There are many ways to invest in precious metals – ETFs, options and futures, mining stocks, mutual funds and bullion bars – but coins offer a tangible and relatively affordable form of entry into the market for a certain type of investor.
Gold and silver coins have been seen as a viable investment for private individuals since the US came off the gold standard in 1971 and let the metal float on the open market.
The South African Krugerrand accounted for nearly 90 percent of the global gold coin market by the late 70s; few other countries except the Turkish Republic minted coins and in the latter case these were only really available in Turkey. Today, though, most major mints now have signature coins available for the general public to buy.
Gold and silver coins are easily stored, look attractive and are highly liquid if looked after correctly and kept in mint condition. Buyers also get to hold the physical metal.
But there are some disadvantages. For example, coins attract premiums on top of the value of the precious metal in the coin, making them more attractive as a longer-term at investment rather than for short-term gains.
The dealer price for a one-ounce American Buffalo Gold coin might be $1,360, above the gold spot price of $1,298, giving a premium of $62. Spot gold would need to rise $63 – or 4.8 percent – to earn a profit on the sale of the coin.
What determines the premium? The coin wholesaler, be it a mint or a refiner, has costs of manufacturing, coin design, marketing and mark-up to coin dealers. These makes up a large part of the premiums even before the mark-up from the dealer, which is his profit.
Market demand is also a factor – when demand for coins goes up and supply is limited, premiums increase. Different markets are subject to different demand and supply factors. Demand for American Gold Eagles, for example, might be higher in the US where they are easy to purchase than the Austrian Philharmonic, which is not as easy to buy and sell outside Europe.
Coins also lose their value if not stored and cared for properly – there are complex grades to determine their condition. There are also storage and insurance costs – unless you plan on burying them in your backyard, which is not recommended, you will need to invest in a safe or rent space in a safety deposit box or vault.
In summary, those who would be best served investing in bullion coins are those looking for solidity of bullion, are looking to protect their wealth and therefore not looking for short-term gains and also enjoy their aesthetic value. Those looking purely for financial gain should look elsewhere.
Rare coins or numismatics
Seen as more of a treasure asset, rare collectible coins are still a popular way to invest. According to the Knight Frank 2013 Wealth Report, a survey of high-net-worth investors, rare coins have grown 248 percent in price over the past 10 years compared with 199 percent for fine art and 166 percent for fine wine.
The main difference between investing in rare coins and mint coins is that the most value in rare coins is the rarity and collectability of the coin rather than the metal content.
If buying rare coins, which is a riskier prospect, investors might be looking at their potential to grow in value from a rarity perspective. But remember that obscure coins might struggle to find a seller. Quality and premium are the two most important factors for rare coins.
The US Federal Trade Commission website has some useful tips for investing in rare coins.
At the Bullion Desk we always recommend that you buy from a reputable seller.
Types of popular collectable gold coins
First minted by King Henry VII in 1489 by the UK’s Royal Mint, it was later revived in the great recoinage of 1817 after the battle of Waterloo to reform the county’s coinage and move to gold being the ‘sole standard measure of value’.
Due to the British Empire being so vast at this time, the Sovereign become the most distributed coin in the world and is still easy to acquire from all major coin dealers. The British Sovereign is now minted in Australia, Canada, South Africa and, most recently, India to cater for this large market.
The current Sovereign features an image of Queen Elizabeth on one side and a portrayal of Saint George slaying a dragon on the other.
Gold Fineness: 91.6%
For more information visit the Royal Mint
Turkish Republic Gold Coin
Not widely known in the west, according to GoldResource.net, the Turkish Republic coin is nonetheless the most popular gold coin in the world, largely due to the sheer number minted by the Turkish government since 1925. Its popularity in Turkey as a gift for special occasions as well as a traditional store of value has kept demand high locally and in the Middle East.
The Turkish State Mint issues its range of gold bullion coins, broadly classified as “Republican Coins,” in two versions: standard (Meskuk) and decorative (Ziynet). The Ziynet is the most popular for collectors and for use as a gift.
Gold Fineness: 91.66%
American Eagle Gold and Silver Coins
The American Eagle Gold and Silver coins, the official bullion coins of the US, were first released by the US Mint in 1986. Although gold and silver coins are considered legal tender in the US, with the one-ounce gold coin having a face value of $50 and the one-ounce silver has a face value of $1, at current gold and silver prices the metal value is, of course, much more valuable.
American Eagle one-ounce gold coin specifications
Gold Fineness: 91.67%
American Eagle one-ounce silver coin specifications
Silver Content: 99.9%
For more information visit the US Mint.
Canadian Maple Leaf
The Canadian Maple Leaf was first produced by the Royal Canadian Mint in 1979, one of the first countries to produce popular minted coins after the success of the Krugerrand. It is one of the purest regular-issue coins, with a fineness of 99.99%. Like the American Eagle, it is available in various denominations, with the one-ounce coin the most popular .
Gold Fineness: 99.99%
For more information visit the Royal Canadian Mint.
South African Krugerrand
The Krugerrand was first minted in 1967 by the Rand Refinery to promote South African gold as an investment option for international buyers, as well as anticipating an increase of private gold ownership. This was very forward thinking – in 1971, the US government famously took itself off the gold standard, which allowed individuals to buy and sell gold privately.
By 1980 the Krugerrand was so successful it had close to 90 percent of the global gold coin market and inspired many other mints around the world to tap into this market.
The name Krugerrand derives from the name of the first Boer president of the South African Republic, Paul Kruger, and the rand, the South African currency.
Gold Fineness: 91.67%
For more information visit the Rand Refinery.
First produced in 1989 by the Perth Mint, the design of the Kangaroo changes every year, much like the Chinese Panda series. The Kangaroo series has come in various sizes from a 1/20-ounce coin with a face value of A$5 to a one-tonne coin with a face value of A$1 million produced in 2011, breaking the record for the largest and most valuable coin ever produced.
Gold Fineness: 99.99%
For more information visit the Perth Mint.
The Philharmonic coin, first minted by the Austrian Mint in 1989, is the first to be denominated in two different currencies – in Austrian shillings until 2001 and the euro from 2002.
The Philharmonic is one of the few coins belonging to the 24-caret pure gold family. It has regularly been the most sold coin in the world, as was the case in 1992, 1995 and 1996, according the World Gold Council.
The coin features a depiction of the great organ of the Musikverein concert hall in Vienna, home to the Vienna Philharmonic Orchestra. The other side features various instruments used by the orchestra.
Gold Fineness: 99.99%
For more information visit the Austrian Mint.