Gold Coins: A Smart Investment Move?

Gold has been a valuable commodity for thousands of years, and it is still considered a strong asset for diversifying your portfolio. It can be a safe haven during economic uncertainty and a hedge against inflation. However, investing in gold coins can be expensive and risky. The costs of buying, storing, and insuring gold coins can be high, and there is a risk of theft or fraud. Gold coins may also not provide the best returns compared to other forms of investing in gold, such as exchange-traded funds (ETFs) or stocks in gold mining companies. Ultimately, the decision to invest in gold coins depends on your financial goals, risk tolerance, and market outlook.

Gold coins can be expensive to buy

Gold coins are a popular investment choice, with some of the most valuable US gold coins selling for millions of dollars. However, the price of gold can be volatile, and it may fluctuate significantly over short periods, making it a risky investment. Gold is also not an income-generating asset, and there are often extra costs associated with owning and storing it securely.

Gold coins are sold by weight, with investors typically buying bullion coins such as the American Gold Eagle, Canadian Gold Maple Leaf, or South African Krugerrand. The price of these coins includes a premium over the spot price per ounce, which is how the dealer makes a profit. This premium tends to be higher for coins that are less than one ounce.

Gold coins can also be expensive to buy due to their numismatic value. Numismatic coins are collector's items and are a different game from bullion gold coins. Their prices are dependent on more factors and can sell at a very high premium. For example, a 1933 Saint-Gaudens $20 Double Eagle gold coin sold for $18,872,250 in June 2021, making it the most valuable gold coin globally.

Therefore, gold coins can be expensive to buy due to the inherent value of gold, the numismatic value of certain coins, and the dealer premiums included in the price.

Gold coins can be expensive to store

While storing gold coins in your house may be an option, it is not recommended unless you have a safe. Thieves know where to look and can use metal detectors to find your gold. Instead, consider renting a safe at a bank to keep your gold and other valuables.

There are different storage costs associated with each option, so it is important to shop around and look at all options to determine the best one for you and your investments. The cost of storing gold in a vault depends on the vault's location and the amount of gold you have. For example, Gold Investments offers storage at the London Silver Vaults at a cost of £4 per ounce of gold per year (minimum charge of £25), with reduced rates for kilo bars (£50) and 100g bars (£12).

Bank lockers are another option for storing gold coins. These vary in size and price, with some banks offering safety deposit boxes for rent for 12-month periods. For example, Metropolitan Safe Deposits in London rents boxes ranging in price from £95 per year for a small box to £2,400 per year for a larger box.

If you want to store your gold coins at home, you can purchase a safe. The price of a safe can vary depending on its size and security level, ranging from around £30 to £2,500 for bottom-end safes and from £1,000 to over £3,000 for top-range safes.

Additionally, storing gold coins may require insurance, which can add to the overall cost of ownership.

Gold coins can be expensive to insure

Gold coins are a tangible investment, which means they come with a risk of theft. This makes them expensive to insure. While gold coins can be stored at home, in a bank, or in a vault, they are not insured by the bank or FDIC. Therefore, it is recommended to insure gold coins separately.

Home insurance policies typically provide limited coverage for cash-related items, with a max coverage limit of $250 for coins, banknotes, and 'numismatic' items. This means that in the event of a loss, your home insurance policy would only pay out a small amount towards the replacement of these items.

To insure gold coins for their full value, you may need to purchase additional coverage or a separate insurance policy. This can be costly, especially for a valuable coin collection. Some private insurance services offer plans ranging from $5,000 to $500,000 in coverage for bank safe deposit boxes. Alternatively, you can use a private non-bank vault depository service, which typically offers full insurance for their clients' holdings through third-party insurance firms.

It is important to carefully consider the costs of insuring gold coins when deciding whether to invest in them. While gold can be a good investment option in certain situations, it is typically a poor investment when the economy is strong, and it has a lower average annual return than stocks.

Gold coins may be inauthentic

There are several ways to check the authenticity of gold coins. Firstly, if you are buying from a certified precious metal dealer or a bank, there is generally no reason to worry about authenticity. However, if you are buying from less credible dealers on an auction platform or a bazaar, you should take a closer look and check for authenticity.

• X-ray fluorescence analysis: This high-tech method involves exposing coins or bars to X-rays and analysing the reflecting X-ray fluorescence radiation to determine the metallic composition of the object.
• In-depth analysis via ultrasound: This method is based on the fact that different metals have different metal transit times, i.e. the time it takes for ultrasound to penetrate the object.
• Analysis of electrical conductivity: All metals, including precious metals, conduct electricity to different degrees, so this analysis can determine whether the coin is made of gold.
• The acid test: This test is usually used for gold jewellery but can also be used for coins and bars. A specified test acid is used for each degree of fineness and is drizzled on the mark created by rubbing the gold on a dark stone. If the mark fades upon contact with the acid, the gold is likely fake.
• Verification of authenticity certificates: The Good Delivery Standard of the London Bullion Market Association, established in 1987, is the most important quality seal for gold bar manufacturers. The blister packs that gold bars are wrapped in also have certificates issued by the manufacturer to show authenticity.
• Comparison of size and weight: This method is much more telling than a visual inspection and is particularly worthwhile for coins, as the specific weight for each common bullion coin is readily available.
• The magnet test: Gold is diamagnetic, meaning it is repelled by magnets. If a magnet sticks to the gold coin, it is definitely not pure gold.
• The sound test: Experienced collectors can briefly flick the gold coin with another metallic object and compare the sound to that of an authentic gold coin.
• Density check via water displacement: This method, developed by Archimedes in the 3rd century BC, involves immersing the coin or bar and measuring the resulting displacement of water.

It is important to note that even if you discover that you have purchased inauthentic gold coins, the buyer is not automatically reimbursed. Therefore, it is always best to buy gold coins from a reputable, certified gold dealer or your local bank to avoid falling for fakes.

Gold coins may be difficult to sell

Another factor that can make gold coins difficult to sell is their high transaction costs. When buying or selling gold coins, you may incur a "spread", which is the difference between the dealer's selling price and their buy-back price. This spread can be as high as 7 to 10 percent, making gold coins a costly investment option. Furthermore, gold coins are often subject to higher taxes, such as capital gains tax, which can further reduce the profit from selling them.

The storage and insurance costs associated with gold coins can also create challenges when it comes time to sell. Storing gold coins safely and securely can be expensive, and insurance costs can be very high due to the risk of theft or insurance fraud. These additional costs can eat into any potential profits from selling the gold coins.

Lastly, the authenticity of gold coins can sometimes be questionable. Fake coins and small bars filled with tungsten or other metals are known to circulate in the market, and it can be difficult for buyers to verify the authenticity of the gold they are purchasing. This can create hesitation among potential buyers, making it more difficult to sell gold coins.

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