Gold Coins Investment: Pros and Cons

Gold coins have been used as an investment mechanism for many centuries. Their ability to store value and serve as excellent means of payment in the events of catastrophic proportions have made gold bullion the method of choice for many investors in precious metals. Almost every major country strikes its own gold bullion coins in various denominations, sizes and gold purity forms. Some of the most popular are American Gold Eagle and Gold Buffalo coins minted in the US, Canadian Gold Maple Leaf, South African Krugerrands, Chinese Gold Pandas and Australian Gold Kangaroos, to name just a few of them.

A gold coins investment can have both pros and cons, and you should be aware of these considerations before you choose any type of gold bullion to purchase.

Pros

One of the benefits of gold bullion coins is that they have been used through history and are usually recognized anywhere. Pros for gold and silver bullion coins include the fact that they can be converted to cash or used for currency, and this is something you cannot do with a stock certificate or other intangible asset. Other precious metal coins have also seen an increase in popularity, including platinum coins, silver and palladium.

When you choose a gold coins investment you will probably pay more than if you chose bars, because there is normally a higher markup involved, but coins have an appeal that is universal. Even a large portfolio can usually be stored and secured easily, without a lot of expense. You can take possession of your bullion and hold it in your hands, unlike many other investment types like gold certificates, ETF’s or gold mining stocks.

Another excellent pro of gold coins investment is their ability for wealth preservation or hedging against devaluing currencies. Because gold bullion coins closely track the spot price of gold, their prices move up and down accordingly with gold. However, gold’s value in its turn moves in the opposite direction with money market funds. For example, in low inflation economy the values of gold coins investment is not very high. Should economy take a turn for the worse, prices on gold along with other precious metals take a sudden increase. This unique property allows investors to bet against bad economy because when stock prices are low, the rest of the portfolio, namely, gold coins are experiencing significant gains.

Cons

Just like with any form of investment there are some cons associated with gold coins investment.

First off, gold coins are a non-cash flow producing asset. That’s right you do not actually realize any benefits from holding gold until you decide to sell it. All the benefits are speculative and depend on a multitude of micro and macro economic factors. Holding physical bullion actually costs you money because you need to pay storage fees to hold them in a bank’s safe deposit box.

There is also an added cost with owning bullion, dealer premiums that are fees sellers charge over the actual price of its metals value. It makes sense to choose bullion products with the lowest premium costs to capitalize on the price of the metal.

Because you will be incurring various fees when buying, storing or selling gold coins investment, you may end up seeing a lower gold investment performance over the long term. Additionally, even precious metals carry some risks, and gold has been confiscated in the past by the government. This will probably not happen again but there is always the possibility it could happen. In this case then a gold coins investment may be affected.

Another aspect many investors forget is capital gains tax in case you decide to sell off your bullion. Indeed, the tax bracket they fall into is “Collectibles” which is calculated at 28% rate in case you have held your gold coins investment for more than a year. With such a high tax rate it makes you wonder whether you should invest in the gold bullion to begin with.

Owning gold coins may have some cons, but the benefits are definitely worth it for most investors. No matter your reasons, it’s worth having some these coins in your portfolio for diversification reasons.