Investing in Gold Coins

by Luke Burgess

Investing in gold coins and bullion

With the price of gold hanging in the upper stratosphere, investors are falling back in love with bullion.

The U.S. Mint reports that it already sold 115,000 ounces of gold in the first few weeks of this year alone.

And while Investment U's Chief Investment Strategist Alexander Green maintains that gold will continue to slump through 2012, he does acknowledge that investors should hold around 5% of their assets in precious metals.

But choosing the wrong gold bullion coins can be a costly mistake. So it's vital to own the right coin for your own personal investment goals.

In general, most people buy gold coins for three reasons: for investment, as collectibles and as a safe-haven. For each of these reasons, there are some gold coin options that are better than others. And in today's article, I've outlined some of the best coin options available today for each reason to own gold.

Best Gold Coins for Investment

The best gold coins for investment are government-minted bullion coins with low premiums and high liquidity. On this stage, the American Gold Eagle is the model.

The U.S. Gold Eagle is the most recognized gold bullion investment in the world, with its gold content and purity backed by the U.S. government.

American Gold Eagles are legal U.S. tender and acceptable for precious metal IRAs. Eagles are minted in an alloy of 91.6% gold, 3.0% silver and 5.3% copper.

New investors are sometimes curious as to why Eagles aren't .999 fine. But this 22k alloy is actually an important protective element of the Gold Eagle.

Pure 24k gold is a very soft and malleable metal. It scratches and dents quite easily. The Eagle's 91.6% gold alloy helps protect against wear and tear, and thus helps retain the coin's numismatic value.

And despite being minted in 22k gold, new investors are comforted when they learn American Eagles have a gross weight of 1.09 troy ounces (33.93 grams) – so they still contain 1 full troy ounce (31.10 grams) of pure gold.

The U.S. Mint produces Gold Eagles in 1/10oz., 1/4oz., 1/2oz. and 1-troy ounce denominations. The difference in the premiums on the different Eagle denominations can widely vary, with the smallest denominations carrying the highest premiums. So the full 1-troy ounce Eagles are the best for investment.

The premium on a 1-ounce American Gold Eagle is currently about 4.5% to 6.0%, depending on how many coins you purchase at once.

In the table below, I've laid out some current asking premiums for Gold Eagles (and two other bullion coins) from five online bullion dealers for you to compare.

Gold coin investment

There are several other gold bullion coins that are great for investment, too. As you can see in my table above, gold coins like the Canadian Maple Leaf and South African Krugerrand have lower premiums than the U.S. Eagle, and are still very highly recognizable around the world.

Other great gold bullion investment options include Austrian Philharmonics, Chinese Pandas, British Sovereigns and Mexican Libertads.

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As I mentioned, the key to the best investment-grade gold coins are low premiums and high liquidity.

Gold Coins for Collectors

Since a collection is based on individual preference, there's no way for me to say which specific gold coins are the best for you to collect. However, there are some major differences between third-party numismatic graders that collectors pay to evaluate their gold coins.

Collectors often want coin specimens as close to their original mint or proof state as possible. Third-party graders evaluate coins to determine their state of preservation. Graders then encapsulate coins in a hard plastic slab to protect the coin from damage.

While a small handful of these third-party coin-grading companies are perfectly legitimate and qualified numismatic experts, most are completely bogus. And in my opinion, for collectors looking to buy graded gold coins, there are only three third-party graders to consider:

  • PCGS is one of today's premier third-party coin graders. The company is a division of Collectors Universe (Nasdaq: CLCT), a leading third-party grading firm for high-value collectibles, including sports memorabilia stamps and numismatics.
  • NGC is another very well respected third-party coin grader, whose primary owners are among the nation's largest coin dealers.
  • The third most well-respected coin grader is ANACS. Third-party coin grading was actually pioneered by ANACS – founded by the American Numismatic Association in 1972.

There's no doubt that ANACS has a great reputation. It's not a perfect metric by any means, but it's been my experience that there's a larger market for PCGS and NGC graded coins today, and they resell much better.

There are also many other third-party coin-grading services – but, as I mentioned, most are considered to be flat-out scams.

Dubbed "self-slabbers" or "basement slabbers," individuals often try to misrepresent themselves as legitimate graders, or try to mimic the look of a tier-one grader's slab. In a general scheme to garner higher prices, these individuals will typically over-grade, clean, or alter coins.

There are hundreds of self-slabbers trying to peddle their coins on eBay and other online auctions. Some of these guys go even as far as trying to mimic the names of legitimate companies. Names of self-slabbers include PNGS, NNC, NGCS, SGS, ACG and ANA. I recommend staying away from buying all coins from self-slabbers.

Safe-Haven Gold Coins

Some are worried (perhaps with good reason) that the U.S. dollar, as well as other fiat currencies, will ultimately collapse – leaving gold as the ultimate wealth asset. In their view, gold and silver could become be the preferred medium of trade in a post-fiat world, and perhaps the only means of barter. In other words, gold would be used as money.

Gold coins may be very valuable in a post-fiat, bullion-bartering world. But a 1-ounce coin isn't divisible, and you may need to make smaller purchases. For this hypothetical case, fractional gold coins may be the best bet.

Most major gold bullion coins, including Gold Eagles, Krugerrands, Gold Maple Leafs, Libertads and Philharmonics, are offered in smaller denominations including 1/2oz, 1/4oz, 1/10oz and 1/20oz.

These fractional gold coins divide your wealth into smaller denominations, which could be used in a crisis scenario to make purchases.

Gold Coins to Avoid Altogether

Some companies – especially those that advertise on TV – use clever marketing techniques to lure uninformed buyers into impulse gold coin purchases. These advertisements often try to mislead buyers into thinking they're buying something they aren't.

One such company is National Collector's Mint. You may have seen their commercials on television marketing several different coins, including this one:

Investing in gold coins

In their television commercials, the company shows a real U.S. Mint-made American Gold Buffalo bullion coin and starts out saying:

"Look closely at history in the making. This $50 buffalo gold piece is the purest gold coin ever stuck by the U.S. government. It's the first U.S. coin ever struck using .9999 (that's four nine's)   pure 24-karat gold."

The company goes on to talk about the design, production and rising prices of the U.S. Gold Buffalo. And excluding the "history in the making" part, everything NCM says is true.

But then the commercial switches to the replica coin they want to sell you – which, for all intent and purposes, looks exactly like the real one. NCM then says:

"Now you can reserve your copy of the $50 Gold Buffalo, clad in 31 milligrams of pure gold."

It's actually pretty clever. If you're not listening closely, you might hear that the coin has 31 grams of pure gold. That makes a full troy ounce. But look again. The coin is "clad" – in other words, plated – in 31 milligrams of gold.

This coin is similar to something you'd buy at a cheap souvenir shop. Thirty-one milligrams is equal to 0.001 ounces – worth $1.70 with gold at $1,700 an ounce. So there's no wonder this beauty "can be yours for only $19.95." And that doesn't including shipping, handling, processing, insurance, destocking fee, restocking fee and whatever else they'll try to stick you with. No thanks…

These coins are certainly not for investment or safe-haven. And their collectable value isn't even very high, in my opinion. So I'd recommend staying away from gold-plated tribute coins altogether.

Last Word...

Just make sure identify your own personal investment goals before laying any money out. Once you have your personal goals clarified, carefully review all your options and avoid impulse buys.

Good Investing,

Luke Burgess

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