Proof Coin?' What investors need to know
Precious Metal and Ordinary Currency Proofs
Proofs aren’t limited to precious metals products. You can buy a set of 2021 coins from the U.S. Mint for $32.00. But as of this writing, you can also purchase a single proof American Eagle 2019 One Ounce Palladium Reverse Proof Coin via the U.S. Mint website for $3,050.
Proof Coins Vs. Uncirculated Coins
Uncirculated coins are made with a higher production quality than ordinary bullion products, but the standard is not as high as with proof coins. Uncirculated coins are loaded onto the coining press by hand. They are then struck onto highly burnished blanks. They usually have a softer, matte-like finish compared to proof coins of the same type.
Like proof products, uncirculated coins are marketed for collectors, rather than the investment market. And like proof products, uncirculated coins manufactured at the U.S. Mint come with a certificate of authenticity.
Proof and Uncirculated Coins Vs. Circulated Coins
There are also circulating coins, which are those produced for use as everyday money for transactions. These are not released to the Federal Reserve system like other ordinary coins. Compared to circulated coins, uncirculated coins have a brilliant finish, though not as highly polished as proofs.
The U.S. Mint sells circulating coins in bags, rolls, or boxes, and unlike proof coins and uncirculated coins, do not come with a Certificate of Authenticity.
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Reverse Proof Coins vs. Enhanced Proof Coins
Reverse proof coins (RPs) are made with an “inverted proof” finish – that is, the field, or background, is frosted, while the other design features in raised relief have a highly-polished appearance.
Besides the frosted fields, the other design elements and engravings receive an equal treatment, resulting in an equally highly-polished luster for each of these elements.
While other prominent mints around the world have been striking reverse proof coins for many years, the U.S. Mint was a comparative latecomer to the practice, rolling out its first line of reverse proof coins in 2006. That year saw the 20th anniversary of the Bullion Coinage Program. The U.S. Mint – always looking for something or other to commemorate, marked the occasion by rolling out a special American Silver Eagle bullion coin from the Philadelphia Mint, and an American Gold Eagle coin from the mint facility at West Point, New York.
Enhanced reverse-proof coins (ERPs) have the same frosted background, but are made so that each coin design element receives a different finish treatment.
As you might expect, these exceptionally beautiful, high-grade proof, reverse proof, and enhanced reverse proof coins typically trade at a premium compared to ordinary bullion coins of the same weight and type.
The price and typical premium varies with the market and with the weight of the coin, but it’s not uncommon for buyers to pay 10% to 20% more in commissions for proofs than for the same metal weight in ordinary bullion.
Suitability for IRAs
Coins held in gold IRAs and other tax-advantaged, self-directed retirement accounts in the United States must meet specific minimum purity standards laid out in section 408 (m)(3) of the Internal Revenue Code.
Specifically, they must meet these minimum purity requirements:
- Gold: 99.5%*
- Silver: 99.9%
- Platinum: 99.5%
- Palladium: 99.5%
*Note: Congress made an exception for American Eagle coins. They are the only coin exempt from the purity requirement that applies to gold IRA holdings.
Additionally, they must be manufactured in a national mint or a NYMEX, COMEX, NYSE/Liffe, LME, LBMA, LPPM, TOCOM, or ISO 9000-certified facility.
Proof coins are eligible for IRAs and other retirement accounts, provided they meet these other requirements. Additionally, any proofs in the IRA must be encapsulated in complete, original mint packaging, in excellent condition, and include the certificate of authenticity.
While proof coins are legally authorized to be held in IRAs, as long as they meet these criteria, many precious metal experts recommend that IRA investors and any other buyers holding precious metals primarily for the investment value sidestep the premium issues and the higher commissions, and stick to buying no-frills, no-nonsense, basic bullion.
Because proof coins are more valuable than bullion, buyers of proof products should be alert to delivery issues. The vast majority of gold and precious metal distributors are honest. Authorized U.S. Mint resellers have an excellent reputation. However, a few disreputable individuals have pulled a switcheroo on unsuspecting or novice collectors by selling proof or uncirculated products and actually delivering less valuable bullion – which to an inexperienced eye, looks very similar to the proof products.
To avoid this problem, gold buyers can buy bullion only from authorized U.S. Mint resellers, and buy U.S. Mint proof products directly from the U.S. Mint itself.
You can also protect yourself by checking your gold broker’s license on the Financial Industry Regulatory Authority (FINRA) website.
Who Should Buy Proof Coins?
If you are buying precious metals specifically for their investment potential, and to diversify your portfolio, or to protect against economic disruption, you might want to go straight for ordinary bullion products, rather than proofs. Buying proofs adds to your expenses, but it doesn’t necessarily add to your total expected return. And any additional commissions you incur just for buying proof products are a total loss.
You may also want to avoid proof products if you plan on holding the metals in an IRA. You have to keep these coins in a third-party storage facility, so you get no personal enjoyment value out of the sheer beauty of these proof coins. However, proof coins may be great for collectors, and as gifts or as commemorations.
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