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Should you buy Gold Coins or Gold Bars?

Should you buy Gold Coins or Gold Bars?

Buyers are often unsure whether to buy gold coins or gold bars when it comes to investing in gold. Firstly people need to be aware that they are investing in gold not the coin or bar, coins or bars are simply different forms of the same product. That is not to say they are exactly the same value, there are advantages and disadvantages to both, but for the average investor who is unaware of these it is worth pointing them out.

If we start with coins, the main advantage of coins is the ability of a dealer to distinguish its authenticity.  Gold has a unique density as a metal, it is one of the most dense metals on the periodic table. This is highly significant because, a well-known coin has its dimensions set by the mint it originates from. A quick internet search will reveal these dimensions to you. Using this information you simply need to measure your coin’s dimensions and if they match you then need to check the weight. If both are correct you have a legitimate coin. You can perform these checks in seconds using a  ‘Fisch’ device. This is an advantage over bars or bullion as I’ll explain later.

Coins can also have a numismatic element to them. The advantage of this is you may come across a coin that is worth more than its bullion content. However this is rare as coin collectors don’t often let collectible coins slip through the net undetected. The disadvantage of numismatics are paying too much over the bullion content and getting an emotional attachment to the coin. If your purpose is investing in gold, try not to get distracted by buying numismatics, leave that to the collectors.

Most of the best known coins in the gold market are backed by government rather than private refiners, i.e. sovereign, maple etc. Again this can lead to a slight premium in price but it more than pays for itself when it comes to selling. Also certain coins such as the gold sovereign have an affinity with the Irish and British markets, the same can be said of the gold maple in Canada. Again this is an advantage when it comes to re-sale.

The main advantage of gold bars is a low premium but it is important to get the product from a reputable source and the bar should be fabricated by a well-known refiner. The dimensions of bars are non-standardised, meaning you can get several different types cast, machined, assay stamped, assay unstamped. Therefore, counterfeiters are not bound by a mint’s pre-set dimensions. This simply means that they can create their own dimensions on a copy and then have the correct weight.

Other advantages of bars are the lack of emotional attachment that can come with coins particularly numismatics. Gold bar premiums do decrease with the larger bars but this is offset when it comes time to sell, it becomes harder to sell the product above 100g size.

In conclusion, of course there is an element of personal preference in the type of product the investor chooses, and indeed different investors will have different requirements. However, my advice would be to go for coins that are low premium, well known and easily tradable. In Ireland it is hard to look beyond the gold sovereign, it scores very highly in all three categories.

