Sovereign wealth – Investing in gold coins

Gold coin

By Joshua Saul – The Pure Gold Company

In the classic heist caper The Italian Job, Michael Caine’s crew load up their brightly coloured cars with large heavy gold bars while outside the police try to break down the door. Gold bars are the asset of choice for most heist movies because that’s how governments and gangsters efficiently store their wealth. But it’s not the only choice and not necessarily the right choice for all gold investors. Many UK investors choose to buy gold coins instead, for their affordability, popularity and liquidity.

There are two distinct types of gold coin to buy. Bullion coins are minted in large volumes for investors and tend to hold their value close to the actual value of gold. Numismatic coins have value both for the amount of gold they contain and their rarity and condition. Numismatic coins are usually collector’s pieces which means when buying you need to understand what is in demand, and have in depth knowledge of the numismatic gold coin market. Because they are rare, their value should appreciate over time, but they are harder to sell as the market is only to other coin collectors.

Gold coins come in different sizes, weights and levels of purity, which refers to the ratio of gold to other metals in each coin. A 22 carat coin means 91.6% of the coin is gold and the remainder other metal (like silver zinc or nickel), whereas 24 carats means a 99.9% purity of gold. This doesn’t mean there is less gold in a 22 carat coin, because there will still be the same amount of gold in each coin, but the 22 carat coin will also contain more other metal (and therefor weigh a little more).

Bullion coins are minted in large quantities and are easy to buy and easy to sell. They come in different denominations so smaller investments are possible, and in some countries they are actually a form of legal tender. In the UK the gold Sovereign, the gold Britannia, the Queen’s Beasts series and the more recent Lunar series of gold coins are all legal tender. This is an important distinction because it means they are capital gains tax free, so when it comes time to sell, if the price has appreciated substantially, there will be no extra tax to pay. They are also VAT free in most circumstances.

Sovereign reign

One of the most popular coins for investors is the gold Sovereign. It has a nominal value of £1 but is worth its 7.99 grams of weight in 22 carat gold. It has been minted since 1817, although only coins minted after 1837 are considered legal tender. It has the head of the reigning sovereign on the one side and a striking design of St George slaying a dragon on the reverse, designed by Benedetto Pistrucci. Older coins include three different heads of Queen Victoria, as well as George V, Edward VII and Queen Elizabeth II who has had five different portraits over the last 62 years and one sovereign commemorative portrait for the 500th anniversary of the first gold sovereign.

Most sovereigns are minted for bullion, so investors know the quality and quantity of gold they are buying but there is no extra value in its rarity or condition. Proof Sovereigns are exactly the same coins but they have a higher standard of finishing and detail and are designed for collectors who want immaculate coins. Proof coins hold a higher value than just the gold they contain but like other numismatic coins there is a smaller market for resale which makes them less liquid. Some bullion coins which are not numismatic proofs may hold some value over and above the value of the gold if they are older and rarer.

Britannia’s are also a very popular form of investment gold, and are VAT and capital gains tax free. Initially minted in 1987, a full Britannia weighs one ounce and is nominally worth £100 but at current prices, is valued at over £1000. The Britannia features the monarch’s portrait on one side and Britannia, the cultural emblem of British maritime power and unity, on the reverse. Until 2013, the Britannia was minted in 22 carats, after which Britannia’s were minted at 24 carats or 99.9% purity.

Sovereigns vs Britannias

The decision whether to buy Sovereigns or Britannias is a personal one. Full Britannias are an ounce of gold although they do come in quarter, half and two or five-ounce minted coins. Sovereigns are a quarter of an ounce so if you are liquidating your gold you have a greater choice on the number of coins to sell (if you held four Sovereigns rather than one Britannia). Ultimately it will come down to personal choice and plans for selling them in the future. If liquidity increments are not a factor, both coins are in high demand, although the Sovereigns more so because they are more affordable.

Alternative bullion coins

UK residents who want to take advantage of the capital gains exemption of legal tender coins are more likely to purchase Sovereigns, Britannias or other UK legal tender gold. But there are other popular international coins which are of similar weight, purity and provenance that have good resale opportunities. Perhaps the most popular international gold coin is the Krugerrand. Minted by the South African mint, the Krugerrand contains an ounce of gold, although you can now buy quarter and half ounce versions. Its popularity during the gold bull market in the 1970s has cemented its place as an iconic coin and despite many other alternatives now available, continues to be a popular investment.

The American Eagle and the Canadian Maple Leaf are legal tender gold coins in their country of origin. The former is minted at 22 carats and the latter at 24 carats. One special edition of the Maple Leaf gold coin is call ‘Five Nines’ because it is pure to 99.999% gold. There are many other gold coins available, but for investment purposes it is always essential to have a liquid buy-back market so the most popular coins are usually the most saleable.

Why gold? 

Gold has retained its store of value for thousands of years. It has been used as currency all around the world, and its immutability and rarity mean its value will continue to increase over time. Holding at least some of your assets in gold is a well-established hedge against stock market risk. Against the current backdrop of worsening trade relations and geopolitical instability, gold is holding its own and increasing in value as more people are protecting their assets by buying gold. And gold coins are a convenient, liquid way to store your wealth tax free.

Gold coin
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