Buying Gold Coins as an Investment? What You Need To Know

Investing in Gold Basics

Published: April 28, 2022

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In today’s environment of economic uncertainty, you may be searching for a way to secure your financial future against downturn and inflation. While it’s true that no single investment can guarantee worthwhile returns, diversifying your portfolio is always a recommended method for reducing overall risk. Collecting gold coins as an investment is one way you can bolster your portfolio by securing long-term value in a tangible asset.

Gold has proven itself as a reliable currency throughout history, from the time of ancient Egyptians until today. Modern investors and institutions, including many central banks, know how to hold and trade gold to hedge against inflation. Even as an individual investor, you can buy this precious metal with relative ease, securing coins or other forms of gold as a safe haven for your wealth into the future.

Benefits of Investing in Gold

Even as other currencies have come and gone through the centuries, gold has managed to withstand the test of time. Unlike the U.S. dollar and cryptocurrencies, gold is a hard asset, meaning it’s a physical good that carries fundamental value. Just as other commodities become more expensive with rising inflation, the price of gold is likely to rise as the dollar erodes. Therefore, purchasing gold today can be a way to lock in the value of your money for the long term.

Historic Value of Gold

Gold has outperformed both the U.S. dollar and the S&P 500 over the past 50 years. Since the end of the United States’ gold standard in 1971, the price of gold has increased at an average of more than 11.5% per year. Compare that to the S&P 500 Index, which increased about 9.5% on average annually over the same period.

In addition, the U.S. dollar and all other major currencies have fallen relative to gold since the 1970s. That said, the price of gold does fluctuate, and there are times when gold underperforms against other asset classes. Therefore, it’s best to consider gold as a long-term investment and as only a portion of a well-rounded portfolio.

Future Value of Gold

When considering the prospects for gold in the future, you can expect demand to rise.

China and India are the world’s top two gold-consuming countries, and the continual growth of these economies will fuel higher demand. Gold is also becoming more valuable for technology, as it’s used in many sophisticated electronics, with new applications discovered all the time. Advances in medical technology, aerospace, and renewable energy may drive demand even higher.

Meanwhile, the Earth’s supply of gold is finite. Though mining operations continue to produce new gold each year, rising prices have shown that supply cannot consistently meet the demand.

So if you, like many investors today, are considering gold to safeguard against inflation and increase your net worth, the next step is deciding what gold to buy. Ask yourself if buying gold coins as an investment is right for you, if you’d rather purchase standard gold bars, or if you want to diversify with both. No matter what, you must also determine how to safely store your gold — whether at home, in a bank, or in a specialized account like a gold IRA.

Why Gold Coins?

When you’re thinking about gold as currency, the first image that comes to mind is likely that of a gold coin. These are the most familiar and time-honored embodiment of gold — one that many people have held in their hands at some point. Gold coins may be the most obvious choice when considering how to build your gold collection.

Coins are especially appealing to anyone with a collector’s eye. Gold coins have a storied history as collectibles, and there is a world of information for the aspiring numismatist to pursue. From a purely investment-related standpoint, however, it’s important to weigh the qualities of coins against other forms of gold such as bullion bars.

Purity of Gold in Coins

Investment-quality gold is called bullion, meaning the composition is at least 99.5% pure gold. Bullion is commonly sold in the form of solid bars which are valued by their weight and purity. A gold bar will always cost a slight premium over the “spot” price of gold, or the current market value by the ounce.

Gold coins, on the other hand, command a higher premium over the spot price of the gold they contain (ranging from 3 to 15%). This is due to the higher costs of minting coins as opposed to casting gold bars. Also, not all coins meet the bullion standard, but some do.

For example, the American Gold Eagle is 91.67% gold (22 karat), balanced with silver and copper for extra shine and durability. The American Gold Buffalo, on the other hand, is a bullion coin made of 24-karat gold, which is 99.99% pure. So even though the Eagle is not quite “worth its weight” in gold, it is quite valuable as a collectible and remains an IRS-approved gold coin for investment.

It’s important to realize that gold coins are not as cost-effective as bars, strictly speaking, in price per ounce of gold. However, coins offer additional collectible value which bars generally do not. Each coin issue bears a unique design, history, and beauty — attributes that can enhance its value as rarity increases in the future.

Types of Gold Coins

To understand the best gold coins for investment, it’s essential to know about the types of coins available from the U.S. Mint, and the differences in quality of each.

Circulating Coins

The coins most familiar to anyone, circulating coins are produced for everyday transactions. Gold coins are no longer minted for circulation, but they were prior to 1933. Therefore, circulated gold coins can be worth much more than the spot price due to their historic value.

Uncirculated Coins

All gold coins minted in the U.S. today are uncirculated. Though they still count as legal tender, they are meant for collectors and not for circulation. Uncirculated coins come with a certificate of authenticity from the U.S. Mint.

Proof Coins 

A type of uncirculated coin, proof coins are minted with the utmost quality. Proof finish means the coin is struck at least twice, rather than the usual once, to ensure intricate detail and a mirror-like background. Not surprisingly, proof coins in Mint condition are some of the most valuable coinage to hold.

Commemorative Coins

Another type of uncirculated coin, commemorative coins are produced by the U.S. Mint to honor people and events in U.S. history. They are produced in limited quantities and for limited time, making them potentially more valuable as collectibles.

Error Coins

An error coin is one with a defect from the minting process, which could be any number of problems with the structure or appearance. Though these coins are technically flawed, they draw a higher price from collectors due to their novelty.

How To Start Buying Gold Coins

Whether you’ve decided to begin or expand your collection of gold coins, you must next consider how to purchase your coins and how to store them securely. One way to get started is to buy the latest gold coins straight from the catalog of the U.S. Mint. To obtain older collectibles you must visit a rare coin dealer, coin show, or auction.

Use caution, however, because it’s easy to get swindled if you don’t know exactly what you’re looking for in quality and authenticity. A good place to start is by consulting the Professional Numismatists Guild, which maintains a directory of reputable dealers and events.

How To Store Your Gold Safely

Once you have your gold, you’ll then need to keep it safe. A lockbox at home may work well, but for larger quantities, you might opt for a bank safe deposit box. There is also the option to have your gold stowed away for you, as part of a self-directed individual retirement account (SDIRA).

A gold IRA can protect your gold coins, and other precious metals that you own, in a tax-efficient account that you control. You can still hold your most prized gold coin collection at home, while funding an IRA with the rest of your physical assets. This type of SDIRA provides one more way to diversify your investments, and help secure your future with the timeless value of gold.

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