The question of how to buy gold coins and bullion may appear to be pretty straightforward on the surface; however, for folks who have not been exposed to the precious metals market before, it’s often the first question that they ask. Recently we’ve seen a large influx of new and first time buyers, which is likely due to the favorable market prices for gold, silver and platinum at the moment. Due to the relatively large number of first time buyers, we thought that it would be a good idea to review some of the basics between gold and bullion and how to buy the items. While this article is primarily targeted toward new gold coin and bullion investors, seasoned investors may also be able to benefit from our article on how to buy gold coins and bullion if they haven’t previously thought through all of the potential options and the pros and cons of each.
Coins & Bullion Defined
We’ll begin with a definition of coins and bullion. Coins are defined as government-issued monetary instruments composed of various metals that are valid legal tender and contain a specific face value. For example, the one ounce American gold eagle is U.S. legal tender with a face value of $50. This means that you can use the coin as you would a $50 bill; however, since the spot price of gold is roughly $1,150 at the moment, you wouldn’t want to do so. The American gold eagle is an example of a coin produced for coin collectors and investors, but at one point in time, gold coins were produced for general circulation in the U.S. The last gold coin produced for general circulation in the United States was in 1933. Most other major countries at one point in time also minted gold coins for general circulation, but now produce gold coins for investors and collectors; similar to the U.S. Mint. Bullion, on the other hand, is typically referred to privately minted pure gold bars, rounds and ingots. Companies such as Engelhard, Johnson Matthey, Credit Suisse and Pamp Suisse are all well-known and popular producers of gold bullion. Gold bullion is available in a number of different sizes, including 1 kilogram, 10 ounce, 5 ounce, 100 gram, 2 ounce, 1 ounce, 1/2 ounce, 20 gram, 10 gram, 5 gram and 1 gram sizes. Other less popular sizes are also available.
Primary Differences Between Coins & Bullion
There are three distinct differences between gold coins and bullion. As alluded to above, gold coins are produced by sovereign governments, whereas, gold bullion is produced by private manufacturers/refiners. Secondly, gold coins are legal tender; albeit at a significant discount from the market value of gold, but in a pinch, they could be used to purchase goods and services, if absolutely necessary. Thirdly, government issued coins are guaranteed by the issuing country to contain the exact weight and purity as outlined in the specifications. This last point is one reason why some individuals prefer gold coins over gold bullion. Considering the relatively large investment needed to purchase gold coins, it can be comforting to gold coin investors to know that there’s an implicit government guarantee associated with their purchase. Of course, this guarantee doesn’t extend to counterfeit items that you might purchase from a secondhand dealer, which is why it’s important to only conduct business with reputable gold coin and bullion dealers.
An important factor to take into consideration before purchasing gold coins or bullion is the liquidity of the item. In other words, if the time ever comes to sell your gold coins or bullion, you want to be sure that there’s a broad and liquid market in which to sell your items. This means that you’re best off purchasing well known and recognized coins and bullion. Most modern issued gold coins, such as American gold eagles, American gold buffaloes, South African krugerrands, Canadian gold maple leafs and Austrian gold philharmonics, are well recognized and highly liquid gold coins. There are also plenty of other popular fractional gold coin offerings, such as British gold sovereigns and 20 Swiss and French francs, so don’t feel like you’re limited to only one ounce gold coins. With respect to gold bullion, we recommend that you only purchase gold rounds, bars and ingots produced by name brand mints, such as those that we noted above. More obscure gold coins or privately minted gold bullion may be a bit more difficult to sell if the need arises in the future.
As you would expect, there’s a direct correlation between price and liquidity; at least with respect to gold coins and bars issued for investment purposes. Collectible or numismatic gold coins are the exception. These items can sell at large premiums over the melt value of the item (on occasion many times the underlying gold value) due to the rarity and condition of the item, and aren’t quite as liquid as the gold coins that we’ve been discussing. Typically, in the United States, there’s a bias toward U.S. issued gold coins, which is why these coins tend to sell at slightly higher rates than some of the foreign gold coins that we’ve discussed. While American gold eagles and gold buffaloes may sell at slightly higher rates than foreign-issued gold coins, you can also expect to receive more when the time comes to sell your U.S. gold coins. Some of the most popular foreign gold coins, such as gold krugerrands, philharmonics and maple leaf coins sell at a slightly lower premiums than American-issued gold coins. Popular gold bullion offerings, such as those produced by well-known private mints, will typically sell on par or at slightly lower rates than popular foreign gold coins. Another point to remember with respect to price is that fractional gold coins, such as quarter ounce, tenth ounce and twentieth ounce gold coins tend to trade at higher rates than one ounce gold coins.
In summary, we’ve discussed how to buy gold coins and bullion. We’ve defined gold coins and bullion, and have discussed the three primary differences between the two items. Gold coins have an implicit government guarantee, and in general, tend to trade at slightly higher rates than gold bullion. We’ve also discussed the importance of purchasing recognizable gold coins and bullion to ensure that you’ll have a broad and liquid market in which to sell the items, if the need arises. With respect to price, expect to pay slightly more for U.S. government-issued and fractional gold coins due to the popularity of these coins. On a positive note, the buy-back rate for these coins also tends to be slightly higher than for foreign government issued coins. We hope that you enjoyed this article and welcome you to contact us if we can shed any additional light on the subject.