Guide to Investing in Gold Bullion Coins

For the people out there who want to hold a small sum of gold, but don’t want to break the bank, investing in gold bullion coins could be a solution.

Gold coins are remarkably beautiful and great to look at. They also make great collections to wow friends and family.

If a specific design of a coin is especially rare or popular with collectors, the value of the coin may actually rise above its underlying bullion value.

Investing in gold

Gold is considered by some to be the worlds greatest and safest store of value, because it has been used as a currency for thousands of years.

In recent decades, some investors have bought gold to speculate rather than rather preserve existing wealth.

An investment in gold is unlikely to let you retire at 50 on its own, but it is increasingly being seen as having a place in an advanced investment portfolio.

If you’re new to the idea of investing in gold, it’s probably best to begin with our ultimate guide to investing in commodities, and my thought piece on whether gold is overpriced or overvalued.

In short – I do not recommend investing in gold if you are new to investing.

The difference between gold bullion coins and commemorative coins

What makes investing in gold coins better than investing in standard coin collections such as this Royal Wedding Coin?

The difference mainly comes down to the cost of the purchase, and what drives future changes in a coin’s value.

Purely collectable coins made from cupronickel or nickel-brass are produced from inexpensive materials. This means that their value is wholly subjective, and like the price of art, wine and rare stamps, will ebb and flow with collector sentiment.

The minimum value of a commemorative coin is the nominal face value, typically £5 or less for special editions.

On the other hand, gold bullion coins tend to track the market price of gold. You will notice that many gold coin websites refresh their prices every minute to reflect the changes in the live gold price. This means that coin prices will vary depending on commodities news.

Gold bullion coin guide

Denomination

Gold bullion coins struck by official mints carry an official denomination. It’s an implausible thought, but this means that you can actually use them to pay government taxes at their face value.

When investing in gold coins, the denomination is a secondary concern and shouldn’t really impact your decision. A £1 gold coin is no less valuable than a £5 denominated gold coin because the bullion value of the coin will always greatly exceed this value.

Purity

Purity is the measure of the level of perfection in the gold composition.

Higher purity means that a coin weight contains more pure gold

Purity can be measured in Carat or millesimal fineness. Fineness is expressed as ‘parts in a thousand’. As an example; fineness of 999.99 means that 99.999% of the coin weight is pure gold. The fineness of gold bullion coins will vary between 900 and 999.99.

Translating fineness into carat isn’t easy maths, so here’s a guide:

24 carat = millesimal fineness 999 or higher
22 carat = millesimal fineness 916
21 carat = millesimal fineness 875
20 carat = millesimal fineness 833
18 carat = millesimal fineness 750

The carat number is expressed as ‘parts in 24′. This means that 24-carat gold is 100% pure, and 12 carat is 50% pure.

While carat is a common term, it is mainly applied to jewellery. It doesn’t allow for the level of precision needed when valuing gold bullion.

Suppliers

When sourcing gold coins, try to buy from government mints to ensure authenticity.

The mints of the UK, the US, in Canada, Australia, China, South Africa as well as and other countries will provide coinage.

Mints do charge a premium atop of the gold bullion price, to cover labour, tooling and profit, however, if the mint is reputable, this shouldn’t be excessively expensive.

It is not dissimilar to the upfront ‘loading’ fees charged by mutual funds, so don’t be too put off if the transaction cost is modest.

Be aware of websites and suppliers that sound like official institutions, but are actually private companies. An example is the London Mint Office, which even bears an official insignia as part of its logo. It is in fact just a retailer, and will, therefore need to add a further mark-up to any products it sells to cover its own costs.

It is often cheaper and less risky to buy direct from the official mint in question.

Popular gold bullion coins

British Gold Sovereigns and the South African Krugerrand are the most popularly traded coins in the market. This makes them one of the best ways to hold gold. Popular coins have more buyers and you are likely to achieve a more competitive price when you sell.

The Krugerrand (as originally struck) contained the memorably gold content of 1 troy ounce. Since then, other sizes have been created, including 1/2, 1/4 and 1/10 oz. The larger the coin, typically the lower the premium.

The coin is 22 carat (916 fineness). It is said that in 1980, Krugerrands represented 90% of the investment gold coin market, so they are certainly not to be overlooked by potential investors!

British Gold Sovereigns are also 22 carat, and have been produced in different sizes (named Double Sovereign, Half Sovereign etc). Due to their limited supply and historical significance, British Sovereigns trade at a large premium to the gold bullion price.

As long as premiums remain constant, this doesn’t necessarily harm investors, however, it does reduce their expected value in times of real hardship, when sentimentality will be temporarily forgotten and gold content will be the only valuation factor.

In our free investment training course, we recommend that you carry out plenty of research before choosing an investment. This applies equally when deciding which type of bullion coin is right for you.

Definition of Proof Coins

When buying gold bullion coins, you will see some coins described as ‘proof’ coins.

This means that the coin has been struck in a different way and produced with greater care to ensure that the surfaces of the coin are polished and unscratched.

The typical process of producing coins involves carrying bags of them around, resulting in the coins scraping against each other and reducing their aesthetic appeal.

Proof coins contain the same weight of gold as their standard counterparts, but appeal more to collectors because of their attractive mirror-like shine and high-quality finish.

Therefore if you wish to hold a coin purely as a safe investment, I would advise against proof coins, as a greater % of their worth is subjective and in the eye of the beholder.

Security & insurance

Gold bullion coins are incredibly valuable by weight, meaning that extra care must be taken to ensure their safekeeping.

A diversified stock market investor doesn’t need protection against the risk of an individual company going into bankruptcy because each individual company only represents a fraction of a per cent of their portfolio.

Gold coin investors, on the other hand, tend to store their coins together, for obvious reasons. This means that a theft or accident that affects one of them, will likely affect all of them, wiping the investor out.

This means that gold investors should consider taking out insurance to cover their holdings (whilst equity investors rarely purchase insurance for stocks).

For investors storing their coins at home, upgraded home insurance can be purchased that specifically covers collectable and bullion coins. Investors who keep their coins in a bank safety deposit box may still need to take out insurance, however, their premiums will likely be lower.

Of course, investing in gold bullion coins is just one of the many ways to invest in commodities, and I don’t personally feel that investing in commodities is suitable for beginners. Therefore I encourage you to perform further research before deciding to invest.

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