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Investors often debate the viability of gold as an effective investment vehicle in the modern era. Some doubt its intrinsic value in today’s economy, which is driven by paper money. Others maintain that gold presents an effective potential hedge against inflation that helps diversify an investment portfolio.
Our Oxford Gold Group experts share some critical considerations to make before choosing whether or not to invest in gold coins, the advantages and risks of buying physical gold, and the main methods you have to choose from as an investor.
Do Gold Coins Make Good Investments?
Answering the question, “Are gold coins a good investment?” requires understanding the pros, cons, and methods of gold investment. Gold coins may provide a compelling investment option, but each investor must make that decision personally after careful consideration.
You may talk to a financial advisor to apply the pros and cons of gold coin investments to your own financial portfolio.
A Brief History of Gold Coins
Gold coins gained popularity as currency thousands of years ago as merchants searched for more straightforward methods of standardized trading. A gold coin used as money often featured a stamped seal that indicated where the coin originated. When Great Britain developed its coin-based money system, it used gold as the standard, with each matching piece representing the same amount of gold.
The United States continued this method when it established the gold standard in the late 1700s, which required each unit of money to have backing from physical gold or silver.
Although no countries use the gold standard today, this yellow metal remains critical to the global economy. The gold market includes more than just currency, from jewelry and art to electronics manufacturing. Your mobile phone, computer, and even your car probably have gold components.
Critical Considerations Before Investing in Gold Coins
To decide if gold coins are a good investment for you, consider your choices of type, storage, and source of the gold.
Physical Gold Type: Coins vs. Other Gold Forms
Many consumers buy and store gold to be sold at a later date when gold prices increase, but gold coins aren’t your only option.
Gold and other precious metals come in many physical forms, including:
- Jewelry: People have collected gold jewelry for centuries due to its ability to maintain value, even as the value of paper money fluctuates. Whether antique or brand new, a piece of gold jewelry could contain pure gold or an alloy mixed with other metals. 24-karat gold contains a gold content of 99.9%, while a 10-karat piece contains less than 41.7%.
- Bullion coins: Gold dealers sell gold bullion in various forms, including coins (also known as rounds). Bullion coins do not have value as currency like minted coins do. The value depends on the gold content of the coin and its weight, which the dealer stamps onto each piece.
- Bullion bars: Dealers also sell bullion as gold bars. As bullion products, gold bars also have stamps specifying their purities and weights. You may find bars weighing in at one gram, one troy ounce, ten troy ounces, or even larger.
- Minted coins: Many countries mint new gold coins as legal tender, adding to the options for physical gold investments. Minted gold coins include rare coins popular among investors and collectors. Examples of valuable, high-purity gold coins include the American Gold Eagle and the Gold Canadian Maple Leaf.
The ideal physical gold type for your investment needs will depend on your preferences. For example, you may choose gold bars for their low prices (lower additional costs above the gold spot price) or minted gold coins for their beauty or historical significance.
In this guide, “gold coins” refer to minted coins, not bullion rounds, unless the mention specifically states “bullion.” It’s important to remember that these are two different forms of gold.
Physical Gold Storage
If you invest in gold bars or coins, you must select a secure storage location to protect your investment. Some investors store their gold coins at home in properly rated safes, while others trust their gold to a reputable custodian. You may also consider insuring your physical gold in case it gets stolen, lost, or destroyed.
Gold Source Reputation
Before you purchase gold coins, research the dealer and where the coins come from. A reputable dealer will source minted gold coins from reputable manufacturers, such as the United States Mint, the Royal Canadian Mint, the Perth Mint, and Credit Suisse.
Gold coins and gold bars from reputable manufacturers often boast higher purities and values than those sourced from private minters. If you choose the wrong dealer, you may end up with fake or low-purity coins.
Are Gold Coins a Better Investment than Other Forms of Gold?
Investors have several choices for investing in physical gold. The primary two (gold bars and gold coins) both offer viable choices.
Let’s compare them side by side, so you can consider which option best suits your investment and financial situation:
- Dealers sell gold coins and gold bullion bars at costs higher than the spot price, but gold bars often include lower premiums due to lower manufacturing costs and other factors.
- Gold bars offer the best value reliability over long periods, so some investors prefer them for long-term investment options.
- Gold coin investments often prove easier to liquidate compared to gold bars and offer higher selling values.
- Gold coins have value as collectibles, while gold bars generally do not.
- Because gold coins serve as legal tender, you don’t have to pay taxes for possessing them, but gold bars may include capital gains taxes when you sell them.
Whether to make a gold bar or coin investment depends on your goals, so weigh the pros and cons carefully.
Advantages of Investing in Gold Coins
Buying gold coins involves many potential benefits, including the following:
- Accessible and liquid asset: You don’t need a stock broker or another certified professional to buy gold coins. Anyone can invest in gold, whether they want to invest $100 or $10,000, and enjoy immediate delivery. Many investors also consider gold coins highly liquid due to the constant demand for precious metals.
