Investing in Bullion and Collectible Gold Coins

With the price of gold at record highs and the U.S. economy on the downslide, it’s no wonder that many investors are setting their sights on gold to hedge against the falling dollar. Many investors think gold bars are the most reliable and cost effective approach to buying gold, but gold coins offer benefits that bars do not because of their smaller denominations and viability as currency.

The first gold coins were made by King Croesus of Lydia in approximately 560 B.C. These coins were not pure gold, but were made from electrum, a natural alloy of silver and gold. When the process later became more refined, coins of pure gold and silver were created. The use of these coins spread to many civilizations, including the Greek and Roman Empires and, later, throughout European countries.

Gold coins typically cost slightly more than their gold content is worth, because a 4 to 8 percent premium is added for minting and distribution. However, coins may make up for this added cost because they are easier to sell and manage and are more widely collected than gold bars. While minted gold bars typically come in weights between 1/10 of an ounce and 20 ounces, coins range from 1/20 of an ounce to one ounce. The smaller size and more manageable shape of coins can be a strong asset if an investor wishes to sell a small portion of gold, or to use it as currency in the event of a breakdown of the U.S. monetary system.


Bullion coins are valued for their weight plus the premium
Bank safe deposit boxes are recommended for keeping gold secure, but it is also possible for investors to keep some of their coins at home. Floor safes are a good choice, as an aboveground safe may announce the location of valuables and be stolen.
“If it is not in a safe, spread [gold] around in many small caches. Some of the places suggested by our customers include under floorboards, in lofts [and] buried in the garden. Although these may sound rather facile, they probably work well in practice, especially if others do not know they are there."

Gold does not tarnish like silver does; however, gold is a soft metal that can be scratched or dented. This can lower the resale value of collectible coins, so gold coins should be protected from rough handling.

There are two main types of gold coins: bullion coins and collectible coins.

Bullion coins

The term “bullion” refers to a form of metal in which its value comes primarily from the worth of the metal itself rather than from an artificial currency value. Bullion coins are priced and sold according to the weight of gold within the coin, plus the additional premium mentioned earlier.

Bullion coins are available in many different weights with the most common being 1/20, 1/10, 1/4, 1/2 and 1 ounce. Many countries make some type of bullion coin. Though the designs vary from country to country, and sometimes from year to year, gold coins are sellable in all countries. Different countries may also produce coins of varying purities, which affects prices.

The U.S. Eagle coin is named for the image of a bald eagle it bears on its surface. They are available in platinum, gold and silver. Golden Eagles are 91.67 percent pure. This makes the coins harder and more difficult to scratch. The Canadian Maple Leaf bullion coin is 99.99 percent pure. The South African Krugerrand, the first national bullion coin ever released, is a 22 karat coin alloyed with a small amount of copper for durability. Many other nations, including Australia and China, also offer their own national gold bullion coins.


Condition and grade can increase numismatic coin values
Collectible coins
Numismatic—or collectible—gold coins are not priced based on their weight in gold. Rather, their selling prices are based primarily on their rarity, age and condition. “Numismatic coins are cherished for their beauty, historical significance, and their potential investment value. Hence, numismatic coins sell at a significant premium over their intrinsic gold content,” according to AmeriGold.

Modern gold bullion coins are not minted in limited numbers, so they are not likely to gain as much value as rare, collectible gold coins when gold is in a bull market, according to the American Gold Exchange.

Although condition, or grade, does not particularly matter when buying and selling bullion coins, these things are important when dealing with collectible coins. Coins in Mint State will be worth more than coins that have been scratched or otherwise damaged.

“In most cases, collectors should look for coins in the highest grades they can afford. However, many of the sharpest collectors and investors will seek out the key rare dates of a series, which can be astronomically expensive in Mint State, in one of the lower grades—provided that they can find a coin with exceptionally high quality for the grade and excellent eye appeal,” according to the American Gold Exchange. “These high quality, lower grade coins are often a better value and far more affordable than the higher grades.” This premium above the coin’s actual gold value varies widely from coin to coin depending on demand, according to American Eagle Exchange.

For investors buying coins, here’s something to consider: Gold is classified as a collectible, which means that profits are not taxed as capital gains but as ordinary income. Long-term capital gains are taxed at a 15 percent rate for those in the 15 percent tax bracket, but gold investments can be taxed at rates of up to 39.6 percent. Those considering putting their money into gold coins should consider what these rates might do to their returns.