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Gold Coins V Gold Bars

Gold Coins V Gold Bars

 

People often ask what the difference is between buying gold coins and buying gold bars, or bullion, as it is known in the industry. There are a number of differences and reasons why investors buy one over the other. Whether you are starting out as a gold investor, or whether you are a seasoned investor, our main piece of advice is always: do your research first.

 

We must preface this editorial with the fact that we are not giving financial advice here, we are purely giving advice on which type of gold product to buy to suit your needs.

Gold Bars/Bullion

Gold bars or bullion come in a variety of sizes and weights from 1 gram all the way up to 1 Kilogram bars.  There are larger bars than 1 Kilogram, but these are generally only traded between banks and governments.  The most common size for starter investors would be 1 ounce bars – there are 31.1 grams in 1 Troy ounce of gold.  Bullion is always 24 carat gold 999.9 (Four-nines) purity. One should always only buy bars from LBMA (London Bullion Market Association) approved refinery’s.  If you are looking to buy gold purely for investment purposes we would always recommend buying bullion. Some reasons for this are as follows; not only is the gold bar attractive in terms of appearance but the premiums are lower on bars when compared to coins as the production costs are lower. This lower premium also applies to the different sizes of the bars, as a one kilo gold bar will include a lower manufacturing cost than 10 x 100 gram gold bars. In this example, purchasing a 1 kilo bar opposed to 10 x 100g would save about 1%-1.5% in monetary terms.

Although the size of the bar you decide on will have an influence on the price you will pay, you should also take into consideration how flexible you want to be in terms of realising your assets. Smaller bars such as 1 ounce, 50g or 100g can be beneficial when re-selling gold bars, such as releasing some of your investment or part-selling.  Additionally when buying/selling one big amount of gold, you will face larger exposure to market risk as you will typically be trading on one gold price. When purchasing smaller bars such as the 1ounce gold bar, you will again face the higher premiums as packaging, serial and matching certificates will need to be produced.

Gold Coins

There are many different types of coins to choose from.  This gives you greater choice in sizes, carats and designs.  Coins are also very flexible in terms of re-selling, as smaller units of gold are easy to release when in need of quick access to cash. Another benefit with certain coins such as Britannia’s and Sovereigns are  that they are CGT (Capital Gains Tax) Free.  Selling coins also give you more flexibility as you do not have to sell everything at once, which gives you lower market risk as you are not selling on one gold price. Certain coins such as the Gold Sovereign also hold collectible value and over time these coins may accrue numismatic value which can increase your original investment.  There are many other coins including the Krugerrand, which is one of the most widely traded coins in the world, that tend to attract a smaller premium when buying.

 

The downside to buying coins are that there is a ’minting charge’ on coins so they will generally cost more than bullion weight-to-weight. The difference is not a lot on small quantities but it will start to add up the more you buy.  For instance; if you buy 3 X 1oz Gold Maple coins they will cost you approx.. €20 per coin more than buying 3 X 1oz bullion bars – think about that: both purchases are 3oz’s of 24 carat gold yet the coins are costing you in total €60 more…purely because they are coins. If you go to sell/or scrap the coins/bars you will get a price on the weight so you will not realise this price difference when you go to sell. Coins also do not come with certificates and not all coins are 24 carat (as many are 22 carat or even less for some coins). This can cause larger difficulty when calculating the worth of the coins. From an investment perspective, coins entitle larger premium when compared to larger bars which means that you will get less gold for what you pay. Investing in 32 x 1 ounce gold coins opposed to 1 x 1kg gold bar creates an obstacle if one wants to store the entire investment in one location (eg. safe deposit box).

 

Our advice on which gold product can be summed up by asking yourself: are you buying purely for investment reasons?  Or are you buying to have a nice collection of gold to look at and keep or give as  gifts?….If your reason is the latter – buy coins. If the former – buy bars/bullion.

 

For any further questions regarding buying bullion bars and bullion coins, or to get an instant price on a gold purchase contact our trading desk on: +353 (0)1 254 7901 or visit us at Merrion Vaults in Dublin.

To view our website please click here: http://www.merriongold.ie

 

Nigel Doolin

Head of Trading

Merrion Gold.

 

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Kruggerand Coins

Krugerrands are one of the most well known gold bullion coins in the World. In Europe, they are more famous than US Gold Eagles.
Krugerrands are 8.33% copper and 91.67% gold. As with the US Gold Eagles, Krugerrands come in four sizes, yet the fractional ounce Krugerrands are not generally accessible. More gold Krugerrands have been minted than all other types of gold bullion coins together, with in most accounts 42 million having been stamped following 1967. A large bulk of Krugerrands were minted in the 1970s and mid-1980s to take care of the demand as gold bullion purchasers ran to gold coins as insurance against rapid world inflation.

