Bullion or coins?

Coins have been used for thousands of years, with the first coins thought to have been minted around 670 BC in Turkey. Interestingly, Julius Caesar also minted coins to pay his troops and they were probably some of the first individuals to literally see inflation whereby the value of the physical bullion within the coin rapidly exceeded the nominal value stamped on the coin – literally the “value” of the currency was dropping relative to the value of the metal used in construction. As such, governments have since learnt from this and now construct currency coins from base metals with a low intrinsic value relative to the face value.

Traditionally investors who buy gold coins and study collectable coins are known as numismatics. This style of investment is driven primarily by the ‘collectability’ and rarity of the coin and then following this is the consideration for the price of gold and the underlying content of gold in the coin relative to this price. When buying gold coins the knowledge required becomes highly complex in that not only do you require information around what the gold price will do in the future, but you have to have an understanding of future trends and collectability of the particular coins.

The collectability of rare gold coins – like any collectable item – can be profitable and we have seen rare coins appreciate from $1,000 to $64,450 over a period of 40 years, however the key risks with this type of investment is that it is not directly linked to the price of gold. This means that there is a large amount of subjectivity involved when a potential buyer may be considering a future purchase. Like a lot of collectable investments, the values are broadly very high in periods of good economic growth and can be potentially low in periods of global economic uncertainty.

The large concern with rare gold coins is that the price is broadly well above the market price of gold, which is known as the spot price. Even if you consider more recent releases of gold coins, from mints such as the Perth Mint, the underlying concern is that the new release coins are generally sold well above the market price of gold. For example, a 1/20 of an ounce coin trades at a 55% premium to the gold spot price. With such high premiums you would need a substantial increase in the price of gold to offset this premium price paid for the gold content of the coin, or a dramatic increase in demand for the collectability of the coins.

Conversely, when investing in gold bullion the driving factors that impact on the performance of the asset are vastly different. The large difference between coins and the bullion is that you do not have to rely on the collectability demand. Furthermore, gold bullion is a pure investment vehicle, which is directly linked to the future price of gold. The subjective nature of investing in bullion is removed as it is directly linked to the spot price of gold. This allows a readily available global market place for the bullion for investors to easily sell their bullion on the local and international trading arena. To ensure this however, an important feature when investing in gold bullion is to ensure the gold content is at least 99.98% pure and that an internationally accredited refinery stamps the bullion. Most importantly however, history has shown that gold bullion grows modestly in periods of economic growth and substantially in periods of economic uncertainty – just as we are seeing at the moment.

So in summary, if you enjoy immersing yourself in collectables, the rare gold coin will provide you with a lot of satisfaction. However if you are after the greatest profitability in this current economic climate, then the investment of gold bullion may be better for you as gold is set to soar with some leading economists around the world estiating it will reach up to $2000 per ounce by the end of this decade.