How to Safely Buy Gold Coins: A Guide for Investors
Gold has long been investors' choice as a wealth protection asset to diversify and protect their portfolios against economic downturns. Even global central banks are now net buyers of gold as they hedge their reserves against high inflation and geopolitical risks around the world.
There are many ways to invest in gold. You can invest by owning physical gold, buying gold ETFs (exchange traded funds), gold stocks of gold mining companies, gold futures contracts, and gold funds. However, there is nothing more secure than purchasing physical gold and holding it close to you.
When it comes to buying physical gold bullion, there is much to learn - choosing between gold bars or gold coins, and understanding the different gold prices and brands. In this guide, we'll cover everything you need to know about buying gold coins, helping you understand the factors to consider before making a purchase.
Gold's Characteristics to Be Money
Those who invest in physical gold and silver often recognize its primary role as money. For over 5,000 years, gold served as a monetary standard. In many instances, gold was recognized as money by the markets, not by government decree. This is because gold embodies the function and characteristics of money, mainly:
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Divisibility: Money should be easily divisible into smaller units to facilitate a wide range of transaction values.
For example, physical gold can be broken down into different smaller weights between 1 gram to 1 kilogram bars and coins. -
Durability: Money must be durable and not deteriorate quickly. If it wears out too fast, it would be impractical for repeated use.
For instance, gold is one of the most durable elements. It is highly unreactive to the environment and does not rust or corrode. -
Portability: It should be easy to carry or transport, allowing people to conduct transactions without inconvenience.
Gold, for example, is a dense metal that can hold a lot of value within a bar's small volume. At current prices, a 1 troy ounce gold coin is worth about USD $2,000 and a 1 kilogram gold bar, smaller than an Apple iPhone, is worth more than USD $60,000. -
Uniformity: Each unit of money must be uniform or the same as every other unit. This ensures that all units are accepted in transactions without discrimination.
For example, a 1 troy ounce gold coin is inherently similar to another 1 troy ounce gold coin. This is unlike using something like diamonds, where each unit could differ in color and clarity. -
Limited Supply: There should be a limitation to its supply to maintain its value. If money were in unlimited supply, it would become worthless.
Gold is a precious metal, like silver and platinum, because of its rarity in the earth's crust. Given that gold comes from space, there is a limited gold supply in the ground.
It wasn't until 1971, with Nixon's departure from the gold standard, that the global economy started shifting towards a fiat system where paper currency wasn't anchored to gold. Prior to this change, every unit of paper money had gold backing it up.
Benefits of Investing in Gold
There are several benefits to investing in gold, including:
Diversification: Investing in physical gold can help diversify your investment portfolio and protect your assets against market volatility and inflation. Gold is one of the most liquid hard assets in the world. Traded with a transparent price on international markets, gold bars and coins can be bought and sold easily at any time.
Tangible Asset: Gold is a tangible asset that you can hold in your hand, unlike stocks, bonds, or other financial assets. When stored securely, physical gold can reduce counterparty risks to the financial system. Even if your bank goes bankrupt tomorrow, it will not affect the gold coin or bar held in your hand.
Long-Term Value: Historically, gold has maintained its value over the long term and can provide a hedge against economic uncertainty. Unlike stocks, bonds, currencies, or other paper assets, there has never been a time in humankind's history that gold's value has gone to zero. This is why countries continue to have gold reserves today.
Liquidity: Physical gold is a highly liquid asset that can be easily bought or sold on the open international gold market. Given the myriad of uses for gold, gold is always in demand for jewelry fabrication, investment, and industrial applications. The spot price of gold is readily available allowing market participants to easily determine the value of gold.
Benefits of Investing in Gold Coins
Portable wealth
Gold coins are often minted in sizes between 1/10 troy ounce (or 3.11 grams) to 1 troy ounce (or 31.1 grams), making them a highly portable form of wealth. A 1/10 troy ounce Canadian Maple Leaf Gold Coin can be easily kept in a wallet and brought around the world. Given gold's recognizability, a small gold coin can be easily sold around the world should you need liquidity quickly.
It is well documented that Royal Air Force (RAF) pilots going into combat will have gold sovereign coins sewn into their uniforms as emergency currency to buy their way out of enemy territory should they be shot down behind enemy lines.