Minted in South Africa, the Krugerrand was initially foreign to the United States investor initially after Americans recovered the privilege to purchase and own gold bullion on December 31, 1974. The hurry to purchase gold was on, and these gold bullion coins turned into an instant hit with gold purchasers. Today the Krugerrand remains one of the best gold bullion coins minted for trading in.

Krugerrands come in four sizes: 1/10-ounce, 1/4-ounce, 1/2-ounce, and 1-ounce. Every one of the four gold coins convey the same configuration. 1-oz Krugerrands are by a wide margin the most well-known and by and large can be found in vast amounts. The partial ounce Krugerrands are not as easily accessible, but rather when fractional ounce Krugerrands are accessible they are altogether lower estimated than fractional ounce US Gold Eagles, which come in the same four sizes.

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The Gold Market and Spot Cost

The spot cost of gold is the most well known standard used to gauge the going rate for a single troy ounce of gold. The cost is driven by theory in the business sectors, coin values, current occasions and numerous different components including the stability of world economic markets.

Gold spot cost is utilised as the premise for most bullion merchants to focus the precise cost to charge for a particular coin or bar. These costs are computed in troy ounces and change each couple of seconds during business hours.

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Why Invest In Gold?

For thousands of years gold has been sought after throughout the world for its rich history and value. Coins containing gold first appeared around 800 B.C., and the first pure gold coins were struck shortly thereafter. Over the centuries, people have continued to hold gold for many reasons.

Some good reasons why people continue to invest in gold today.

1.  A History of Holding Its Value

People use gold as a way to increase and pass on their wealth from one generation to another. It has maintained its value over the ages, unlike paper currency or other assets. Storing your own stock of gold bullion or coins is still one of the surest ways to maintain, or increase, your wealth.

2. Inflation

Historically gold is an excellent hedge against inflation, as the price of gold tends to rise when the cost of living increases. After World War II during the five years when U.S. inflation was at it’s highest, the average real return on the ‘Dow Jones Industrial Average’ was 12.33%, compared to a massive 130.4% average return for gold investors.

3. Deflation

During periods of Deflation when business activity slows down and the economy is burdened with excessive debt, although not seen globally since the ‘Great Depression’, the purchasing power of gold soars greatly while other prices drop hugely.

4. Weakness of the U.S. Dollar

When the value of the dollar falls against other currencies, like it did in 1998 to 2008, people and wise investors will often move to the security of gold, this in-turn raises the price of gold in the marketplace. Gold prices nearly tripled between 1998 and 2008, hitting a $1,000 per ounce price in early 2008. Even though the U.S. dollar is one of the most important reserve currencies in the world, the country’s large budget and trade deficits still put it into decline during this period.

5. Geopolitical Uncertainty

Often called the “crisis commodity” gold not only retains its value in times of financial uncertainty, but also in times of geopolitical uncertainly. When tensions arise throughout the world people invest in the relative safety of gold as it usually outperforms other investments.

6. Supply Constraints

Most of the gold on sale in the market since 1990’s comes from the sale of gold bullion from the vaults of the world’s central banks. This selling by central banks was reduced greatly in 2008. Simultaneously, production of new gold from mines had been declining since the year 2000. It takes between five and ten years to bring a new gold mine into production. Generally, a reduction in the supply of gold increases the price of gold.

7. Increasing Demand

Increased wealth in emerging market economies boosts the demand for gold. Today India is one of the largest gold consuming countries in the world, where gold is embedded in the culture. China also, where gold is a traditional form of saving, sees a constant demand for gold. More and more investors worldwide are now viewing gold and other commodities as an investment class into which funds should be allocated as a good hedge.

8. Portfolio Diversification

When spreading the risk on an investment portfolio, it is important to go into investments that are not correlated to one another. Historically gold has had a negative correlation to stocks and other financial forms of investment. A properly diversified portfolio combines gold with bonds and stocks in order to reduce the overall risk on the portfolio.

The Bottom Line

Gold should be viewed and used as an important part of diversifying any investment portfolio. It is the ideal hedge as it increases in value in response to events that cause other investments to decline. Although gold can be erratic in the short term, historically it has always maintained it’s value in the long term. Also, consider the fact that there is more silver mined on a daily basis worldwide than there has ever been gold mined (since records began) and you should agree that investing in gold is well worth considering.

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