A guide to Physical Bullion Investing - "Gold You Can Hold"
A guide to Physical Bullion Investing - "Gold You Can Hold"
As Gold and Silver as an asset class draw more investors new to the market to get involved. Many people are opting to hold their precious metal where they know they can get their hands on it, rather than trust a third party "paper gold" promise.To the uninitiated investor or collector, the vast array of gold and silver bullion products available on today's market can be pretty intimidating. If you have decided to invest in physical bullion, or "Gold you can hold", the choices available to do this seem endless. Do you buy gold bullion coin, or buy gold bullion bar? What type of gold coins do you buy? What type of gold bars do you buy? If you buy gold coins, do you opt for bullion or "proof" coins? Do you buy fractional bullion coins or bars or full ounce coins, or even larger? What kind of premium should you be paying?Firstly we'll examine the issue of premium, as it is central to most other questions. Gold coins and bars trade at a margin or premium over the market Gold price that is quoted on the exchanges. The reasons for this are costs associated with minting, packaging, handling and shipping what are essentially individual small packages of Gold Bullion. For this reason, in general, the larger the quantity of coins or bars being bought, the lower the premium over the market value of gold the buyer will usually pay. This principle also applies to individual bullion items, for example when buying a single fractional bullion coin (say 1/10 troy ounce), the premium will be higher than buying a single full troy ounce bullion coin. The goal for all buyers should be to minimise the premium they pay on their Gold bullion purchases.Other factors such as supply and demand, and the "brand" of the bullion, which we will come to later, being bought also effects the premium paid at any given point. The key point to hold on to about gold and silver or even any other metal bullion come to that, is that it is homogenous and fungible. It does not differ. This is a big part of the reason it has been used as currency for the last 5000 years. An ounce of pure gold here is the same as an ounce of pure gold there. True, when you start to get into numistics and the various grades of "rare" coins, different rules come into play, but not for bullion. Gold, Silver and other precious metal bars are available in a vast array of brands, the important thing to remember here, is that if you take 2 bars of different brands of the same weight and purity and the metal in one will not differ in any significant way from the metal in the other.However in the modern world, we live our lives surrounded by brands. The cars we drive, clothes we wear, the bank we hold our money with, all have a brand. Gold bullion and Silver bullion bars are no different. The large and varied bullion coins can be also be considered a brand. As such there are some brands that will be more sought after than others, Credit Suisse Gold Bars and Johnson Matthey Gold Bars for example are currently particularly sought after, and as such can sell for an increased premium. Other brands, perhaps not as well recognised do not carry such a premium. Likewise with bullion coins, which are units of Gold, Silver or other precious metal issued by a national government, each type of coin can also be considered a brand of bullion. American Gold Eagles are more sought after than Mexican Gold Libertads for example. One of the most popular gold bullion coins available is the Krugerrand (or Kruger for short). It is a South African gold coin, originally produced in 1967 in order to help market South African gold. The coins have legal tender status in South Africa, which allows them to be easily imported into most countries. Whilst they carry legal tender status, Krugerands do not have a Currency face value on them like many of their counterparts. A full Krugerrand contains 1 Troy Ounce of pure Gold. Because pure gold is very soft, the Gold in a Krugerrand is alloyed with copper to make 22 carat, sometimes known as "crown gold", which is the same alloy used in British Gold Sovereigns. This makes the coin much more durable and scratch resistant. To compensate for the diluted gold content, the overall weight of a Krugerrand is slightly heavier than 1 ounce so that the overall pure gold content is always 1 troy ounce. This is why a Krugerrand, when placed next to another Bullion coin of 24 carat, or .9999 gold (such as a Gold Maple) will often appear more orange in colour. The Krugerrand tends to carry a lower premium as some investors prefer a bullion coin with 24 carrat gold content rather than 22. Krugerrands are considered a less than pretty coin by some and combined with their vast numbers in circulation; they can attract a lower premium than some of their counterparts. The Gold Maple Leaf is the official Canadian bullion coin and is produced by the Royal Canadian Mint in 24 carat gold. Silver, Platinum and Palladium versions of the Maple are also minted. In the case of the Gold Maple, because the Gold used is not alloyed, and they have brushed finish, Gold Maples often appear more scratched, than other Bullion Coins such as Krugerrands. While the appearance of a bullion coin does not effect its value too much, (most dealers are not to bothered as long as it is not too mangled and the right weight) condition can affect the liquidity of a coin in a private sale situation such as an online auction.Minted in 22 carat gold, the Gold Eagle is an official gold bullion coin of the United States. Silver and Platinum versions of the Eagle are also minted. Gold Eagles were originally produced in 1 troy ounce versions, but fractions of 1/2 ounce, 1/4 ounce, 1/10th ounce are also minted. It is authorized by the United States Congress and is backed by the United States Mint for weight and content. In the late 2006 the Gold Buffalo was added to the American Bullion coin stable, struck from pure 24 carat gold. The gold buffalo bullion coin was created in order to compete with foreign 24-carat gold bullion coins, such as the Canadian Gold Maple and the Austrian Gold Philharmonic.The Austrian Gold Philharmonic, also known as the Philharmoniker coin is struck in pure gold. It is issued every year, in 1, 1/2, 1/4 and 1/10 troy ounce versions. Some special versions have also been produced such as the 15th anniversary 1,000 troy ounce coin. It is the official bullion coin of Austria and was first minted in 1989. Statistics provided by the World Gold Council, show the Philharmonic was the best selling gold bullion coin in the world in 1992, 1995, and 1996. Other countries produce gold bullion coins also, but the Krugerrand, Maple, Eagle, Buffalo and Philharmonic are arguably the most recognisable internationally. Popularity varies from country to country, many people prefer to hold their own country's bullion coins, and certain bullion coins have certain legal and even tax exemption status within their own jurisdictions, for example British Gold Bullion Sovereigns and Gold Britannias are exempt from UK capital gains tax at time of writing, so it may be worth paying a higher premium on a specific bullion coin in return for any tax exemptions or statuses that come with them. It is worth noting that Gold Bullion bars of any brand seldom, if at all, carry any special status.
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