Few assets can match physical gold as a way to protect your wealth. Investors have depended on gold as a tangible security net for hundreds of years. Once you have decided to purchase gold, the next question is whether you should buy gold bars and gold coins.
Gold is still gold. The form of gold you select can affect everything, from how much you will pay for each gram, to whether you are able to sell it later. This guide will help you weigh the pros and cons for both so that you can choose what is best for your finances.
Gold Bars vs Gold Coins
The Case for Gold Bars
Gold bars are the preferred investment for many investors. You probably picture large gold bars in the vault of a bank when you think about gold reserves. This preference is understandable, particularly when it comes to larger amounts.
Lower Premiums Mean More Gold for Your Money
Gold bars are a cost-effective way to buy gold. Gold bars are generally cheaper than gold coins. Premiums are the additional costs you incur above the spot price for gold to cover manufacturing, dealer, and distribution margins.
It is easier to make gold bars than coins. Gold bars don’t need intricate designs, or require the same amount of detail in minting. You pay a price that is closer to what the metal costs. Large bars can be the best choice if you want to get as much weight of gold as you can for your money.
Ideal for High-Volume Investment
The sizes of gold bars are vast, ranging from the tiny wafers weighing just 1 gram to bricks weighing up to 1 kilogram (or 400 ounces).
A single bar of 1 kg is more cost-effective than hundreds or thousands of coins if you are on a tight budget. One dense metal block is much easier to store than hundreds of small coins. Bars are the preferred choice of institutional investors and individuals who want to store significant amounts in precious metals over the long-term.
The Drawbacks Of Gold Bars
Gold bars are very cost-effective but they have one major downside.
Imagine that you have a gold bar weighing 1 kg. You have a dilemma if you need PS5,000 in a hurry because of a financial crisis. It is not possible to cut a small corner off your bar in order to sell it. The entire bar must be sold. If you are trying to control your cash flow, but don’t want to sell your whole position, this lack of division can prove to be an obstacle.
Selling large bars is sometimes more difficult than standard coins. You can sell them to any dealer, but you will have to rely on one transaction, at a fixed price, instead of selling small amounts to get a better average price.
Gold Coins: The Case for Gold Coins
The British Britannia coin, the South African Krugerrand or American Eagle are all gold coins that offer different benefits. These coins are easily accessible, highly recognizable and flexible.
Divisibility and Flexibility
Gold coins are a great way to divide your gold investment. You have more options if you purchase ten 1 ounce coins rather than one 10 ounce bar. One coin can be sold to cover a vacation, five coins kept for retirement and four given to children.
You have control because of this divisibility. This means you are not locked into a “all-or-nothing” sales. It is possible to sell slowly, and take advantage of the different market price levels. This strategy helps reduce risk.
High Liquidity and Recognition
Government mints produce gold coins that are legal tender and have no restrictions in the country of origin. They are instantly recognized around the world. If you take a Canadian Maple Leaf, or British Sovereign, to any bullion seller in the world they’ll know what each one is. They will also tell you how much it is worth.
The coins are extremely liquid due to this universal trust. It is easy to purchase and sell them, without needing to assay the older bars or those that are less identifiable.
The Drawbacks to Gold Coins
Coins have a premium, which is their main drawback. Because they are harder to manufacture–featuring beautiful, intricate designs and reeded edges–mints charge more for them. A 1-ounce coin will always cost more per gram than a bar of 1 kilogram.
It is also worth noting you can usually recoup a portion of the premium you paid when you sell your coins, since they often fetch a higher price than generic bars.
What Should You Choose?
Your personal decision will ultimately determine whether you choose bars or coins.
Choose gold bars if:
- The lowest cost per gram is what you are looking for: Your focus is on the metal weight itself and not manufacturing costs.
- Your investment is large: The gold will be held for many years and you don’t expect to need to sell it in small amounts.
- Space is an issue: The most compact way to store your wealth.
Choose Gold Coins if:
- Want flexibility? Like the idea of being able to sell off smaller chunks as you need them.
- If you are resident in the UK: Then, you want to benefit from Capital Gains Tax exclusions using British Legal Tender.
- Your priority is liquidity and collectibility. you want an asset which can be traded instantly and globally.
- Your portfolio is small. Over time, you want to gradually build up your portfolio with smaller and more frequent purchases.
Conclusion
Gold bars or coins both serve to preserve wealth. There’s no wrong way. Most seasoned investors choose to mix the two. Some investors may choose to store the majority of their assets in large bars, which are more cost-effective. They also keep a small stash of coins as a means of liquidity and flexibility.
Understanding the differences between premium and flexibility, or bulk and divisibility can help you build the precious metals portfolio to protect your future in the exact way that suits your needs. You can achieve financial independence by choosing a solid bar, or a coin with a rich history.