Demand for gold is on the rise: Should you buy gold coins?

Rising demand for gold bars and coins has kept gold prices high in the second quarter of the year.

Gold demand rose 7% to 1,255 tonnes in the three months to June, according to figures from the World Gold Council (WGC). Bar and coin investment increased by 6% year-on-year to 277 tonnes in the second quarter.

Hawkish signs from central bankers in the face of inflationary pressures have also helped drive demand for gold higher. 

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Gold prices remain high but have slid from a near record-high of $2,072 per troy once in May as interest rates across the globe appear to be near their peak. It is currently trading at around $1,980 per troy ounce.

“Gold has been a big beneficiary of the lack of market confidence evident for much of 2023 so a more bullish stance is likely to see it finally fall away from the historic high levels the precious metal has managed to achieve throughout the second quarter and into the start of the third quarter,” said Rupert Rowling, market analyst at Kinesis Money.

Gold and other precious metals are often weighed in troy ounces. At 31.1034768 grams, one troy ounce is about 10% heavier than a regular ounce.

Gold is one of the world’s oldest forms of investment and investors often turn to the yellow metal in times of uncertainty.

Also, as the supply of gold is relatively limited, the price of gold is highly sensitive to changes in demand. 

Since 1972, returns on gold have averaged 7.78%, similar to equities, and outperformed bonds. The precious metal was only slightly behind the return of commodities, with 8.3% average annual returns.

There are several different ways to invest in gold, from buying the yellow metal directly, to commodity funds and buying shares in gold mining companies. 

Here, we are going to focus on gold coins to figure out if they are a good fit for you.

Collectable Gold Coins

Collecting coins can be lucrative. A $5 ‘Half Eagle’ gold piece coin from 1821 sold in an auction last year for $4.6m (£3.6m). The Knight Frank Luxury Investment Index shows that collectable coins have surged 59% in value in the past decade, 8% alone in the last year.

The materials they are made of are important. But so are their rarity and beauty – key elements in the “stories” behind the coins that collectors love. A coin may, for example, have been struck in error, such as the 20p coins from 2008, which emerged without the year on them.

Or it might point to a milestone in history, such as the “Flowing Hair” dollar – the first to be minted by the newly independent US in 1794, one of which sold for $10m in 2013. A $20 “Double Eagle” from 1933 became the world’s most expensive gold coin to be sold at auction – and the second-most overall after the “Flowing Hair” dollar – in 2002, when it fetched $7.6m (£5.7m). 

Bullion gold coins

Coin collectors will choose gold coins with designs they find appealing or interesting but for the investor, it doesn’t really matter. Only the weight and the purity of the gold it contains does. 

If you’re acquiring bullion gold coins as an investment rather than a collection, as an investor you want your gold coins to be at least 99.90% pure (that is 990 parts gold per 1,000), as that is the minimum to be classified as “investment gold” by HMRC, making it free of VAT. 

Also, on that tax note, be aware that the purity value of gold bars needs to be higher, at 99.95% or 995 parts per 1,000 for it to be VAT free.

The popular Britannia bullion coins from the Royal Mint are 99.99% pure gold (999 parts per 1,000) and as pure as gold comes. 

Earlier this year, the Royal Mint revealed its first bullion coin to bear the portrait of King Charles, a piece struck in fine gold and enhanced with security features.

The 999.9 fine gold bullion coin is currently for sale, with prices starting at £1,632.25.

"Bullion coins are an attractive option for many investors looking to diversify their investment portfolio,” Andrew Dickey, director of precious metals at the Royal Mint, said.

Your ‘investment gold’ coins also need to have been minted after 1800 or otherwise included on a list of acceptable foreign gold coins, available at gov. uk. And because the one-troy-ounce Britannia, with a face value of £100, (along with the smaller, £1 gold sovereign) is legal tender in Britain, it is also exempt from capital gains tax. That is one advantage these British gold coins have over bars for UK-based gold investors.

Investment Or Hobby?

One disadvantage of coins compared with bars is that you will pay a much higher premium over the “spot” gold price (the current market price for immediate delivery). This is to cover all of the associated costs that go into making and distributing them. For a one-troy-ounce coin like a Britannia, you will pay on average 4% above the spot price.

“Coins weighing less than one troy ounce have a higher premium because their manufacturing costs are higher relative to the value of the gold in the coin,” said Jan Nieuwenhuijs on Seeking Alpha.

While collectable and bullion gold coins both have their merits in terms of investments, which one you buy depends on your ultimate goals.

Are you looking for a safe, reliable store of value, the price of which may appreciate over time? If so, bullion should be the focus of your attention. But if you are fascinated by beautiful, rare and exceptional pieces, then collectable coins are a worthy asset, but consider them more of a hobby than an investment.

How To Buy Your Coins

Gold coins have been traded since at least the Bronze Age and collecting them is a hobby almost as old. The first-century Roman emperor Augustus was an “avid collector” of ancient Greek gold coins, says Amanda Foreman in The Wall Street Journal. His face was featured on the aureus, later to be replaced with the solidus as the gold coin of the later, Eastern Roman world.

Angels, ryals and guineas would pop up among others as variations of gold coins in England from the Middle Ages onwards, down to the 24-carat Britannias and 22-carat sovereigns that are still legal tender today (although no longer in circulation). BullionByPost sells all of these.

If you’re after a specific historic coin, the Royal Mint will track it down for you.

BullionVault, as its name suggests, sells bullion coins. Aside from the Britannia, other common one-troy-ounce gold bullion coins you will come across include the American Buffalo (USA), Krugerrand (South Africa), Maple Leaf (Canada), Gold Panda (China) and Gold Nugget (Australia). But only the Britannia is free of capital gains tax in the UK. 

For a full list of where to buy physical gold, head to moneyweek.com/where-to-buy-gold-coins-and-bars.

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