Gold Bars vs Gold Coins: What is better to buy ?
The common question from new gold investors is "should I buy gold bars or gold coins?". Discover our concise guide, that explain the pros and cons of both type of products.
Why buy gold bars ?
Gold bars are produced in 24 carats (999.9 pure gold) and come with an assay certificate. This certificate guarantees their weight, purity, and that they meet the Good Delivery Standards. Newly minted gold bars (from 100 grams) are generally sold in a sealed package to protect the bar.
Most of investors with large budgets buy gold bars because of their low premium. This enable them to buy gold at the lowest price per gram. For this reason, gold bars are considered to to be one of the most cost-effective way to invest in gold.
Multiple Sizes Available
Gold bars come in various sizes (from 1kg to 1g). Therefore, they are suitable for any budgets.
For instance, 20g or 1 oz bars are ideal for those looking to buy physical gold regularly. On the other hand, 1kg gold bars are the largest option available.
Standard for gold investment
A gold bar is the standard format for gold investment. It is exchangeable worldwide to any bullion dealer as long as has been manufactured by an LBMA approved refiner.
Ideal for Long-Term Investment
If you consider to hold physical gold for a long period of time without any intention to sell part of your investment overtime, gold bars will be the best option for you. They will cost you less per gram compared to gold coins. This is because of their lower premium, as explained below.
Cheaper Premium over Spot
Gold bars tend to be cheaper to manufacture compared to gold bullion coins. Therefore, they have a smaller premium compared to gold bullion coins. The larger the gold bar, the smaller its premium. A one kilo gold bar will include a lower manufacturing cost than 10 x 100 grams gold bars.
Therefore, it will be cheaper for you to buy a kilo gold bar rather than 10 x 100g gold bars. You will save around 1% (in today price, around £260). Although this option is cheaper, this will make your portfolio less flexible. You will not be able to sell part of your investment, because you cannot cut a kilo gold bar in two. In addition, it will be less likely for a small local shop to buy a large gold bar rather than multiple 1oz gold bars.
Although larger gold bars attract smaller premiums, they are not necessarily the best option. Smaller bars may be beneficial when selling part of your investment in the future. For most UK bullion investors, the ideal balance between value and flexibility would be 100g gold bars and 1oz gold bars. Smaller gold bars such as the 50g and 20g also combine convenient size with reasonably low premium. For larger investors, 1kg bar are the best way to get the most out of their budget.
Disadvantage of gold bars
Although large gold bars offer the best value on purchase, they do not necessarily represent the best option for reselling at later date. Any individual investor will be likely to reduce the part of gold in its portfolio overtime. For instance, switching from 20 % to 10 % to buy stocks. If he who would have bought a kilo gold bar, he would face two problems:
- He would have to sell his kilo gold bar and buy-back a 500g gold bar.
- If the price rose, he would reduce the profitability of its initial investment.
Therefore, large gold bars will result in lack of flexibility. You will be facing a larger exposure to market risks if you allocate your whole budget in only one large gold bar. Moreover, you will be trading on a single gold price (the price at the time you purchased).
An alternative would be to buy multiple small bars. However, you will pay a higher premium and obtain less gold per gram. But an other alternative exist. The premium on small gold bars is usually higher compared to gold coins. Gold bullion coins represent even greater flexibility and are a very popular option for new and experienced investors.
Why buy gold coins ?
Gold coins are also a great way to invest in physical gold. Nowadays, most of the Government Mints produce gold bullion coins for investment purpose. The most popular series include the British Britannia, the South African Krugerrand, the Canadian Maple Leaf, the American Eagle and the Vienna Philharmonic.
Gold coins can contain either 22 carats (916.7) or 24 carats gold (999.9). The most popular bullion coins for investment contain 1 troy ounce (31.1035 grams) of gold, a standard weight in bullion investment. They all have their unique design with their year of issue stamped on the obverse (front). The coin's purity and weight is usually inscribed on the reverse (back).
