Which Type of Gold Bullion Should You Invest In?
When it comes to gold bullion, there is much to discuss, and once you’re done perusing this article, you’ll have a good idea how to invest in gold and be able to decide whether you should invest in coins or bars. Since a good place to start any discussion is to define some terms, let’s begin with a gold bullion definition.
What Is Gold Bullion?
Gold bullion refers to physical gold, like coins and bars, as compared to gold securities, like Barrick Gold Corporation (ABX), Royal Gold, Inc. (RGLD), Franco-Nevada Corporation (FNV), and Agnico Eagle Mines Limited (AEM). While the value of gold is considered fairly fixed, the price still depends on supply and demand.
Why Invest in Gold Bullion Bars?
When you buy gold bullion bars, you’ll acquire slender, rectangular gold bars made by private mints. These slabs of gold are known by many names. You may hear a bar referred to as a gold bar, gold bullion, or gold ingot.
Unfortunately, you can’t buy anything with your lovely gold bar because it’s not considered legal tender. The only reason you might buy gold bars would be to have a large amount of physical gold in a shape that is easy to evaluate, weigh and store in a bullion storage facility.
Gold bars are fairly impressive to look at and can weigh anywhere from one kilogram all the way to ten kilograms. Gold bullion standards require producers of refined gold bars to conform with manufacturing conditions, labeling standards, and record-keeping values.
Which Gold Bullion Coins to Buy?
Since gold bars are often bulky and difficult to safely store, most investors prefer to buy gold bullion coins.
Most gold coins have a high amount of gold, and those minted since the 1800s are about 90% pure. However, gold is more often measured in karats rather than evaluated by percentages.
Made by a national government mint, these are round coins made of gold that can be used as legal tender. They have a face value and their weight and purity are inscribed on the coin.
The most popular gold coins are the American Eagle, the American Buffalo, the Canadian Maple Leaf, the South African Krugerrand, the British Britannia, and the Austrian Philharmonic.
What Karat is Gold Bullion?
The idea of the karat started as early 3,000 BC in ancient Egypt. The temple priests made a distinction between gold in alloys and pure gold and developed a standard for trade called “karatage.”
If an object was made out of pure gold, it was valued as possessing high karatage and if the object had other metals, it was considered to have lower karatage.
Egyptians used gold to create precious objects. For instance, since maps were considered valuable, the most important maps were made in gold. Today, we still value gold and remain fascinated by gold jewelry. But we also now see gold as a way to achieve financial diversity, seeing it as a way to protect our wealth when currencies fall in value or when markets decline.
Most gold bars are about 24 karats while most gold coins are about 22 karats with some higher. For instance, the American Buffalo gold bullion coins and the Canadian Leaf gold bullion series are both 24 karats.
When buying physical gold, you have to decide whether you want to invest in coins or bars. Let’s take a quick look at the advantages of each and discuss what strategies you should use.
Why Buy Gold Bullion Bars?
The primary advantage of buying gold bullion bars is that you can incrementally increase your stock of gold and acquire a large amount of this precious metal over time. This is because bars are manufactured in a convenient shape, size, and weight. You can, for instance, choose between one-ounce or 10-ounce gold bars.
Here are some other advantages of buying gold bars:
1. You can add them to your individual retirement account (IRA)
2. You can buy from a variety of mints
3. You can store many bars in a safe storage facility
4. Bars are high value—most of them are 24-karat (most gold coins are about 22-karat).
How to Buy Gold Bullion Bars
When buying gold bars, consider spreading your purchase over several months to steadily add physical gold to your portfolio. If gold bullion price or storage space is an issue, then buy one-ounce bars.
Why Buy Gold Bullion Coins?
Here are five popular reasons why people invest in gold:
1. The gold bullion price will go up when the value of your paper investments goes down. This ensures that your portfolio remains balanced.
2. Gold will protect your wealth against loss of purchasing power should inflation erode away the value of the money you have saved over many years.
3. You will not have to pay your capital gains tax on the gold you buy until you decide to sell.
4. It is easy to be discreet about your increasing wealth if that is an important benefit for you.
5. Should the economy collapse and there is widespread panic after a currency devaluation, you can still use gold coins to buy things because it is legal tender.
6. You can include American Eagle gold bullions coins in your individual retirement accounts (IRA).
How to Buy Gold Bullion Coins
You can buy gold coins from a number of countries. However, if you live in the US or Canada, it’s advisable to only invest in North American coins–because both American Eagle gold bullion coins and the Canadian Maple Leaf gold bullion coins are the easiest to buy and sell.
“What Gold Bullion Should I Buy? Coins or Bars?”
Should you buy gold bars, or should you invest in gold bullion coins? It depends on your investment plans.
If you just want to stock up on gold as a hedge against inflation or a worse-case financial scenario, then bars allow you to acquire more gold quickly. You can, for instance, buy gold bars that weigh as much as 10 ounces of gold while coins generally only weigh about an ounce.
If you are interested in buying and selling, then you will find it much easier to trade with gold coins. It is easier, for instance, to sell 10 one-ounce gold coins than it is to sell one 10-ounce gold bar.
So, buy gold bars if you want a sizeable amount of gold or buy gold coins if you want a flexible amount of gold.
Gold for Portfolio Diversification
Many investors consider buying gold to be an essential part of their diversified investment portfolio. One reason for this is because the price of gold increases when the value of paper investments, like stocks and bonds, decreases. Despite any possible short-term volatility, gold has a way of recovering its long-term value.
What Gold Bullion Strategy to Try?
Let’s consider three different types of gold investors to get an idea of how they should buy, hold, or sell gold.
1. First-time Investors
If you are investing in either gold coins or bars for the first time, here are some strategies you can use:
Don’t be too eager about the whole idea of investing in gold and give yourself time to learn how to buy gold coins or bars without taking unnecessary risks. In other words, buy one gold coin to test out the buying experience before splurging on buying many.
At this stage, you’re only exploring different types of gold investments. Don’t be too concerned with whether you should buy coins or bars. Your main concern should be how to buy gold bullion rather than in building up your stake.
Be wary of where you buy gold bullion and don’t be too unrealistic about investing or too trusting. After you’ve done your research ask dealers easy questions like, “How much does a gold bar weigh?” or “How much does a gold bar cost?” Based on their answers, you’ll be able to figure out if they are honest merchants.
Store your gold carefully. If you store your gold at home, be discreet about it, not mentioning it to others. This reduces your risk of theft. You can also secure your gold in a gold storage facility for a fee or use a safe deposit box at your local bank.
2. Investors seeking to diversify their portfolios
If you are an investor looking to achieve a diversified portfolio with gold coins and bars, then you should focus on different types of gold. For instance, you can buy a variety of gold bars (say, one-ounce, two-ounce, or 10-ounce), buy a variety of gold coins, and even consider buying gold jewelry. When purchasing gold, only buy certified bullion from a reputable source.
3. Investors interested in collectibles
Finally, if you are thinking of gold coins from the perspective of a collector, then do plenty of research.
The Federal Trade Commission warns numismatics about carefully choosing graders and dealers, as many may overcharge you. You must learn a great deal about coins to be able to determine their value because often historic and collectible coins are only made with a small amount of gold.
As a collector, you must learn about the different types of coins, the years they were minted, the place they were minted, and the difference in grades (i.e. what condition they are in.)
We’re Here for You
In closing, if you would like more help learning about how to purchase gold bullion, please get in touch with us at Treasury Vault. We can answer any questions, provide recommendations on how to buy gold bullion, and guide you through the buying process.