Gold Bullion Vs Gold Coins Investing
Gold offers multiple investment opportunities to balance portfolios, hedge against inflation, provide protection against paper collapses and increase returns on IRAs or savings while ensuring that your investment will always be worth something. There are many ways to invest in gold including stocks, ETFs and physical gold. If you decide to invest in real gold, you have several options.
Understanding the differences in gold is essential for successful investing. You can choose bullion, coins, jewelry or scrap gold, but most investors research gold bullion vs gold coins because those options are the easiest to assess, buy and store.
Understanding the Types of Physical Gold
Physical gold delivers investing advantages that include real value and a long history of steadily rising prices. You can choose from gold jewelry, scrap gold, bullion, numismatic coins, ingots and decorative accessories and art.
Most investors choose between bullion and coins because their purity is established and you don’t have to judge their artistic or aesthetic value or calculate purity. If choosing coins, you may or may not need to consider numismatic value. Bullion coins have the same purity percentage as bullion.
Investing in Gold Bullion
Gold bullion bars 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 are assayed for consistent quality.
- You pay the lowest premium on the market price of gold.
- You don’t need to worry about subjective value.
- Most bars come from government mints and trusted refineries.
Possible negative consequences of investing in bullion include:
- Large bars are difficult to liquidate.
- You have to sell a large quantity of gold to get any of your money.
- Bullion is risky to keep at 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.
- Coins are easier to liquidate than bullion.
- Coins are useful as money if paper currency collapses.
- The buying-and-selling spread doesn’t favor small investors.
- Keeping some coins on hand provides a source of ready cash in emergencies so that you don’t need to liquidate a large bar of gold.
Pros and Cons of Investing in Coins
Bullion coins are valued at market rates, so you don’t need to consider these coins’ rarity, age and condition. These coins are priced based on their weight and how much gold they contain. Coins derive some of their value from gold content, some from age and rarity and some from their minting condition.
Unfortunately, new investors are often misled about gold coinage and charged a premium that they can never recover. You can’t usually buy coins with numismatic value for a gold IRA because of the subjective value. Some gold companies have been convicted of fraud for promoting numismatic coins for IRAs. Best practices for investing in any type of coins include:
- Bullion coins often carry a dealer premium based on the dealer’s costs that include minting, marketing, storage, security and distribution. These fees usually range from 3% to 9% for Gold Eagle bullion coins. You should research dealer premiums for any type of bullion coin before buying.
- Keeping gold at home can be risky, so most people store their gold in banks or with custodians.
- Inexperienced investors should consider investing in numismatic coins carefully and conduct solid research before committing to a sale.
- Numismatic coins make sound investments for collectors who need a particular coin to complete a set or collection.
- Gold coins on the official European Commission list enjoy price protection as investment coins, which makes them safer investments.
- Never take a salesperson’s word on a coin’s value without researching the coin because each coin’s aesthetic value depends on its condition.
Despite the risks, certain numismatic gold coins can appreciate rapidly in value. For example, Gold American Eagle, Gold American Buffalo and Gold Canadian Maple Leaf coins carry a face value of $50 but are worth more than $1,350 each. Of course, all gold coins retain their gold value based on their weight and purity.
Tax Implications of Gold Investing
Gold investing has tax advantages and disadvantages to consider. If you sell gold immediately within a year and make a profit, the profit is treated as ordinary income. Unfortunately, long-term profits on gold are taxed as collectibles at the maximum capital gains tax rate, which is currently 28%. Other long-term gains on stocks qualify for a lower rate of 15%. However, you can deduct any storage, transportation, security, insurance or assay costs.
Another interesting advantage of gold investing is that, unlike other collectibles, you can sell your gold at a loss, take a tax deduction and immediately repurchase the gold at market rates. 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. Some companies will store your gold while others will 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 unallocated. Do check out our top recommended companies on this site if you have plan on rolling over your individual retirement account to physical gold.
Allocated gold is an account in your name where your gold is segregated and identified by its details including refiner, gross weight, assay and bar number. Unallocated gold is a general account that entitles you to the proceeds of a certain weight and purity of gold. In effect, you own an interest in the gold and not the physical commodity.
Regardless of your gold-investing strategy, you should research the seller, get a professional assay of the gold’s quality, insure the gold and arrange safe and secure storage.