A Brief History
In these uncertain financial times, investors of all shapes and sizes are looking for a combination of asset growth and security. As the “gold standard” of investing over centuries, gold bullion is often considered a quality investment for protecting value over time. As a growth investment, gold coins can be successful, depending on a number of market factors. In this article, Rory Brown, Lydian founder discusses some of the major advantages and disadvantages of using gold coins as a part of a solid investment plan. Note: This post is sponsored by Rory Brown.
Digging Deeper
Advantages
Permanent Store of Value
Gold has always been an effective hedge against inflation and other government currency crises. If equity or currency-based investments fall in value, gold usually increases in value relative to currency and other assets. While gold may not fluctuate from day to day like other investments with the potential for explosive growth, gold will never lose all of its value. Unlike companies or governments that can go bankrupt, gold will always have value as a tangible asset in the real world.
Personal Control
You are always in complete control of your investment when you own gold coins. You do not have to rely on the judgment, reliability, or honesty of managers or any other decision-makers to manage your investment. You also maintain the power to access your investment at any time without regard for market conditions, natural disasters, or governmental crises.
Liquidity
There is always an open and available market for converting gold coins into cash quickly in the event of an emergency. Under worst-case conditions, gold has always been used in trade between individuals and will continue to be considered as hard money by almost everyone, even when governmental currency is not available or has seen its value diminished or destroyed.
Price Correlation
The true value of gold coins is known at all times, as gold coins have a direct correlation to the published market price of gold on the global market. Investors need not be concerned with external factors, as the true market price is always available. As opposed to other gold-based investments like gold mining company stocks, management or other concerns will not affect the value of stored gold coins.
Disadvantages
Storage
Gold coins are physical items, of course, and you will be responsible for safe-keeping and maintenance to protect your investment. Storing gold at home presents risks including theft, fire, and flooding. Storage with third party companies involves costs and some loss of immediate access to your coins. Transporting gold typically includes potentially expensive costs including insurance.
Premiums
Most commercial sellers of gold coins charge premiums to cover expenses and make money. These additional costs are in addition to the market price of the gold that you purchase. Sellers recover costs through premiums for minting, transportation, and other costs. The US Mint typically charges premiums of up to 9 percent of value. When dealing with commercial gold sellers, be sure to ask for clarification on all premiums and other costs charged.
Less Favorable Capital Gains Tax Treatment
Most long-term capital gains incur a 20 percent tax rate. Gold coins are treated as collectible items and are generally subject to a long-term capital gains rate of 28 percent. Tax considerations can fluctuate greatly from time to time and depending on particular circumstances, however, and you should seek the advice of a tax expert regarding buying and selling gold coins.
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Historical Evidence
For more information, please see…
Berk, Harlan. 100 Greatest Ancient Coins. Whitman Publishing, LLC, 2019.
The featured image in this article, a photograph by Classical Numismatic Group, Inc. (http://www.cngcoins.com), is licensed under the Creative Commons Attribution-Share Alike 3.0 Unported license.
