Sure, you may have heard that gold investing is a safe bet during times of economic uncertainty, but what kind of investment will yield you the best returns?
You may have also heard about gold bullion coins and also numismatic coins. But what is the difference between the two?
Gold bullion is gold that is at least 99.5% pure and comes in the form of bars, ingots or coins. Gold bullion coins are typically purchased as an investment or inflation hedge, and have a set value based on the spot price of gold. On the other hand, numismatic coins are rare or collectible gold coins whose value is dependent on the date, condition, rarity and mint mark instead of the face value. They are primarily purchased by collectors.
In this investor’s guide, we’ll explore the differences between bullion and numismatic coins and provide some tips on how to pick which type is right for your portfolio. By closely examining key points such as their risk level and potential return on investment, we’ll arm you with all the information you need to make an educated decision about investing in gold.
Types of Gold Investments
There are a variety of ways you can invest in gold and gain exposure to the precious metal asset. Let’s cover each in detail.
Gold bullion comes in the form of ingots, bars and coins. Bullion bars come in various sizes so you can choose which option is best suited to your needs, however coins are generally favored by first-time buyers and there are several widely circulated options available – some of the most popular being the South African Krugerrand, American Eagle, Canadian Maple Leaf and Austrian Philharmonic. Gold bullion should only ever be made through reputable outlets and care should be taken to ensure it’s safely stored with adequate insurance.
Experienced investors can consider exploiting the potential profit possibilities available through gold options. These contracts allow you to speculate on whether or not there will be an increase or decrease in the price of gold without major risks, as your only loss is restricted to what was invested for entering into that contract.
Through exchange-traded funds (ETFs) such as SPDR Gold Shares (GLD), the modern investor can now access the gold market without cumbersome costs or physical storage needs. Each share of GLD holds 1/10th an ounce of actual precious metal.
Other ETFs offer more growth potential by investing not only in bullion but also publicly traded mining companies related to the industry, though with investment in these come additional complexities and inherent risks that should be thoroughly evaluated prior to purchase.
Gold Mining Stocks
Investing in gold miners offers a unique opportunity to leverage the potential upside of precious metal prices. However, since these companies face risks linked to their individual operations and capital use strategies, there’s no guarantee that they will move with bullion values, meaning there is much more risk than simply owning physical gold itself.
Bullion is a form of gold that has been refined to meet a high level of purity. Governments and central banks often keep bullion as part of their reserve assets, since it can be converted into currency at any time.
The process for creating pure bullion starts with mining companies extracting the ore from earth’s crust before refining its minerals using chemicals or heat in order to obtain parted bullion, while unparted bullion is bullion having more than one type of metal component.
Bullion coins offer investors a smart way to take advantage of certain benefits including potential investment gains, protection against inflationary forces and currency preservation in times of crisis. Each coin is specifically weighed in ounces, troy ounces or grams depending on the variety chosen by buyers, and most come from reputable government mints or manufacturers that produce them year after year for long-term market stability.
Examples of bullion coins include:
- Canadian Gold Maple Leaf
- American Gold Eagle
- South African Krugerrand
- Austrian Philharmonic
- Chinese Gold Panda
Numismatic gold refers to collectible gold coins that hold more value than the spot or current market price of gold. The increased value is largely due to rarity, age, and other factors.
Numismatic value is the value a seller receives for the sale of a collectible coin. This value is determined by the coin’s quality, rarity value, date, condition, aesthetic attraction and demand, not strictly their actual metal content. They are considered collectible and are not produced in modern times. For example, rare or ancient coins can trade for values far in excess of the value of the metal from which they are made.
Incredibly rare and purchased mainly by collectors, they’re not an investment in the typical sense.
Examples of numismatic coins include:
- British Sovereign
- $20 Liberty Double Eagle
- Saint-Gaudens Double Eagle
- Peace Silver Dollar
- Swiss 20 Franc
Common Lies About Numismatic Coins
Buyer beware, there are a lot of scams when it comes to numismatic coins.
So-called “rare coin” dealers are raking it in with unscrupulous tactics, selling overpriced and mislabeled numismatic coins. Victims of these rip offs may be wooed by big ticket advertising campaigns and celebrity endorsements – but don’t let yourself fall prey to the high pressure pitches. Arm yourself with the knowledge to resist the lure excessive markups that offer nothing more than an illusion of value.
A few of the common lies dealers tell include:
- Non-confiscation. You may be told that numismatics are a 100% confiscation-safe investment, but they are not immune to government confiscation. Even with their high premiums and historical value, numismatic coins can be taken away just as easily as bullion coins. Invest wisely!
- Tax advantages. Despite what you may be told, investing in numismatic coins is not a savvy tax strategy, as the IRS categorizes all forms of bullion as “collectibles.” That means that when it comes to capital gains taxes incurred from purchases and sales of any gold coins – whether gold bullion or numismatic coins – buyers can expect no special considerations. Purchases and sales are not reportable to the IRS no matter which type you buy.
- High value collectibles. Numismatic coins are often just graded coins, proof coins or slabbed coins which are carefully preserved in special packaging to give the impression of being highly collectible and attract a higher buying price. However, buyers should be aware that many times these coins do not hold any special value beyond that of their gold content.
Gold Bullion vs Numismatic Coins: Which to Buy?
Gold investing is an opportunity to explore the rich history of our world. From bullion, which serves as a steadfast store of value no matter what happens in markets, to numismatic coins with stories passed down through generations — gold holds tremendous worth that can last for eternity.