10 Reasons to buy Gold now.

10 Reasons to buy Gold Now

10 Reasons to buy Gold Now

  1. The bubble in government debt is showing signs of bursting – look at the performance of US treasuries since the start of 2013 – yields are rising which is an ominous development for overstretched and over indebted nations in the west
  2. Gold has outperformed almost all other assets over the last decade (apart from silver!!) and the factors which powered that outperformance (money printing, low interest rates, unsustainable debt etc) all look stronger now than they were back in 2000
  3. The Dow Gold ratio typically tops out at 1 to 1 at the end of a gold bull market. Look at the example of the deflationary 1930’s and the end of the gold bull market in 1980 – both times gold and Dow Jones index were valued equally in dollar terms. Today that ratio is 8.38 –(Dow 13992.40 and Gold 1667.80 dollars) suggesting this gold bull market has a long way to go.
  4. The rise in stocks and the improvement in the US housing market in the last few months may signal heightened inflation is on its way as the velocity of money increases in an environment where money has been printed in an unrelenting effort to ward off another great depression.  High inflation is always connected with outperformance for gold and silver.
  5. Investors are presently all consumed by their interest in equities and housing as they over-emphasise the importance of short term events and de-emphasise longer term trends. This has directed attention away from gold and kept gold prices range bound. But the idea of a stock bull market at the present time is slightly preposterous – stocks were in the greatest bubble in history a little over a decade ago and stocks today hover around their long term average valuations or slightly above – but before a real long term bull market in stocks can begin again PE rations need to be far below long term averages. They will also need some strong fundamentals to drive outperformance – those fundamentals will return but they are not in place now. The present revival in stocks is not driven by good export numbers, strength in manufacturing, restricted and small government , low taxes or good savings rates. It is driven by money printing, better figures on housing and consumer spending – all things that got the economy into a mess in the first place!
  6. History tells us that the US economy has a recession every 4-6 years – look  at 2002 and 2008 and we are due another right about now or certainly over the next 18 months. When that hits more money printing will be required – more and more paper is printed every time this debt based system runs into trouble to bail it out – considering how extreme the money printing has been over the last four years imagine how much currency will be printed when we hit the pending recessionary event this time out? You can imagine the consequences for the gold price…
  7. Gold is still under-owned by the public. Now the public is aware of gold as an asset and a wealth protection option but there is no mania or widespread desire by the public to hold some of their wealth in gold. Before this cycle ends there will be a mania to match any previous market top and the ‘shoeshine boys’ will be advising on the best gold investing options! Today the public remains sceptical and many believe gold has topped out after a good run. They’ll soon see how wrong they are.
  8. Paper based currencies usually collapse. Every fiat system we have seen in history has eventually collapsed. This is just a confirmation that bureaucrats and governments are not good managers of money. Gold does not need to be managed and it is that virtue which has made it the only real and enduring form of money. Since the start of the debt crisis in 2007 and 2008 to now the level of debt and money printing has only increased in this fiat currency system. The acceleration of money printing has been a constant feature of the end of every fiat currency and this time promises to be no different. Anyone left holding bundles of paper at the end of this cycle will have a lot of toilet paper but not much actual wealth. Protect yourself by holding gold.
  9. The British started producing the modern gold sovereign back in 1817 – you can pick up a coin from 1825 and it will have the same purchasing power as a British sovereign minted in 2013. By contrast take a dollar from 1913 (the year before the Federal Reserve was established) and a dollar printed in 2013 – can the dollar today buy you as much as a dollar in 1913? No, in fact the modern dollar is worth only less than 2% of what a dollar was worth in 1913 and that can be attributed to the glorious management of the US Federal Reserve as guardian of the US dollar. The message is clear.
  10. Eliminate counterparty risk – with gold, you own it without depending on any other party unlike financial transactions where there is always some counterparty risk (e.g. you hold government bonds you rely on that government being able to pay its lenders back their money plus interest). With the subprime meltdown and the exponential increase in debt levels throughout nation states in the west over the last several years counterparty risk has increased despite the perception that money printing has reduced this risk. But money printing can only increase the risk long term because it increases the pressure on the currency itself and if a currency collapses what counterparty risk will any sane individual be willing to accept when it comes to financial instruments like bonds, loans etc? Coming off the Bretton Woods standard in 1971 is what started the explosion in debt levels and the mind boggling increase in the size and complexity of the financial sector and going back to a gold standard in some form seems the only practical ‘reset’ option we have at this point.
Great Reasons To Buy Gold

Great Reasons To Buy Gold

1. Ireland’s economy.

Soaring unemployment, unsustainable debt and a government unwilling to take the action needed to help Ireland recover.

2. Anglo Irish Bank.

Need we say more – whether its €32 billion or €64 billion needed to bail out this toxic bank we’re being dragged into a black hole by this mess.

3. Diversification.

Everybody should have some Gold in their possession as a way to diversify their investment porfolio away from poor performance sectors like stocks and housing.

4. Quantitative Easing.

In other words – printing money! All the world’s central banks are tyring to outdo each other on this, trying to get their economies going again. Any cash you hold, whether in Euro’s or dollars is virtually certain to go down in value over the next decade, just as they have in the last decade.

5. Gold’s track record as an asset class.

In 1970, one gold ounce was worth $35 dollars. By 2000 one gold ounce was worth $270 dollars. In 2010 gold is worth over $1200 an ounce. Thats long term outperformance by any measure.

6. China.

The Chinese are the driving force of the world economy right now. They are swiftly gaining on the US to become the world’s largest economy. This is inevitable, when Britain was the centre of the world, it was also the world’s workshop, and the same was true of the US. China is the world’s workshop today. And the Chinese love gold as an asset class. They will be big buyers of gold in the coming years.

7. The Dollar.

The dollar and gold are vying for the same role in the global financial system. That is, the dollar currently claims the role as the basic measure of value in the global financial system. But since 1971, when the dollar gave up its fixed gold value and left the Bretton Woods system behind, the dollar has lost 97% of its value versus gold. What sort of value measure does that make paper currency? The free market is passing judgement year by year.

8. World Gold Supply.

South Africa used to be the biggest gold producer in the world. It has now been surpassed by China as production falls. But China consumes all the gold it produces and is a net importer of gold. This at the same time that global gold demand is rising relentlessly.

9. Gold is still cheap.

At the start of the 1980’s gold reached over $800 an ounce.When you adjust prices for inflation gold would have to reach over $2000 an ounce today just to equal that high in real terms.

10. Barack Obama.

Obama looks good and sounds good. But when it comes to economics he is not so good. The dollar needs a president who understands that if you print too much you destroy underlying value and currency confidence. America needs a president who understands that low taxes always lead to higher growth and higher tax revenues. Obama wants to raise taxes for the wealthy. