Investing in Gold Bullion and Gold Coins
Gold Bullion and Gold Coins
Gold has been a volatile market lately, recovering recently from a pullback that saw the price decline by over 20% in a little more than a couple of months. With the gold price now on a firmer footing once more, it may be time for would be investors to consider making purchases. Two popular forms of investment in gold are bullion and coins.
Last year, gold rose to almost as high as $2000 an ounce, before rushing all the way back down to around $1560 in December. Toward the end of January 2012, the price had recovered to stand a fraction below $1750.
Some investors have seen little to no downside to their investments in gold during this volatile period, their investment worth remaining stable. This fact brings to the fore the argument between investing in gold bullion products or rare gold coins.
When an investor buys gold bullion, he pays little premium over the spot (cash) price of gold. The value of the gold bar, or round, is directly linked to the value of its metal content. However, rare gold coins demand a premium over the value of the their gold content. This premium can be collosal. Bullion investors would argue that paying such a premium is folly, citing that the ‘real’ value of a coin is intrinsically linked to the actual value of the gold. Why would anyone pay thousands for an item that, melted down, would be worth only a few dollars?
Coin collectors, have the counter argument that the value of their investment is linked to rather more important factors than the gold price alone. A coin can tell a lot about our history. Perhaps the most important valuation factor to a coin collector is the rarity value of a coin. A are coin in good condition could be worth far more than its weight in gold.
In 2002, Sotheby’s auctioned a rare 1933 Double Eagle gold coin. This coin was minted in an amount of 445,500 pieces, each with a face value of $20. However, the coins were not officially circulated, and eventually melted down. Hence, the specimen sold at that auction had a very high rarity value. This rarity value was reflected in its eventual selling price, a staggering $7.59 million!
This is not to say that gold investors should concentrate only on acquiring their gold in the form of rare coins.
Gold bullion investors will further argue that when the gold price rallies strongly rare coin prices do not follow suit. The rarity of the coin, the key indicator of its value, will not have changed in that time. An investor in gold bullion can realise large profits in a short space of time.
An investor who was lucky enough to buy gold at $1600 just a couple of weeks ago would have been sitting on a profit of around 10% at the end of last week.
The other argument in favour of bullion investing, rather than coins, is the ease with which a position can be liquidated and funds raised. This can be achieved in just a few hours, whereas it could take some considerable time to sell a coin of similar value.
There are arguments for and against investing in both bullion and coins. Perhaps the answer is to invest wisely, and use both bullion and coins to build a long term and valuable portfolio in a commodity that will be increasingly seen as a store of value, and a hedge against inflation, in times of economic uncertainty.