Highly recognizable
Within the gold bullion market, it is common knowledge that a 'coin' refers to a gold bullion that is minted by a government mint with a legal tender face value. A round-shaped gold bullion minted by non-government mints or private mints is known as gold rounds, not gold coins. Therefore, when you buy a gold coin like the Canadian Gold Maple Leaf Coin, Australian Gold Kangaroo or the Britannia Gold Coin, you are assured that your gold bullion coin has recognizability.
Well-known and highly recognizable gold coins can be easily sold around the world, giving you good liquidity when you invest in gold.
Quality Product
Gold coins produced from well-known government mints like the Perth Mint, the Royal Mint, and the Royal Canadian Mint are known for their quality. These gold coins are produced with precision and are beautifully designed. In recent years, these government mints have also incorporated better anti-counterfeiting security features in their bullion coins.
Types of Gold Coins Available
There are two main types of gold coins available for investors: bullion coins and numismatic coins.
Bullion Coins: Bullion coins are minted specifically for investment purposes and are valued based on the weight and purity of the gold they contain. Examples of bullion coins include American Gold Eagles, Canadian Gold Maple Leaf Coins, Australian Kangaroo Coins, UK Britannia Gold Coins, and South African Krugerrands.
Numismatic Coins: Numismatic coins are rare or collectible coins that may have additional value beyond their gold content. These coins are valued based on their rarity, historical significance, design and condition. Examples of numismatic coins include Saint-Gaudens Double Eagles, Indian Head Eagles, and Liberty Head Eagles.
If you are just starting in gold investing, buying gold bullion coins instead of numismatic coins is better. Bullion coins often have better liquidity, and their value is readily known and close to the gold spot price. The secondary market for numismatic coins is more limited, giving you fewer avenues to sellback your gold coin.
Factors to Consider When Buying Gold Coins:
When buying gold coins, there are several factors to consider, including:
Weight and Premium: In general, the higher the gold coin's weight, the lower the premium will be. The term "premium" refers to the additional cost or price of the coin above the current market value (or spot price) of the gold contained within it. Several factors, such as minting, warehousing, transporting costs, and distribution markup, contribute to the premium of a gold coin.
Purity: Most gold bullion coins are minted to a purity or fineness of 24k (.999 or .9999 purity). Coins such as the American Gold Eagle and the South African Krugerrand are minted to a 22k purity (.916 purity). The purity of a gold coin may impact its tax status in certain countries. For example, all gold coins exempted from the sales tax or GST in Singapore must have 24k purity.
Authenticity: Only buy gold coins from reputable dealers and verify the authenticity of the coin before making a purchase. Certain bullion dealers like Silver Bullion use specialized testing equipment to test your gold coin purchase on the spot.
Condition: The condition of the coin can affect its value, especially in the case of numismatic coins. However, bullion coins are not required to be in pristine condition since their value is mainly derived from the coins' weight and purity.
Taxes: Depending on where you live, you may be subject to taxes when buying or selling gold coins. Make sure to research the tax laws in your area before making a purchase. For example, in Singapore, gold bullion coins that meet the criteria as Investment Precious Metal (IPM), are exempted from the Goods and Services Tax (GST).
Where to Buy Gold Coins:
There are several options for you to buy gold coins, including:
Local Coin Shops or Bullion Dealers: Local coin shops or bullion dealers in your city are a great option if you prefer to see the coins in person before making a purchase. Make sure to research the reputation of the dealer through customer feedback and reviews before making a purchase. The safest way to buy gold coins is to buy from a reputable precious metals dealer, as these companies already have a good track record. Reputable gold dealers are also likely to have distributorship with major bullion wholesalers, refineries, and mints, which requires the bullion dealer to pass the Know Your Customer (KYC) requirements of international suppliers.
Online Dealers: You can also buy gold coins online from a dealer and have your purchase shipped to you without stepping foot into a bullion dealer's retail store. Online dealers can offer a wide selection of gold coins and can often offer lower prices than brick-and-mortar dealers, given the lower costs. However, it's important to research the dealer's reputation before making a purchase and consider the ease or difficulty of the product returns policy should there be issues after your purchase.
Banks: Some banks offer gold coins or bars as part of their banking services. For example, the United Overseas Bank (UOB) is the only bank in Singapore that sells gold bullion over the counter. However, the banks' opening hours limit the ability to buy gold from banks. This is unlike bullion dealers like Silver Bullion, which allow online purchasing 24/7, even outside their hours of operation.
