Investing in physical gold has many advantages and is easier than most people think. With this guide, you will understand how the price of physical gold is determined. You will also learn the best gold coins you can invest in.
- Where to Buy the best Gold Coins
- How to Understand the Price of Gold Coins
- Physical Gold Premium and its drivers
- Best Gold Coins for Investing
Where to Buy the best Gold Coins
Gold coins can be purchased from precious metals dealers, both online and in store. We will discuss how you can invest in the best gold coins available in the market
If you want to buy gold in store, you can look for a reputable dealer in your city or town. But keep in mind that physical stores may have slightly higher margins. Buying precious metals online allows you to easily compare prices. After all, everyone sells the same products, so we just need to make sure we will be happy with delivery times and customer service.
When it comes to buying gold online, some people may be scared about the process. We are talking about a considerable amount of money. Therefore, we want to make sure the process will be easy and stress-free.
In addition to that, if we want to pay for our purchase by credit card, most dealers will charge us a higher price. Dealers prefer to receive a bank transfer. This is normal as they want to avoid the high commissions that credit card companies charge retailers.
Precious metals investment products, particularly gold, have very low commercial margins. By saving a couple of percentage points on credit card commissions, bullion dealers are able to offer lower prices for its customers.
One of the most reputable gold dealers is CoinInvest.com (not sponsored), though there are plenty of other trustworthy dealers. Alternatively, you can also purchase investment products from one of the official mints responsible for coining gold coins. For example, The Royal Mint in the United Kingdom or The Royal Canadian Mint in Canada.
How to Understand the Price of Gold Coins
If we go to an online bullion dealer and check how much a gold coin costs, we will notice that it is more expensive than the official gold price. The official gold, known as spot price, is only available in the financial markets for buyers of very large quantities of gold.
Therefore, all gold investment products will have slightly higher prices than the spot price. This is perfectly normal.
The main driver of the price of physical gold is the gold spot price itself. If we see that an ounce of gold (31.1035 grams) is trading at $1,900 in international markets, that will be the minimum price that someone would have to pay to acquire gold.
Most retail investors will have to pay a bit more than for two reasons. On the one hand, in order to produce a gold coin or small gold bar, the metal has to be melted and the investment product produced. This carries transportation, energy and production costs.
On the other hand, the dealer selling us that gold needs to charge us a small margin to cover its costs run the operations.
The difference between the international gold price and the price at which retail investors buy it is known as premium. The premium is usually very moderate, equivalent to around 3-6% of the spot price. Consequently, if the spot price is $1,900, a one-ounce gold coin may cost us $2,000.
Something very important to keep in mind is that, in almost all countries, the purchase of gold coins and bars is exempt from VAT and sales tax. This is because they are considered investment products.
In the next section, we analyze the main aspects that affect the premium we have to pay on top of the spot price to buy physical gold.
Physical Gold Premium and its drivers
We will analyze the 6 most important variables that influence the premium we will pay on top of the gold spot price.
Gold Coin Denomination
There are gold coins of multiple sizes and denominations. Though the most common gold coins are those of a troy ounce, there are also coins with smaller and larger denominations.
When it comes to smaller denominations, the most common ones are usually 0.1, 0.25 and 0.5 ounces. These coins tend to be issued by the most famous mints in the world and are a good option if we want to invest a smaller amount of money in physical gold, or if we want to give a gold coin to someone as a present.
The only downside with small denominations is that, in general, they tend to have a slightly higher premium. This means we get less gold for our money. Thus, the premium for these denominations will hover around 8-10%.
Additionally, these denominations can be a bit less liquid if we want to sell them in the future. This simply means we may get paid 1-2% less for our metal than that we would receive if we were selling gold coins of larger denominations.
When it comes to denominations larger than one ounce, there is usually not much supply. These tend to be 2-ounce gold coins. As a general rule, it is usually preferable to acquire two one-ounce gold coins than one two-ounce coin.
For all these reasons, the best gold coins to invest in tend to be those of one ounce.
Number of Gold Coins we buy
Another thing to keep in mind is that, very often, if we buy a greater number of gold coins, the unit price will be lower. This incentivizes us to make larger purchases. But do not get too excited, since the price concession we will get to buy additional coins is very small.
As a result, if instead of buying a single one-ounce coin, you choose to buy 5 or 10 coins, the price per unit can by 0.5-1% lower.
Another aspect that can influence the final price of gold coins is their mint year. In general, the most recent editions, and especially the current year’s edition, have slightly higher premiums. There are two reasons for this.
On the one hand, the most recent editions usually correspond to coins that are newer, so while their metal content is the same, their appearance is more attractive. In fact, if we buy coins of the current edition, they will most likely be brand new.
On the other hand, newer editions may have slightly higher resale prices. While the differences are usually small, this may be reflected in the premium we pay for these gold coins.
Availability of Gold Coins
The available stock that precious metals dealers have also influences the premiums above spot prices. When the amount of gold coins available is high, premiums are slightly lower. When the stock is low, premiums go up.
In times of supply chain issues, or unexpected increases in demand, which happened in March 2020 and February 2021, premiums can rise substantially. In such circumstances, it is said that there is a disconnect between the price of paper gold (the spot price in the financial markets) and the price of physical gold.
