Gold Coin Investment: Are Us Coins Worth The Money?

Gold coins are a popular investment option, especially in times of economic uncertainty. They are seen as a store of value and a hedge against inflation. However, investing in gold coins has its advantages and disadvantages and is not suitable for everyone.

Gold coins are a tangible investment, which can be satisfying for some investors. They are also a time-honoured investment, with gold tending to increase in value when other investments decline. Gold coins also offer privacy, as no one needs to know you have them.

However, gold coins have several drawbacks. They are susceptible to theft and do not provide the perks of dividends or interest payments. Additionally, gold coins can be expensive to buy, store and insure, and there is a risk of purchasing counterfeit coins.

Before investing in gold coins, it is essential to do your research and consult a reputable dealer or financial institution. It is also important to consider your investment goals and whether you are primarily interested in collecting coins or investing in bullion.

Gold coins can be expensive to buy

Secondly, consumers worldwide are increasingly demanding gold coins with a purity of 99.99 percent, and they pay a premium for this. This level of purity requires electrolytic refining, and the cost is passed on to the buyer. However, there is no intrinsic value added by this process of refining, and if the gold coins are later melted down into large bars, both the cost of refining and the purity rating are lost.

Thirdly, on top of refining costs, gold coin manufacturers charge fabrication fees and/or seignorage – a fee covering minting royalties. These extra charges are passed on to the buyer.

Fourthly, coin dealers suffer from highly variable demand, which can lead to high prices. When there is a rush to buy gold coins, dealers can become short of stock and raise prices. On the other hand, when customers are selling back to the dealers, they can become overstocked, forcing them to sell at a discount.

Finally, coin shops have high overheads, with most requiring two staff members for security reasons, as well as the costs of maintaining a secure workplace and stock. These costs are often passed on to the customer in the form of high mark-ups.

For these reasons, gold coins can be an expensive investment choice.

Gold coins are neither the cheapest nor the safest way to buy gold

Gold coins are bought through traditional coin dealers with a 7 to 10% 'spread', which is the difference between the selling price and the buy-back price. This is a very high transaction cost for a modern investment.

Gold coins are also not the safest way to buy gold. They are easily sold and attractive to thieves and insurance fraudsters. They are also difficult to store, requiring a safe or safety deposit box, and expensive to insure.

There are other ways to invest in gold without buying gold coins. For example, you can buy Good Delivery bullion directly on the wholesale markets, which is cheaper and easier to store and insure. You can also invest in gold mining stocks, gold certificates, or exchange-traded products.

If you do decide to buy gold coins, it is best to get them from a reputable dealer or financial institution. Make sure to keep them in their cases, away from scratches and fingerprints, and consider renting a safe at a bank to store them.

Gold coins are a good investment during market declines

Hedge against inflation

Gold tends to increase in value when other investments decline, providing a stabilising effect for your portfolio. This makes gold coins a good investment during market downturns. Gold is also a safeguard against inflation, which can erode the purchasing power of traditional investments over time.

No capital gains tax until you sell

When you invest in stocks or other traditional assets, you typically pay capital gains tax on any profits you make. With gold coins, you don't have to pay capital gains tax until you sell them, allowing you to defer taxes and potentially increase your overall returns.

Portable and tangible

Gold coins are a tangible asset that you can hold in your hand, providing a sense of security and stability. They are also portable, making them easy to transport and store, especially compared to larger gold bars.

Privacy

Gold coins can be purchased and stored privately, without anyone knowing you have them. This can be an advantage for those who value their financial privacy or are concerned about the security of their investments.

Alternative currency in worst-case scenarios

In extreme economic crises, such as massive currency devaluations, gold coins can be used as an alternative currency to buy and sell goods and services. This may sound far-fetched, but it has happened in other countries and could provide a valuable hedge against financial collapse.

However, there are also some disadvantages to investing in gold coins. The value of gold can be volatile and may not always move in the opposite direction of other investments. There is also the risk of theft, and gold coins do not provide any income in the form of dividends or interest. Additionally, the transaction costs for buying and selling gold coins can be high, and you may need to wait for gold prices to increase before realising a profit.

Gold coins are a safeguard against inflation

Historical Performance

Gold has a history of increasing in value during periods of high inflation. For example, from 1970 to 1980, gold prices skyrocketed from $35 per share to $850 per share while inflation was also rising. This trend has continued, with gold outperforming other precious metals like silver, platinum, and palladium in recent years.

Finite Supply

Gold's supply is limited, and it cannot be produced rapidly in large quantities like paper currency. As investors turn to gold to protect against inflation, its demand increases, and so does its price. This dynamic helps protect your purchasing power when the dollar weakens due to inflation.

Global Recognition

Gold is a globally accepted currency and asset. Its value is not tied to a single economy or market, allowing it to weather economic and geopolitical uncertainties better than other assets. Gold is also easily tradable, providing additional cash when needed.

Portfolio Diversification

Gold typically moves independently of other assets like stocks or bonds. When stocks or bonds decline, gold often rises in value, and vice versa. By including gold coins in your portfolio, you reduce the overall risk and protect your investments from losses during inflationary periods.

Positive Price Elasticity

Gold has positive price elasticity, meaning its value increases as demand rises. This characteristic of gold is independent of monetary policies, such as changes in the Fed rate. Therefore, investing in gold coins can provide a hedge against inflationary risks that other assets may not offer.

While gold coins can be a reliable safeguard against inflation, it's important to remember that they are just one part of a comprehensive investment strategy. Consulting a financial advisor can help you create a plan that suits your budget, risk tolerance, and investment goals.

Gold coins are not an investment in company growth

Gold coins are a tangible asset, and as such, they come with a risk of theft and no perks of dividends or interest payments. They are also not a good investment if you are looking for something that will provide cash flow. Gold coins are a good investment if you are looking for something to stabilize your portfolio during market declines and safeguard against inflation.

If you are looking to invest in gold, there are other options to consider. You can buy gold bars, which are a good option if you are looking to store bullion. You can also invest in gold mining stocks, gold certificates, or exchange-traded products, which allow you to gain the advantages of gold's hedge against inflation without the hassle of owning physical gold.

If you do decide to invest in gold coins, it is best to buy them from a reputable dealer or financial institution. American Gold Eagle, Canadian Gold Maple Leaf, and South African Krugerrand are some of the most popular bullion coins. It is also important to keep your gold coins in a safe place, such as a safe at home or a safe deposit box at a bank.

Frequently asked questions