Investing in Gold Coins Vs Gold Bullion

Gold offers many different investment means to balance portfolios.  If you are seeking a hedge against inflation, providing protection against paper currency collapses and increasing returns on IRAs or savings while ensuring that your investment will always have value, Gold and precious metals are viable alternatives. As reviewed in another one of our posts, there are many ways to invest in gold including miner stocks, ETFs and physical gold itself. If you decide to invest in real gold, you have options available..

Knowing the differences in gold types is critical for successful investing in this space. You can choose bullion, coins, jewelry or scrap gold.  However the majority of investors research gold bullion in comparison to gold coins because those options are the easiest to obtain access to, purchase and hold.

Physical Gold Types

Physical gold provides investing advantages that include real value and a long history of steadily increasing prices. Gold jewelry, scrap gold, bullion bars, bullion coins, numismatic coins, ingots and decorative accessories are all potential alternatives.

However, most investors choose between coins and pure bullion as their purity is set, and you don’t have to judge their artistic or aesthetic value.  If choosing coins, you may or may not need to consider numismatic value, although we do suggest looking at pure bullion coins. Bullion coins have the same purity percentage as bullion bars.

Investing in Gold Bullion

gold bar coinsGold bullion bars and coins are the form of gold that most closely matches the market price for gold. Bars must be at least 99.5% pure, and their larger size reduces the premium percentage that dealers add to the price.

Pros of investing in bullion bars:

  • Bars have reliably consistent quality.
  • There is no subjective value.
  • Lowest premium to purchase on the market price of gold.
  • Most bars come from government mints and trusted refineries.

Negative consequences of investing in bullion include:

  • Large bars can be difficult to liquidate.
  • Bullion is risky to store in your home and costs money to store and insure.

Coins also have similar advantages and disadvantages with the following exceptions:

  • Premiums on smaller coins can vary widely, with smaller coins demanding higher premiums.
  • Coins are typically easier to liquidate than bullion.
  • The buying-and-selling spread doesn’t favor small investors, although that gap is narrowing.
  • Keeping some coins on hand provides a source of ready cash in emergencies

Pros and Cons of Investing in Coins

american gold eagleBullion coins are valued at market spot rates, so you don’t need to consider these coins’ rarity, age and condition. These coins are priced purely on their weight and gold content. Numismatic coins however derive some of their value from gold content, some from age and rarity and some from their minting condition.

New investors can be misled about gold coinage and charged a premium that they can recover only after a long period of time. You can’t usually buy coins with numismatic value for a gold IRA because of the subjective value which can vary wildly. Some gold companies have been convicted of fraud for promoting numismatic coins for IRAs. Best practices for investing coins include:

  • Bullion coins often have a dealer premium based on the dealer’s costs including overhead, marketing, storage, security and distribution. These fees usually range from 2% to 10% for Gold Eagle bullion coins. You should research dealer premiums for bullion coins before buying as these premiums can swing a fair amount.
  • Keeping gold at home carries risk, so most store their gold in bank safety deposit boxes, which limits access, or with custodians.
  • New investors should consider investing in numismatic coins carefully and conduct solid research before committing to a sale.  Numismatic pricing can be more arbitrary.
  • Numismatic coins make sound investments for collectors who need a particular coin to complete a set or collection, but if you are just wanting gold buillion, these are best to avoid, as many dealers only pay the “melt value” of that coin.
  • Never take a salesperson’s word on a coin’s value without researching that specific coin because each coin’s aesthetic value depends on its condition.  In general, condition is not an issue for bullion coins.

All gold coins retain their gold value based on their weight and purity.

Tax Implications

Gold investing has tax advantages and disadvantages. If you sell gold immediately within a year and make a profit, the profit is treated as ordinary income. However, long-term profits on gold are taxed as collectibles at the maximum capital gains tax rate, which is currently 28%, although subject to change. Other long-term gains on stocks qualify for a lower rate of 15%. However, you can deduct any storage, transportation, security or insurance costs, so keep track of the costs involved.  Another advantage of gold investing is that you can sell your gold at a loss, take a tax deduction and immediately repurchase the gold at market rates. Just make sure you have your purchase paperwork to justify the loss.  This benefit offers some protection on the rare occasions when gold drops in value.

Where to Buy Gold

You can buy coins and gold bullion from private individuals, mints and gold companies. Depending on where you buy, you can walk out the door with your gold.  Alternatively, some companies will store your gold while others may only ship the commodity to you. If a gold company offers to hold the gold for you, it’s important to know where it is stored, what the fees are and whether the gold is allocated or not and what insurance is in place.  Check out our top recommended companies on this site if you plan on rolling over your individual retirement account to physical gold.

Allocated gold is an account in your name where your gold is separated and identified by its details including maker, gross weight, and bar number. Unallocated gold is a general account that entitles you to the proceeds of a certain weight and purity of gold. Meaning you own interest in the gold and not the actual physical commodity.  Regardless of your gold investing strategy, you do need to research the seller, get a professional opinion of the gold’s quality, insure the gold and arrange safe and secure storage.