Should I Buy Gold Coins or Gold Bars?
This is a very important decision and will affect the success of this investment directly.
The allowable gold coins need to be 'legal tender' with a minimum 0.995% purity
(with the exception of the American Eagle), ie. they need to be usable as money. Of course, this makes little sense
in practical terms because you wouldn't want to buy a hamburger with a $5 gold coin--it is worth a lot more than
$5. But it is a requirement nevertheless and it rules out many gold coins from qualifying, one example being the
South African Krugerrand. This adds to the demand on qualified coins and increases the premium over gold content in
these coins so you end up paying a lot for a privilege that has nothing to do with actual gold value. However, gold
coins are easy to buy, store and sell and they are also very attractive. So it's no wonder that they are very
popular as IRA gold holdings.
These come in a wide range of sized from the very small 5 gram bars called 'chips'
that are almost the same as gold coins from an investment viewpoint to the large, heavy kilo bars. They are a lot
more efficient as investment because they carry less premium than coins--the bigger the bar, the lesser the premium
per gram of gold so one would want to buy the biggest bar one can afford. The downside to these large gold bars is
that they are not as easy to sell as the smaller bars and they need specialized storage and custodian services.
Given these differences, it may seem at first that the optimal strategy is to aim for the gold Kilo Bar since it
carries the least premium. This is true but it ignores one advantage that coins have over bars--resale value. We
know that the demand for coins adds a premium and this can increase over time. So if we needed to sell a coin in a
few years, we may be looking at a 'profit' from the premium itself, over and above any profit from gold price
increases. Another factor that can add to resale premium and profit is the collectibility of a coin.
Which to choose?
So whether we choose gold coins or gold bars depends on which of the
following two conditions are more important to us given our circumstances:
1) Gold coins are better 'investments' and can appreciate more, percentage wise, than just
the price of gold.
2) Gold bars are cheaper per gram to buy, with the larger bars being more efficient than the
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