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Shopping for Gold Coins© Sound Mind Investing | September 2009
This article is a follow-up to A Road Map for Investing in Gold A BRIEF SUMMARYIf you want to own physical gold, rather than a gold fund, one approach that fits the wallet of most investors is to purchase gold coins—not collectible coins with numismatic value, but legal-tender bullion coins issued primarily for their gold content. Gold coins have been around for thousands of years, of course, but the kind of bullion coins popular today date back to 1967 when South Africa introduced the Krugerrand. A dozen years later, Canada started minting the Maple Leaf. Eventually, the U.S. joined the gold club with the American Gold Eagle and, later, the American Gold Buffalo. Other nations that now produce legal-tender gold coins include Austria, Australia, and China. In the U.S., the most popular gold coins are the Krugerrand, the Maple Leaf, and the Gold Eagle. Which coin is best for an investment? It doesn't really matter because coins of the same size (for example, all 1-ounce coins) have essentially the same gold content. Some coins weigh slightly more than others because they are alloyed with other metals for durability, but the gold content itself is the same. If you're using gold coins for an IRA investment, be aware that U.S. law requires non-U.S. gold coins used for IRAs to have a fineness of at least .995. That means Krugerrands don't qualify. PRICES AND DEALERSEvery dealer sells gold coins at a price that reflects a premium (i.e., a markup) over the "spot" price of gold. In other words, the premium is the percentage by which the cost of the coin exceeds the actual value of its gold content at the time the coin is purchased. (Spot prices for gold can change minute by minute when the gold markets are open, so the price you pay for a particular coin can vary significantly depending on when you buy.) The table below shows the average premiums we found when we surveyed the websites of several gold-coin dealers after the markets closed on July 17 and August 15, 2009. We chose these dealers solely because they posted their prices on their sites, not because they had the lowest premiums or because SMI is vouching for their integrity or service (we're not!). The information in the table is intended solely to demonstrate how premiums (and even the posted spot price of gold, which theoretically should have been the same at every site) can vary among dealers. The dealers are ranked according to their "premium over spot" for 1-ounce American Gold Eagle coins. Notice that there is a doubling of the premium (actually slightly more than double) between the lowest and highest price. Naturally, you want to pay as small a premium as possible — that is, you want to buy the coin as close to the actual value of the gold it contains as you can. This not only means shopping around, but also staying with the 1-ounce coins because premiums increase as you move down to the lesser-weight coins.  Also notice from the table that dealers often charge a different premium based on the coin being purchased. Premiums for both Krugerrands and Maple Leafs are generally less than premiums for American Gold Eagles. One thing to keep in mind about the information in the table is that some of the premiums may reflect a dealer's "best price" based on a volume discount. In other words, to buy at that level of premium might require a minimum purchase of five coins, or perhaps 10. So be sure to verify the actual price and premium before ordering. SHOPPING TIPSThe bullion dealer list published online by the U.S. Mint (searchable by state) is a good source for links to gold-coin dealers (remember that dealers are not regulated or licensed, so inclusion in the Mint's list is not an endorsement). Surf the various bullion sites, making note of prices where the premium is 6 percent or less (6 percent is about average in the current market.) As you surf, watch out for volume pricing as noted above. The price quoted for a 1-ounce coin might be applicable only if you buy in quantity. Also, make sure that you are clear on what the shipping costs and sales taxes (if any) will be. Once these extras are factored in, the dealer with the lowest posted prices may not actually have the best deal. Always insist on undamaged/unmarked coins. Gold bullion coins with edge nicks and heavy bagmarks or gouges are worth less when dealers buy them back. Finally, find out if the dealer has an exchange policy that guarantees satisfaction. In other words, if you're unhappy with the condition of the coins you receive, can you exchange them? You may want to call the dealer and clarify exactly how the exchange policy works and find out if there are any exceptions or limitations. Some dealers promise to buy back your coins when you're ready to sell, but that's not much of a promise since the dealer isn't guaranteeing he will buy them back at a specific price. Indeed, when you do sell — whether back to the dealer or to someone else — expect to receive roughly the current spot price (perhaps within a percent more or less depending on the market trend). This, of course, is why you don't want to pay too high a premium when you purchase your coins. SECURITY CONSIDERATIONSMost standard homeowner's policies have very limited coverage for gold kept in a house. Generally, polices cover only up to $200 for gold bullion — far less than the value of a single 1-ounce coin. Special riders may available, however, so consult your agent. If you store gold at home, put it in personal safe and be sure the safe is securely attached to the floor (so a thief can't put it on a hand truck and roll off with it!). A better option, depending on how many coins you have, is to store your gold coins in a bank safe deposit box.
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, specifically the section dealing with gold coins. (If you haven't read that article as yet, please do so before proceeding.)