Jewelry Stores: Jewelry stores may also offer gold coins in addition to gold jewelry. However, given the significantly higher premiums of gold jewelry, the gold coin premiums in jewelry stores may be marked up higher to minimize the impression that jewelry is substantially more expensive when displayed side by side with a gold coin or bar.
Popular Gold Coins to Buy
1. Canadian Gold Maple Leaf
Country: Canada
Mint: Royal Canadian Mint
Purity: .9999 (24 karat)
Description: Introduced in 1979, the Canadian Gold Maple Leaf is one of the world's most recognized gold bullion coins. The coin features an image of Queen Elizabeth II on its obverse and the iconic maple leaf on its reverse. Its high purity and reputation for quality make it a favorite among investors.
2. UK Gold Britannia
Country: United Kingdom
Mint: The Royal Mint
Purity: .9999 (24 karat) since 2013; earlier versions were .917 (22 karat).
Description: First minted in 1987, the Gold Britannia coin showcases the image of Britannia, the female personification of the British Isles, on its reverse. The obverse features a portrait of Queen Elizabeth II. The coin's iconic design and backing by the British government have solidified its place among top gold bullion coins.
3. Australian Gold Kangaroo
Country: Australia
Mint: Perth Mint
Purity: .9999 (24 karat)
Description: Initially introduced in 1986 as the Gold Nugget, its design changed in 1989 to feature the kangaroo, an emblematic symbol of Australia. The coin's reverse design changes annually but always showcases a kangaroo, while the obverse displays Queen Elizabeth II. In 2011, the Perth Mint unveiled an Australian Kangaroo One Tonne Gold Coin with an AUD $1 million face value, making it the world's largest gold coin.
4. Austrian Gold Philharmonic
Country: Austria
Mint: Austrian Mint
Purity: .9999 (24 karat)
Description: First issued in 1989, the Gold Philharmonic coin pays tribute to the Vienna Philharmonic Orchestra, one of the world's most renowned orchestras. The coin's obverse depicts the Great Organ of the Musikverein, Vienna's concert hall, while the reverse showcases an array of orchestral instruments.
5. American Gold Buffalo Coin
Country: United States
Mint: United States Mint
Purity: .9999 (24 karat)
Description: Launched in 2006, the American Gold Buffalo coin was the U.S. Mint's answer to other 24-karat gold bullion coins on the market. The coin's design is a tribute to the classic Buffalo Nickel with the obverse featuring a Native American portrait and the reverse showcasing the iconic American buffalo, also known as a bison.
Frequently Asked Questions (FAQ)
Q: Given that the different branded gold coins are of the same weight and purity, why are their retail prices different?
A: While the bullion coins are of the same quality in terms of purity and weight, gold mints have different minting costs and pricing strategies. Therefore, they would offer gold bullion coins at different distributor prices to bullion dealers, who, in turn, price it differently to retail gold buyers. This market mechanic is similar to other markets selling other types of goods.
Q: Which is the best brand for gold coins?
A: Determining the best brand for gold coins is subjective. Most of the national mints or government mints are well-established, and their gold coins are internationally recognized. Some national mints are members of the London Bullion Market Association (LBMA), which is the world's authority for precious metals. Therefore, the quality of different branded gold coins is really similar, and selecting one over the other may come down to design preferences.
Q: Is it normal for my gold bullion coin to have minor scratches and blemishes?
A: Bullion coins are produced mainly for investment purposes where the weight and purity are more important than the coin condition. They are not produced with limited mintage to be collected like numismatic coins. Therefore, they are often shipped in plastic tubes of 10 pieces from the mint, each stacked on top of another coin. As they are shipped internationally, these coins would be rubbing against each other within the coin tube, resulting in minor scratches, especially in areas with a higher relief. However, such minor scratches and blemishes do not impact the value of the gold coin.
Q: How easy is it to sell gold coins and gold bars?
A: Gold bars and coins can be easily sold in mature gold markets where there are many competitors for your gold. Reputable bullion dealers are often incentivized to buy back gold since buy-back prices are often quoted lower than suppliers' prices, giving bullion dealers a better margin when they buyback bullion directly from customers.
Conclusion
Buying gold coins can be a great way to begin your gold investments, diversify your investment portfolio, and protect your assets against economic uncertainty. However, it's important to do your research and understand the factors that can affect the value of your investment. By following the tips and guidelines outlined in this guide, you can safely and confidently invest in gold coins as part of your investment strategy.