Proof coins are limited editions produced by the same mint that produces all other coins. However, proof coins are produced paying more attention to the final outcome and often include additional details to distinguish them from standard gold coins.
At the same time, proof coins are sold in a box and include a certificate of authenticity.
All these things make proof coins significantly more expensive than regular gold coins. Nevertheless, it is worth highlighting that proof coins have the exact same amount of gold as standard coins. This means we receive less metal for our money.
While it is true that proof coins command a higher resale price, that difference is usually not enough to justify the premium we have to pay to buy them relative to standard gold coins. Thus, proof coins tend to be a worse investment in the long run.
Collector gold coins are part of limited editions. These are considered historical coins and minted to commemorate some special occasion. As a result, collector coins are way more expensive than either standard or proof coins.
Therefore, buying collector coins should be considered a hybrid between investing in gold and investing in collectibles.
As with proof coins, the higher resale price of collector coins does not make up for the higher price we have to pay if we want to buy them.
Best Gold Coins for Investing
Next, we will analyze the best gold coins for those individuals interested in investing in the safe haven asset.
Krugerrand (South Africa)
The Krugerrand is one of the oldest and most prestigious gold coins in the marked. It is minted by the South African mint and produced with gold mined in South Africa. On the Krugerrand we see the former president of South Africa Paul Kruger, and a gazelle.
The Krugerrand has a purity of 916.7 (22 carats) and combines gold with copper. Despite this combination, the copper content is in addition to the amount of gold it contains. It is available in several denominations, although the most popular is the one-ounce.
Despite having no face value, it is considered legal tender in South Africa.
It is one of the most liquid gold coins in the world. The Krugerrand was the preferred coin during the gold bull market of the 1970s.
Vienna Philharmonic (Austria)
The Vienna Philharmonic is a gold coin produced by the Austrian Mint. On it we can see the famous building in Vienna and several musical instruments.
Available in various denominations, the Vienna Philharmonic has a purity of 999.9 (24 carats), so it is produced exclusively of gold.
These coins are legal tender in the Eurozone, and the face value of the one-ounce Philharmonic coin is 100 euros.
Britannia (United Kingdom)
The Britannia is a gold coin minted by The Royal Mint in the United Kingdom. On these coins we can see the goddess Britannia on one side, and King Charles III on the other. Up until 2022, we could see Queen Elizabeth II.
Also available in various denominations, the Britannia has a purity of 999.9 (24 carats), so it is made exclusively with gold.
These coins are legal tender in the United Kingdom. The one-ounce coin has a face value of £100. Because they are legal tender, these coins are not subject to capital gains tax by the British tax authorities.
Sovereign (United Kingdom)
The Sovereign is the other gold coin minted by the Royal Mint. Existing from 1817, its origin dates back to the 15th century. On it we can see St. George slaying the dragon, and Queen Elizabeth II when she was young.
The Sovereign is available in several denominations. With a purity of 916.7 (22 carats), it combines gold with copper.
These coins are legal tender in the UK, and thereby exempt from capital gains tax. When it comes to their face value, this ranges between £1 and £5.
American Eagle (United States)
The American Eagle is the most famous gold coin minted by the US Mint in the United States. They are produced exclusively with gold mined domestically. On them we can see Lady Liberty, the personification of freedom, and an eagle.
These coins have a purity of 916.7 (22 carats), and are made with gold, silver and copper. They are available in various denominations. Remember that, as always, the denomination of the coin always refers to its gold content.
American Eagles are legal tender in the United States. The one-ounce coin has a face value of $50. For obvious reasons, it is one of the most liquid gold coins in the world and one of the best ones to invest in.
Maple Leaf (Canada)
The Maple Leaf is the gold coin minted by the Canadian Mint. It is produced exclusively with gold mined in Canada. On it we can see a maple leaf, the national symbol of the country, and Queen Elizabeth II, head of state and queen of Canada.
The Maple Leaf has a purity of 999.9 (24 carats), so it is made only with gold. It is available in several denominations.
These coins are considered legal tender in Canada, and the one-ounce gold coin has a face value of 50 Canadian Dollars.
The Golden Kangaroo is a coin minted by the Perth Mint in Australia. Produced exclusively with gold mined in Australia, it features a kangaroo on one side and Queen Elizabeth II on the other, monarch of the country.
Something that stands out in the Australian Kangaroo is that its design changes every year. This contrasts with the rest of the main gold coin, whose design only changes every now and then.
These coins have a purity of 999.9 (24 carats), so they contain only gold. The Golden Kangaroo is legal tender in Australia. Its one-ounce denomination has a face value of A$100.
The Golden Panda is a coin issued by the Chinese Mint. On it we can see a panda, one of the symbols of the Asian country, as well as the Temple of Heaven in Beijing.
With a purity of 999.9 (24 carats), produced exclusively of gold, the Panda is available in several denominations.
Something that distinguishes the Panda from other gold coins is that, since 2016, its denominations are based on the metric system. This means that they are somewhat smaller than coins minted by other countries. Thus, the main Panda gold coin, instead of being of one ounce (31.1 grams) in size, is of 30 grams. Similarly, instead of minting half-ounce coins, they produce 15-gram coins.
The Panda is legal tender in China. The 30-gram denomination has a face value of 500 Yuan.
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