Are you considering the best investment bet between gold coins and gold bullion? If YES, here are 5 premium difference in ROI between gold bullion & gold coins.

For the past six years, precious metals have been one of the top performing asset classes and as such, investors who wish to add these precious metals to their portfolio are often overwhelmed by the multiple investment instruments that are available at their disposal.

The alternatives that are available for precious metal investing include:

  • Gold backed exchange traded funds (ETF)
  • Futures
  • Forwards
  • Options
  • Gold mining stock
  • Government certificate
  • “Digital gold”
  • Mutual funds
  • And of course the gold bullion and gold coins

Investing in gold can either be by way of getting hold of the physical assets or investing in a physical security with the price of gold. All of these investment vehicles allow the investors to gain exposure to the gold market and also participate in it.

Why Invest in Gold Bullion and Gold Coins?

Gold bullion and gold coins may be bulkier than the various alternatives to precious stones that were listed earlier, yet they have a lot of inherent advantages that are peculiar to them and may even present an edge over the aforementioned alternatives.

Firstly, because it’s a “real” commodity, gold bullion and gold coins are inherently valuable in the sense that they are tangible, intrinsic and have an innate value in and of themselves, and they are therefore the only asset class that is not some outside entity’s’ or third party’s’ liability.

Therefore, any investor who holds physical gold will have the sense of fulfillment and security that come from knowing that his or her investment is something physical and tangible with an intrinsic value and not just a piece of paper or a derivative product that stands in place of the real gold.

When it comes to trying to choose between gold bullion and gold coins, investors should note that there is no perfect option for gold investing. It is however advisable that investors should not depend on a single asset but to have different ranges of investment types in a portfolio so as to cushion the effect of an unforeseen circumstance. It is also advisable to invest in various other precious metal vehicles in a portfolio if the investor can afford to do so.

What is a Gold Bullion?

A gold bullion is gold that is officially recognized as being a least 99.5 percent pure and is in the form of a bar or ingot. Gold bullion is brought into being when it is removed from the earth in the form of gold ore (this is made up of a combination of gold and mineralized rock).

The gold is then extracted from the ore with the aid of chemicals or extreme heat. The resulting pure bullion is then known as “parted bullion.” If however the bullion contains more than one metal, it is now known as “unparted bullion.”

Bullion is a legal tender which is usually held by the central banks or institutional investors in their reserves. The essence of holding this bullion is to reduce inflationary effects on their portfolio. It is estimated that about 20 percent of all the mined gold are held by central banks worldwide. Gold bullions are produced in a wide range of sizes from 1 gram (or in some cases even less), to 400 troy ounces (in some cases more).

Due to the fact that gold bullion are produced commercially, they have no legal tender status unlike gold coins but they may be backed by reputable refiners who attest to their quality and authenticity.

Buying and Investing in Gold Bullion

Gold bars and coins can be bought from a dealer of high repute and then stored in a safe deposit box, which can be in the investor’s home, bank or with a third party depository. In addition, it is possible to purchase the gold bullion from an allocated account at a bank which holds the bullion for its clients.

Gold bullion is traded in the bullion market which is primarily an over the counter (OTC) market that is always available irrespective of the time of the day.

What is a Gold Coin?

Gold coins are highly refined gold that is round in shape, and it is produced to match the exact specifications that is prescribe by the various federal governments throughout the whole world mainly for the purpose of investment. Gold coins are produced in large quantities and they come in various shapes and sizes for convenience of ownership, storage and trading.

Normally, gold coins come in one-half, one-quarter and one-tenth troy ounces. The various weights they have and their level of purity is guaranteed by the governments that oversee their production and trade.

Gold coins are valued as legal tenders in their country of origin, however, they are also valuable in the market thanks to their gold content. They are readily bought and sold by investors through a worldwide network of gold retailers, wholesalers, banks and brokerage firms.

The current price of gold bullion is usually published daily both on the internet and financial publications.

Buying Gold Bullion Vs Gold Coins – Which is the Best Investment Product?

1. Premium

This refers to the amount of money that will be charged to an investor for the product over the value the coin or bar contains. This premium represents the cost that is involved in the production, shipping, handling and the profit of the seller. Reputable dealers usually charge investors a very small percentage premium.

This is done in order to stay competitive. The smaller the coin or bar, the higher premium it will attract. This can be attributed to the fact that it will cost the manufacturer more money to make like say 500 one-ounce perfectly shaped, designed and in scripted pure gold coins than it will cost him or her to produce a single 400 ounce gold bar.

In addition, gold coins have in the past demanded additional premiums depending on the market factor at that time. A good example of this was in the 60’s when there was a premium of up to 40 percent associated with buying and selling gold sovereigns.

2. Custody

Some investors may decide to hold their bullion gold or coins themselves therefore they may require personal delivery. This is good enough for gold coins and small bar investments as they will not require an assay in the event that they will be sold. Large bars on the other hand can be easily manipulated and altered in such a way that professionals may not even be able to visually detect it easily.

As such, a time consuming and costly assay will be required if the investor has taken personal possession of them and then presents them to a dealer for sale. Therefore, it is advisable for investors who buy large bars to put them in storage. If a large bar is kept in such a storage facility, its liquidity will not be affected at the time of sale.

3. Flexibility

If an investor has the intention of buying, holding and then selling his gold for a profit, then it is most advisable to go for gold bullion. This is because the premium paid at the time of purchase will be lower. If on the other hand the investor intends to hold his or her gold for a long time for some purposes like to hand over to his heirs, then gold coins may be preferable. This is because one thousand one-ounce gold coins can be readily distributed among 5 heirs, whereas a two 400 ounce and two 100-ounce bullion bars cannot.

4. Small investors, large investors and first time investors

Even though a lot of small and first time investors usually look towards gold coins due to their low investment, it is also advisable to have both coins and bars in a portfolio. For large investors, it will be advisable to buy the largest unit sizes of gold bullion you can lay your hands on such as 500g gold bars, 1 kilo gold bars and 5 kilo gold bars as they represent the best value for cash.

5. Storage

A gold bar takes up less space than the same number of gold coins. In fact, bars were specifically designed for ease of storage. Buying gold bars does not compromise any of the core advantages of gold. They are portable, private, liquid and can last forever.

Ultimately it is advised that before an investor invests in a gold bullion or coin, he or she should consider his investment objective, the amount of money he or she has to invest, the need for liquidity among other factors. Also, consulting with a trusted precious metal advisor can help the investor to determine the best option that is most suitable for their circumstances and needs.

Ajaero Tony Martins