Investments in Gold – Chapter 6: Bullion Bars and Coins

This is chapter number 6 out of 15. Read the rest:

Read Investments in Gold – Chapter 1: Introduction
Read Investments in Gold – Chapter 2: Advantages of investing in Gold
Read Investments in Gold – Chapter 3: Disadvantages of investing in Gold
Read Investments in Gold – Chapter 4: Guidelines for Investing in Gold
Read Investments in Gold – Chapter 5: Investments in Physical Gold

Investors nowadays can buy investment grade gold (between 0.90 and 0.9999 fineness) by taking advantage of modern bullion coins. These are legal tender coins which are sold at a small premium above the current market price of gold. This is the sole factor which determines the price of modern bullion bars and coins. Due to the bulkiness of larger bullion bars, deliveries are normally not effected. In addition, there are also costs and security implications to consider. A 400 troy ounces of London Good Delivery Bar costs around $240,000 and this puts larger bars out of the reach of the ordinary investor. Normally the bigger bars are purchase by central banks, large corporations and organizations.

Precious metals like gold; silver and platinum are readily available in the form of bullion coins. They are minted in Austria, Australia, Canada, China, US and South Africa. Denominations are mostly in the size of one-tenth ounce, Quarter ounce, Half ounce and one ounce. You can also buy larger denominations of two ounces, ten ounces and one kilo. Nevertheless, one ounce gold coins like South African Krugerrands are the most popular choice because of its divisibility.

As mentioned earlier, for those in the EU, investments in gold is VAT exempted as well as stamp duty free. This exemption is provided for by the EU Gold Directive of 2000. Although at first glance, gold bars may seem to be the most cost-effective way of investing in gold, there are actually some exceptions to this observation. A single ounce of gold bar may cost almost the same as a one ounce Krugerrand. However, when you take into consideration bulk purchase discount, Krugerrands actually become cheaper and as such a better investment.

Although larger bars, like one kilo bars sell at a lower premium than South African Krugerrands, they are not easy to liquidate. Only specialist gold dealers who deal in these kinds of gold bars will be able to give you a good price. Even then, when compared to coins like Krugerrands or sovereigns, they are more partial towards dealing with coins. In the end, what happens is that your market options for disposing bullion bars is limited. The majority of dealers will also pay a slightly lower price for bullion bars as compared to gold coins. This is expressed as a percentage of the fundamental value of gold. Furthermore gold bars like that of a one kilo type are not divisible and as such you will find it very difficult to sell it if you just want to sell part of a kilo. 

Read Investments in Gold – Chapter 7: Numismatic and Semi-Numismatic Gold Coins
Read Investments in Gold – Chapter 8: Gold Certificates
Read Investments in Gold – Chapter 9: Allocated Accounts
Read Investments in Gold – Chapter 10: Paper Gold Investments
Read Investments in Gold – Chapter 11: Gold Stocks
Read Investments in Gold – Chapter 12: Gold Futures
Read Investments in Gold – Chapter 13: Technical Analysis
Read Investments in Gold – Chapter 14: The Motivations for investing in Gold
Read Investments in Gold – Chapter 15: Conclusion