Investing in Gold – What are my options?


Buying gold as an investment might seem pretty straightforward until you begin to consider all your options.  Gold comes in many forms and values vary accordingly.  Perhaps more importantly, future values are dependent upon the form of gold you own, and whether gold prices are trending up or down at any given future time.  Let me explain.

First, you may invest in physical gold or in gold contracts.  While you can buy gold contracts, gold futures, gold stocks and other paper investments, for purposes of this discussion, we will focus on physical gold.  This is gold you take possession of and put away in a safe place.

There are many forms of physical gold. While most follow the market “spot price” closely, some have other attributes that impact value.  These others may be less sensitive to movements in gold spot prices.

Physical gold investment options include:

  1. Gold bullion bars – one ounce, 10 ounce, I kilo, etc.    Pure investment in gold which follows spot market perfectly.   Risks include the possibility of acquiring counterfeit bars.
  2. Gold bullion coins made by national mints – e.g. South African Krugerrands, Canadian Maple Leafs.   Normally one ounce coins (or fractions thereof) minted for investment trade rather than for commerce.    Highly marketable, they trade within 3-5% of gold spot prices.
  3. International gold coins – e.g. British Sovereigns, French Francs, Mexican 50 Pesos.   Coins minted for commerce with intent to circulate but are use as bullion investment coins today.   Highly marketable and follow gold prices very closely.  With little or no numismatic premium, they also trade at 3-5% of gold spot prices.
  4. Modern US Gold Eagles – U.S. one-ounce coins (or fractions thereof) that are minted for investment in gold rather than commerce.  Eagles tend to trade at a premium of 4-7% over spot price due to public demand for US-made gold coins.   Highly marketable and follow gold prices closely.
  5. Pre-1933 ungraded gold circulated coins – US gold coins minted for commerce prior to US moving away from the gold standard.  Denominations from $1 to $20.   US gold coins are highly marketable and trade at a premium due to collector value (numismatic value) and while they tend to somewhat follow the gold spot prices they are volatile than gold spot. This means they are less likely to decline in value in a down market and may lag price increases in a bull market.   Pre-1933 gold coins are bought and sold at a premium of 20%-30% over spot prices.
  6. Pre-1933 gold uncirculated coins graded by PCGS or NGC – US gold coins minted for commerce, but never put into circulation. They will later have been graded by an independent third-party grading service, which authenticates coins and provides opinion on condition.  These are highly marketable numismatic coins which trade at a premium over gold spot price based upon denomination and numerical grade.   Graded gold coins are less subject to decline in value in a down market and may lag value increases in a bull market.  Expect to pay 30-50% over spot gold prices. Graded gold coins are attractive to both physical gold investors and coin collectors.
  7. Rare US and foreign gold numismatic coins – Truly rare collector coins bear little to no relationship to gold spot prices.   Rare gold coins trade at levels far higher than gold prices and will increase or decrease in value based upon collector demand, rather than by gold prices.

Bear in mind that no investment is without risks and gold and silver are more volatile than many other options.   Gold has long been considered a hedge against inflation or a safe haven during times of crisis.   A good economy is a traditional enemy of gold prices.   One can never truly predict tough economic times, and international crises come without warning.  Accordingly, I support the philosophy of investing 5%-10% of one’s total assets in physical gold and silver as a hedge against the unknown.   From the above menu of options, numbers 1-6 are all likely to increase or decrease in value with gold prices… and number 7 is for the numismatist only.

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