Wide range of varieties available
Gold bullion coins are available in various sizes, such as 1oz, 1/2oz, 1/4oz and 1/10oz. Full and Half gold sovereigns (7.32g of gold) are also quite popular. They are ideal for trading and offer a great balance between flexibility and value. Popular gold coins include the South African Krugerrand, a safe-choice for first-time investors. The 1oz gold Krugerrand attracts the lowest premium.
Because you cannot cut a gold bar in two, gold bullion coins offer more flexibility. You can split your investment in smaller parts. With a large gold bar, you will have to sell all of your bullions at once. Therefore, gold coins offer have lower market risk as you will not sell on one gold price. Gold sovereigns are ideal for this purpose. As the cheaper gold coins available in the market and are relatively easy to sell. Their small size (7.32g) enables you to split your investment in even smaller units.
If you are concerned by liquidity issues, gold coins are the best option for you. Because they are universally recognised, gold coins are easy to resell. As smaller units of gold are easy to release, this enables quick access to cash when needed. In the bullion market, one ounce gold coins are one of the most traded bullion product.
If you are from UK and anticipate Capital Gains Tax (CGT) on your investment, british gold coins should be your first choice. Coins like the Britannia or the Sovereigns are exempt of CGT because they have legal tender status in UK. Moreover like gold bars, bullion coins are exempt of VAT.
Gold coins also add a collectible aspect to owning gold. Certain coins such as the Gold Sovereign can have a higher premium if they are highly sought after, which may increase their value. If the demand is really high for some specific gold coins, you could potentially get a better price if you decide to resell them. For example, in the 1960's there was a premium of 40% on trading gold sovereigns.
Moreover, each gold coin have a history behind its design. This is also what make them an interesting product, aside from pure gold investment. To illustrate, the 2012 gold sovereign Diamond Jubilee celebrates the 60 years of reign of Queen Elizabeth II. Therefore, most gold coins retrace historical events from their country of origin through their design.
Disadvantage of gold coins
Because of the design and the manufacturing costs to mint the coins, gold coins carry a slightly higher premium compared to their same unit size as gold bars. Therefore from an investment perspective, buying gold coins means that you will get less gold for what you pay. However, the premium will decrease if you buy in quantity (bulk discount), and you will pay a cheaper gold price per gram.
Bear in mind that there is a difference between the premium for a collectible coin and the premium for a gold bullion coin. In general, the premium for a gold bullion coin is lower than the one for a collectible coin. In general, gold coins minted after the 1930s are regarded as the most cost-efficient way of purchasing gold coins. Their market value is determined almost exclusively based on their gold content. Other gold coins such as proofs, commemorative or historic coins will have a much more higher price.
Gerrards encourage its customers to go for the bullion product which offer the best value for their money as their investment. Therefore, obtaining the highest intrinsic value of gold for your budget. The best way to buy gold ultimately depends on your individual situation. It is all about personal preferences and circumstance, considering all the factors mentioned above. With a particular reference to premiums, flexibility and – for individuals investing large amount of money – accounting for Capital Gains Tax.
As a first-time investor, gold coin offer a great starting point to invest in physical gold. However, it is recommended to diversify your portfolio with a mixture of both bars and coins. In fact, a small savings by paying lower premium could result in a lack of flexibility on your physical gold portfolio. As gold comes in many forms and different sizes, your investment can be broken up into much smaller pieces in the form of coins and smaller bars. This means that you can even transport part of your investment around with you instead of the whole thing.
Although all of these advices, bear in mind that there is no right or wrong answer between buying gold bars or gold bars. It is also just personal preference and the amount of risk you’re willing to take. After you've done your own research and you know which type of gold bullion is right for you, we hope you'll turn to Gerrards for your gold bullion investment needs.
We offer a wide range of gold bullion bars and coins for sell. Browse our online store and place an order using our secure payment system. If you prefer to place an order by phone, or if you have any questions, feel free to us toll-free at 0207 242 7521 today.