Gold Coins vs. Gold Bars: Making the Right Investment Choice
Having decided to invest in physical gold, perhaps the first consideration that comes to mind is the choice between gold bars or gold coins. Seasoned and first-time investors alike ought to weigh up the advantages of both to ensure they make a decision aligned with their investment goals and personal preferences.
Comparing Gold Coins and Gold Bars
Both gold bar and gold coin investments provide different advantages. Before making any decision, it’s best to consider factors such as your desired investment horizon, liquidity factors, and whether you will want to take advantage of tax efficiencies available with certain types of metal. With this in mind, we will explore in more detail the individual characteristics of gold bars and gold coins below.
Portability, Liquidity and Flexibility
If portability and liquidity are high on your list of wants, then gold coins may be better suited to your needs. This is because gold coins are smaller and more lightweight than gold bars, rendering them much more portable. Having said this, gold bars also come in smaller weights than you might expect. In fact, at Sharps Pixley, we stock a range of bar weights starting from 1g. We also offer a combi-bar option which comprises a sheet of small, individual 1g gold bars. Therefore you must also consider liquidity, and with this, gold coins arguably triumph. Gold coins are highly desirable to a large number of investors as they are pleasing to the eye and many have historical significance. That is not to say gold bars are illiquid; if you ensure that you buy gold bars made by a refiner on the London Bullion Market Association (LBMA) good delivery list, then you should never be stuck for a willing buyer. Generally speaking, gold coins tend to change hands easier and faster than gold bars. Tied closely to liquidity is flexibility, which may be a key consideration for those wanting on-demand access to fiat disposable currency, or looking to rebalance their portfolio from time to time. In this case, purchasing a higher number of smaller bars and coins provides the desired flexibility. Furthermore, if you consider systemic risk or the potential banking system collapse as likely scenarios, then smaller denomination coins and bars offer more versatility for trading.
Purity, Authenticity and Counterparty Risk
Of course, you will want to ensure the purity and authenticity of any purchase and in order to do so, it is crucial you find a reputable dealer - preferably one with a physical location you could go to visit. A dealer with a bricks-and-mortar location should allow you to visit and see the range of products before you purchase; additionally, it also makes the dealer more accountable. The purity of gold coins does vary depending on the type. For example, Gold Britannias are 24-carat gold, while South African Krugerrands are 22-carat as they are made from a copper-gold mix. Details like this should be clear to see in the product specification if buying online, or explained to you verbally if purchasing in person. A reputable dealer can perform a series of non-invasive tests to determine the purity and authenticity of metals. Furthermore, all gold bars should come with serial numbers, and many come with certificates from the refiner. All Sharps Pixley gold bars are 24-carat gold. Bullion gold coins however, do not tend to be issued with certification as they will have mint marks and purity indicated on the coin itself.
Tax Considerations for Buying Gold
Since 1st January 2000, investment grade gold has been exempt from VAT in the UK. To be classified as investment gold, there are specific criteria regarding purity and form. For example, gold bars and ingots must contain at least 99.5% purity, while gold coins must be at least 90% pure. Investment grade gold coins must also be manufactured by a world-renowned mint. We would highly recommend a UK investor to look no further than Royal Mint issued coinage. Gold Britannia and Sovereign coins are two highly-sought after examples. If collectibility is of interest, one might also be drawn to the Royal Mint’s collectible series, such as the Queen’s Beasts and Royal Tudor Beasts. It is important to note that bullion gold coins that are classed as legal tender in the UK are exempt from Capital Gains Tax (CGT). Meanwhile, gold ETFs, gold bars and other minted coins do not benefit from CGT exemptions. As of the time of writing in July 2024, the CGT individual allowance is £3,000 in realisable gains per year. This could change if thresholds become aligned with income tax, and CGT exemptions for bullion coins will become even more attractive.
Market Value and Premiums
The premium on a gold bar or gold coin comprises the added cost charge above the spot gold price, which is associated with production, handling, packaging, insurance and delivery expenses. Most bullion dealers will only charge as small a percentage as possible and should be able to explain the cost breakdown transparently. Gold bars typically trade at a lower premium than gold coins due to the manufacturing process: the bigger the bar, the lower the premium. For example, it would be much more lucrative to buy a 1-kilo gold bar rather than ten 100g bars, and although there is no difference regarding the amount of gold, you would be looking to make a considerable saving. Moreover, larger gold bars may be more suited to a long-term investment strategy due to the initial saving made, but may not offer the same flexibility to liquidate a proportion of your investment that smaller denomination bars or coins offer.
Storage and Security
When investing in gold, you must consider how and where you plan to store your assets. Several options are available; you could choose to use a home safe, a bank vault, third-party storage facilities, or private vaulting. At Sharps Pixley, we offer vault storage facilities at extremely competitive rates with the highest level of security. Our vaulting service is fully insured and underwritten by Lloyd’s of London.
Choosing a storage option should align with your risk tolerance and investment objectives. It is important to examine the financial standing of whichever organisation you select as your custodian for precious metals. You should choose an established company that is focused on longevity to withstand the test of time. With that in mind, don’t hesitate to ask about the lease risk of the vaulting facility you choose. Ideally, any vaulting partner you choose should have no mortgage liabilities outstanding and, therefore no lease risk.
Collectibility and Aesthetics
Whilst both gold bars and gold coins are visually alluring, gold coins trump gold bars in terms of detail, intricacy and personality, which therefore provides them with a higher numismatic or collectible value. Due to their desirable aesthetics, gold coins can make wonderful gift pieces to commemorate special occasions for friends or family. Certain types of gold bullion coins have limited mintage, rendering them even more desirable due to their scarcity. One such example is the intricately illustrated China Panda Gold Coin. The Royal Mint has produced a number of collectable series over the years, including the Queen’s Beasts collection, comprising of ten individual coins, each showcasing a beast and culminating in the completer coin featuring all ten - a truly striking coin. It is due to the added collectible value that gold coins may see a higher appreciation over time, thereby increasing the return on your original investment.
In summary, various factors should be considered when choosing between investing in gold bars, coins, or a mix of both. Available budget, investment horizon, investment goals, and desired storage solution should all be taken into consideration. If you are looking to begin your journey into gold investment and would like to find out more, please contact one of our experts on +44(0) 207 871 0532 or at [email protected].