- Wealth preservation: Gold has a historically proven intrinsic value that has weathered centuries of adaption. Although they fluctuate, economists have witnessed historically rising gold prices; one cannot say the same for the value of paper currency. The U.S. may no longer use the gold standard, but many central banks still hold sizable gold reserves for wealth preservation.
- Inflation hedge: You may buy gold coins or bullion as a hedge against rising inflation and the decreasing value of the U.S. dollar. Gold has historically gained value and risen in demand during times when the value of the dollar falls and inflation rises.
- Safe haven asset: A safe haven asset provides wealth preservation during times of economic uncertainty and political unrest. You may choose gold coins or other products as your preferred safe haven investment.
- Portfolio diversifier: Investment portfolios with only one type of asset may face more vulnerabilities. For example, a portfolio only containing traditional stocks may plummet in value during a stock market crash. Portfolio diversification assets like gold coins may protect you from losing all your wealth to a single economic downturn.
You may buy gold to take advantage of one or more of these benefits, or you may look into other precious metal investments.
Possible Risks of Buying Gold Coins
- Higher prices compared to buying bullion: Dealers selling gold coins sell them at a premium with an average spread of 7 to 10% between their selling and buy-back prices. If you decide to buy gold coins instead of gold bullion, you may pay a higher per-ounce cost. You must balance your options with your budget and goals to find the best value that suits your preferences.
- Insurance complexities: Insurance policies for assets stored at home often include value caps based on the rating of your safe and your household’s value limit. If you decide to store gold coins at home, communicate with your insurance company to avoid losing your coverage due to improper safe use or exceeding what the policy covers.
- Storage costs: Storing gold coins with a reputable custodian may provide peace of mind, but don’t forget about the storage costs. A custodian service will likely charge fees based on a percentage of the value of the stored coins.
- Volatile gold prices: Although the price of gold has increased over the centuries, short-term fluctuations can threaten the value of gold coin investments. Even professional economists sometimes struggle to predict how the gold price will rise and fall in coming years because the price of gold depends on so many separate factors.
If you’re concerned about any of the potential risks of investing in gold coins, you may instead purchase bullion coins or bars.
Ways to Invest in Gold Coins
Answering the question, “Are gold coins a good investment?” also requires understanding all your gold investment options. Let’s explore three main ways to invest in gold, two of which involve gold coins:
Buy Gold Coins or Bullion
If you enjoy collecting coins or want a reliable store of value with high-purity gold products, you may buy physical gold in the form of minted coins. These gold coins often boast the highest purity and trade values. It’s essential to find a reputable dealer to buy gold coins, as many disreputable sellers try to sell fake coins that don’t contain pure gold.
Gold bullion coins and bars may also provide a decent store of value but may have a lower trade value compared to coins minted as legal tender.
Open a Gold IRA
You can fund an individual retirement account (IRA) using gold coins (and silver coins and other precious metals). A gold IRA can help you build a tax-free retirement fund using tangible assets. Many investors use this investment strategy to protect their retirement funds from inflation and U.S. dollar depreciation.
The Internal Revenue Service (IRS) only allows certain assets into precious metals IRAs. Precious metals must meet certain purity requirements to be considered eligible.
Examples of IRA-approved gold coins include the following:
- One-tenth-ounce American Gold Eagle
- One-quarter-ounce American Gold Eagle
- One-half-ounce American Gold Eagle
- One-ounce American Gold Eagle
- One-ounce Canadian Gold Maple Leaf
- One-ounce American Gold Buffalo
- Once-ounce Australian Gold Kangaroo
- One-ounce Australian Gold Philharmonic
Gold coins must have a minimum purity (fineness) of 99.5% for IRA approval. Many popular collectible coins, like British Gold Sovereigns and Gold South African Krugerrands, don’t have the fineness necessary for IRA eligibility.
You may also use other assets from precious metals to fund an IRA, including approved gold bars, silver coins, silver bullion, platinum bars, and other precious metal assets. Silver coins and bars have even stricter fineness requirements for IRA approval. A silver coin or bar must have a fineness of at least 99.9%.
Gold Stocks and Gold Futures Contracts
Buying gold coins or gold bars isn’t the only method for investing in the gold market. Investors can purchase gold mining stocks, exchange-traded funds (ETFs), mutual funds, futures contracts, and options on futures.
Before investing in gold mining stocks, consider the company’s long-term performance in paying dividends and other key elements. The gold mining sector involves a lot of volatility that can affect how gold stocks perform.
Invest in Gold Coins Through Oxford Gold Group
If you answer “yes” to the question, “Are gold coins a good investment?”, then you need a trustworthy dealer to purchase your gold coins. At Oxford Gold Group, we offer home delivery of gold coins as well as assistance setting up precious metals IRAs.
Whether you want to buy gold bars and coins or use silver coins to fund your IRA, get in touch with us. We can help you gain more control over your retirement account through IRA-approved gold and silver coins and bars.