Let’s break down some more of the differences between gold bullion and numismatic coins so you can understand when to invest in each type.
Bullion coins are produced by reputable government mints and are relatively easy to resell.
On top of this, here are a few pros of investing in gold bullion:
- Highly liquid. There is a large and active market for common gold bullion coins, and your investments are comparatively easier to sell. For that reason we recommend only investing in universally recognized gold. While buying and selling coins can often go smoothly, larger or unusual items such as offweight bars may require more research since they may not have a big secondary market. For that reason we recommend only investing in universally recognized gold.
- Fair value easy to determine. Since all common gold bullion coins are marked and there is a large, active market, it’s easy to determine whether the price you are offered is a fair one. Just compare with the spot price of gold and factor in fees and you will know right away what the fair value of your holdings are.
- Lower spread. Common spreads on bullion coins, bars, and ingots are in the 5-10% range, and depend on several factors. On the other hand, numismatic coin dealers often charge spreads of 30% or more.
When to Buy: If you’re looking for an investment or are wanting to protect against inflation or currency devaluation, gold bullion coins are the way to go. Bullion is a tangible asset that will always retain its value.
Collecting numismatic coins is a complex and daunting endeavor, as each type of coin has its own individual markets that fluctuate in different ways. Even seasoned collectors may find it difficult to keep up with the changes affecting their investments. Regrettably, some dealers take advantage of this difficulty by directing buyers towards high-priced forms instead of those offering better value for money.
- Low liquidity. When the time comes to sell your precious numismatic gold coins, you may have to look far and wide for a fair price per ounce. Unfortunately, during times of economic hardship finding an interested buyer can be extremely difficult or even impossible since most individuals are turning towards more accessible options such as gold bullion rather than pricier rare collectibles.
- High premiums. Collectors of numismatic gold coins may encounter hefty transaction costs and premiums compared to more standard bullion items like bars or coins. Unfortunately, customers in the rare-coin market can easily be taken advantage of with huge markups — so make sure you know your facts before buying.
- Coin spreads. While bullion coins, bars, and ingots are typically in the 5-10% range, numismatic coin dealers often charge spreads of 30% or more. That means you immediately lose this percentage off the value on day one.
When to Buy: If you’re a speculator, history buff, collector or gold coin hobbyist, you might consider investing in numismatic coins. However, they are not for beginners or for those looking for an investment opportunity.
Frequently Asked Questions
What is the difference between bullion and numismatic coins?
Bullion coins are struck from precious metals like gold, silver, and platinum. They are intended to be used as currency and have a nominal face value. Numismatic coins, on the other hand, are collectible coins that are worth more than their face value because of their rarity or historical significance.
Is it better to buy gold coins or gold bullion?
It’s important to note that gold coins are a form of gold bullion.
But that being said, there are a few things to consider when deciding whether to buy gold coins or gold bullion in other forms.
The first is that there is a greater variety of coins available than there is of bullion. This means that you can find coins that fit your specific needs and interests, whereas with bullion, you may have to settle for whatever is available. Second, most people feel that coins are more attractive and have a greater “investment value” than rounds or bars. Finally, coins tend to be more liquid than other forms of gold bullion.
For these reasons, gold bullion coins are preferred by many investors and typically are best for those just starting out.
What is the difference between bullion and gold coins?
Gold bullion is pure form of gold that is traded on the open market. It usually takes the form of coins, ingots or bars, and is bought and sold as an investment with its value being tied to the spot price of gold.
Gold coins, on the other hand, are a type of gold bullion that are specifically designed to be used as currency. Their weight is indicated as an even amount, such as 1-ounce, 1/2-ounce, or 1 troy ounce, for example. Most bullion coins are manufactured annually by reputable government mints.
What is better bullion or proof coins?
Proof coins are an exquisite set of numismatic collectibles produced in limited numbers under stringent guidelines. To achieve the finest possible quality, each is stamped twice to create a dazzling contrast and detail before being carefully polished by hand and sealed in protective packaging with its own certificate of authenticity — making them much rarer than regular gold coins.
On the other hand, bullion is gold or silver in the form of ingots, bars or coins that’s at least 99.5% pure. It comes in standard denominations and always retains its value relative to the spot price of gold.
It’s recommended to avoid proof coins, numismatics and high premium gold coins unless you’re a seasoned collector or cherish them for their historical value. These types of collector coins are often peddled at a high price by those in the industry looking to take advantage of naive investors.
So now that you know the differences between gold bullion and numismatic coins, it’s time to take a step back and reflect on which investing strategy would best suit your own unique needs.
While each option has its pros and cons, it’s important to remember that when it comes to investing there is no right or wrong answer – what works for one person may not work for the next. Ultimately, you need to assess your current financial situation and consider how you want to make a move in your pursuit of financial freedom. Are you ready to make an impact through gold bullion investments? Or perhaps you’re searching for a route with more of a collector’s appeal?
Whichever route you decide to take, research is key – so be sure to weigh out all possible options before making your move. If after reading this article anything outside of the norm still needs clarification or if any questions were raised, please don’t hesitate to leave us a comment. We love to hear from you!
P.S. Like this article? You may also enjoy these other articles in the series:
- Best Countries for Offshore Gold Storage
- Cheapest Countries to Buy Gold
- Smart Tips for Investing in Gold
- Reasons to Invest in Gold
- Best Gold Coins to Buy
Originally Published: January 23, 2023