//
// ]]>
When people decide to start investing in gold, regardless of the reason, many immediately think to buy gold coins. For some, a late-night sales pitch for some newly minted coin is what got them thinking about gold in the first place. I’m sure you’ve all seen them. The historic imprint celebrating some event or another. The limited time offer. The restricted run. The certificate and fancy storage container. It all sounds very nice except for one small detail they fail to mention: the inflated premium over the spot price of gold.
This introduction to the metal usually leads to a string of ill-fated decisions, ultimately resulting in the investor losing money or at least massively curtailing returns. If that doesn’t sound like wise gold investing to you then we’re in agreement! Our goal is to help you maximize your returns when investing in gold, so let us explain exactly what is wrong with buying gold coins as an investment, which ones are safe to buy, and the superior alternatives.
The Differences Between Gold Coins, Gold Rounds, and Gold Medallions
The first thing you should understand before you buy gold coins is that not all of them are created equally. In fact not all gold “coins” are coins at all! In common speech, people refer to anything basically coin-shaped as a coin, but there are actually three distinct products in this category: gold coins, gold rounds, and gold medallions.
The defining characteristic of a gold coin is that it is minted as legal tender for a country. In the case of historic coins, which may no longer be accepted as legal tender anywhere in the world, it is enough that they were legal tender at the time of their creation. A true gold coin will have a face value mark, denominated in the currency of the country of origin. Coins, especially older ones, can also have a significant numismatic value due to their rarity but investing in numismatic value is not the same as investing in gold itself and is best left to coin experts.
Gold rounds are physically no different than gold coins, but weren’t minted as legal tender. This means that rounds will not feature a face value, instead being marked with a weight and purity such as “.999 fine gold, 1/4 troy ounce”). They are also often marked with the originating mint, and sometimes have a decorative design on one side or the other. For all intents and purposes, a gold round is simply a gold bar with a different shape.
Gold medallions are, like rounds, not minted as legal tender. Medallions are essentially a subset of gold rounds that are marketed and distributed as collectibles. These are the the items you see for sale on late night commercials commemorating individuals, events, or historic eras. To add further to the confusion surrounding investing in gold coins, medallions are often minted as replicas of official coins complete with identical markings and face value marks. They are required to be different sizes than the original coin, but this is not always apparent when purchasing online. Unscrupulous sellers will do what they can to conceal the replica status of the medallion while still meeting minimum requirements for legality.
Which Type You Should Use When You Buy Gold Coins
You may not get this impression from some of our summary articles, but it’s true that we aren’t against ALL gold “coins”. True coins do have some advantages worth considering, but unfortunately the common usage of the word coin including rounds and medallions causes confusion for potential investors and leads them to make poor investment choices. If the space can’t be devoted to explaining the particulars of gold coin investment we simply advise individuals to stay away from them because it’s safer overall. We feel it is better to guide someone towards a reliable gold bar than to have them mistakenly buy gold coins at a huge premium that turn out to be commemorative Winston Churchill medallion because they didn’t understand what you meant by “coin”.
The chief benefit of coins is their immediate recognizability. This gives them a tradeability and liquidity advantage over some rounds and bars. In the worst cases, a gold medallion may not even have a weight and fineness mark and must be appraised or melted to be sold! Obviously the transaction costs of this are a significant burden on any return you might get from the sale. We always recommend purchasing rounds and bars from well-known, reputable dealers so we’re not concerned with this particular benefit of coins, but it is there and important to note. The best coins for this recognizablity boost are the American Gold Buffalo, American Gold Eagle, South African Krugerrand, and Canadian Maple Leaf.
The downside of coins is that they are not typically sold directly to investors. Unlike rounds, which can be purchased directly from a private mint, you can’t simply buy gold coins from the U.S. Mint. Coins go through numerous middle men before reaching the investor. Each of these stops increases the premium a little bit, resulting in a significant premium to overcome before you are making returns.
Of the options we’ve discussed here, our recommendation for those investing in gold is to buy gold rounds. As anyone familiar with active stock trading can tell you, transaction costs can devastate your returns and the transaction costs for coins are simply higher than that of rounds. If you purchase properly marked rounds from a well known and trusted source, there is only a small difference in liquidity that we don’t believe is worth the premiums you pay for buying true coins. If maximum liquidity for an emergency still concerns you, you may want to hold a small number of bullion gold coins and keep the rest of your small-weight investment in rounds or bars from private mints.
To summarize, here is a short list of tips to keep in mind when you buy gold coins:
The Do’s and Don’ts of Investing in Gold Coins, Rounds, and Medallions
- DON’T buy gold medallions. Period.
- DON’T pay a premium when you buy gold coins unless you’re more interested in liquidity than maximum returns.
- If you are buying gold coins, DO only buy the most common bullion coins (such as the American Gold Buffalo) to get the largest liquidity benefit.
- DO buy gold rounds that are properly marked and from a well known, trusted mint.
