Modern Gold Bullion Coins
Portable, Liquid, and a Reliable Measure of Value

From the time of Lydia’s Croesus, who was the first to mint gold coins (and from whom the legend of the Midas Touch evolved), the coining of gold served to standardize weight and purity and thus to facilitate trade and commerce. Modern gold bullion coins are the descendants of the coins first minted by Croesus.

Gold for investment purposes is manufactured in two forms: coin and bar. Most of the gold owned by private investors around the world, however, is in the form of coins because of their portability and liquidity; that is, they can be converted to currency with ease. A third reason why coins are the preferred vehicle for gold ownership is that the minted coin is a standardized measure of weight and purity that current and future owners can rely on for value.

One of the first questions most prospective investors ask is, “What should I buy?” A good starting point is gold bullion coins like the American Eagle, the American Buffalo, the Austrian Philharmonic, the South African Krugerrand, the Australian Kangaroo and the Canadian Maple Leaf. In contrast, jewelry, artistic objects, or very rare gold collectible coins should not be used for basic asset preservation because their gold value makes up such a small part of their overall value.

Many first-time investors believe gold is purchased in the form of the bullion bars depicted in the movies, but in the real world most investors buy one-ounce bullion coins. Most experts recommend that investors avoid bullion bars. Although the commission and markups are marginally less on bars than on coins, complications come into play when the time comes to sell bullion. Most dealers will want to see the bars before they buy them because of problems with counterfeiting. Some will not buy without an assay, a chemical analysis that determines the gold’s purity.

In most cases, gold firms will not set the resale price until the bars have been delivered to their location or depository for inspection. This presents difficulties if the client is anxious to capture a price and finds out that it can’t be done until after the buyer has received the bars.  Similarly, bullion bars could also present problems for those wishing to trade gold for merchandise in the event of an economic breakdown, because the individual receiving the gold bullion has no way of knowing whether the bars are real or counterfeit.

Holding gold bars in depository accounts – a situation that arises with Individual Retirement Accounts (IRAs), other retirement and pension plans, or depository accounts held for trading purposes—circumvents the liquidation and assaying problem in most instances. If the gold never leaves the account, in other words, if the client does not take delivery, the metal usually can be liquidated without an assay. If the owner decides to take delivery, I generally recommend exchanging the bullion bars for gold coins as a way to facilitate future liquidation.

Because of these trade and exchange difficulties, we usually counsel buyers to avoid bullion bars. The marginal added cost on bullion coins is a small price to pay when weighed against the potential disadvantages of owning bars.  Gold bullion coins track the gold price up and down, are dated with their year of manufacture, trade at marginal premiums over their gold melt value, and are very difficult to counterfeit. In addition, they enjoy a ready two-way market globally. These coins are manufactured at the national mints of various countries—West Point (the United States), Winnipeg (Canada), Pretoria (South Africa), Vienna (Austria), and Perth (Australia)

With some exceptions, gold bullion coins trade at most retail firms at 5% to 7% over the gold price. This premium above the gold price consists of wholesale markup, retail markup, and seigniorage. Seigniorage is a charge the mint places on the coin to cover manufacturing costs and profits. It usually averages in the 2.5% to 3.5% range. Wholesalers add about 0.5% to 1%. Retail brokers and dealers usually add commissions from 1% to 3%, depending on the size of the order and other factors.

Along with standard one-ounce coins, most mints also manufacture gold coins in smaller denominations of one- half, one-fourth, and one-tenth ounce. Because it costs approximately the same amount of money to manufacture any coin no matter the size, the smaller the coin the greater the premium per ounce.

Last, because the demand for gold bullion coins is global in scope, shortages can develop quickly in times of stress and drive premiums significantly higher. The best course of action is to purchase ahead of a crisis instead of in the middle of it. Take to heart the old saying that the best time to buy gold is when things are quiet.

The Modern Gold Bullion Coins and Bars section of our Online Order Desk offers a gateway to reviewing and ordering these items. We augment our current selections with periodic ‘Special Offers‘ of specially-priced items. These offers usually sell out quickly so time is of the essence if something sparks an interest. Please note that Online Order Desk registrants and regular clientele receive notifications of ‘Special Offers‘ by e-mail. If you are not a client but would like to receive offer notifications, the best course of action is to sign up for access to the Online Order Desk. By doing so you will be included automatically on our mailing list and also, as an added benefit, receive access to our members only Premium Bulletin Board at no cost or obligation.

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