Gold coins are one of the most popular forms of gold ownership. They hark back to the days when gold was used as currency, although you can’t spend a Sovereign in Starbucks anymore. So why choose gold coins over gold bars? Why choose gold coins over silver coins? Which coins offer the most investment advantages like flexibility (easy to buy, easy to sell, easy to store) and tax benefits (depending on individual circumstances)? Find out here.
Gold Coins vs Gold Bars
One of the main differences between gold coins and bars is that bars tend to be bought in larger denominations. Although it is possible to buy very small bars of gold (there is even a one gram bar for sale), there is a cost to manufacture each bar and the smaller the bar, the greater the percentage of its price is the cost of manufacturing it. This negates one of the advantages bars have over coins – there is a lower cost of design – compared to the more elaborate coins minted with intricate designs which command a higher premium, or additional cost above the spot price of gold derived from design and manufacturing costs.
For this reason, bars are often bought in their larger denominations (kilograms or half kilos), but this introduces a drawback on the resale of the bar. You can’t split the bar once you own it. Which means if you want to liquidate your assets you have to sell the whole bar. As an example, a one kilogram cast gold bar is worth over £50,000.
The most popular gold coins range in weight from a quarter to an ounce of gold. Customers have more flexibility when choosing to sell a specific amount of gold as opposed to having to sell more than they would otherwise want in physical gold. The one ounce Britannia gold coin will set you back closer to £1,700 and you can buy as many as you like and sell them as required.
While gold coins attract a higher premium because they carry an additional cost of the design of the metal, they are easy to store as they can be bought in smaller amounts. In addition, demand for tax free gold coins is much higher than most other types of gold. This means they are easily liquidated.
Both gold coins and bars manufactured to investment grade (a very high level of purity) are free from VAT, but only coins minted by the Royal Mint are also free from capital gains tax, depending on individual circumstances. This is because gold bars are not considered legal tender, and are therefore not a capital gains tax-free investment.
Gold coins vs silver coins
Gold vs silver shouldn’t be an either/or decision because both precious metals have a place in a balanced portfolio, but for different reasons. Silver is much cheaper than gold so can be a good introductory investment with a lower capital outlay. But while silver is cheap it is more volatile than gold. Because it is less popular it is also less liquid, hence the price swings are more pronounced, more influenced by speculators. It often attracts buyers who prefer a short-term investment with quick upside risk, rather than a slow and steady long-term investment like gold.
The options for silver coins are similar to gold, including the Royal Mint-minted coins like Britannias and the Sovereign. Because these are classed as legal tender, they also don’t attract capital gains tax when sold. However, unlike investment-grade gold, silver attracts VAT unless it is stored outside the EU.
New vs old?
There are two distinct types of gold coin to buy. Bullion coins are minted in large volumes for investors and tend to hold their value close to the actual value of gold. Numismatic coins have value both for the amount of gold they contain and their rarity and condition. Numismatic coins are usually collector’s pieces which means when buying them you need to understand what is in demand, and have in depth knowledge of the numismatic gold coin market. Because they are rare, their value should appreciate over time, but they are harder to sell as the market is only to other coin collectors.
Alternative bullion coins
UK residents who want to take advantage of the capital gains tax exemption of legal tender coins are more likely to purchase Sovereigns, Britannias or other UK legal tender gold. But there are popular international coins which are of similar weight, purity and provenance that have good resale opportunities. Perhaps the most popular international gold coin is the Krugerrand. Minted by the South African mint, the Krugerrand contains an ounce of gold, although you can now buy quarter and half ounce versions. Its popularity during the gold bull market in the 1970s has cemented its place as an iconic coin and despite many other alternatives now being available, continues to be a popular investment.
The American Eagle and the Canadian Maple Leaf are legal tender gold coins in their country of origin. The former is minted at 22 carats and the latter at 24 carats. One special edition of the Maple Leaf gold coin is call ‘Five Nines’ because it is pure to 99.999% gold. There are many other gold coins available, but for investment purposes it is always essential to have a liquid buy-back market so the most popular coins are usually the most saleable.
The verdict
Which gold coins you buy will depend on your personal circumstances. If you are a UK resident and want to benefit from the tax-free aspects of gold coins, then Royal Mint-minted coins are both VAT and CGT-free. The size and quantity will again depend on circumstances, but the popularity of bullion like Sovereigns and Britannias means there is always a resale market so they can be very liquid.
Numismatic coins require in depth knowledge of the collectibles market, and they are less liquid because the only other buyers out there are other collectors. However, depending on rarity, their value may appreciate beyond the actual weight value of the gold.
Ultimately, coins are a popular, easy entry into precious metals investment, and a prudent and liquid investment for any balance portfolio.
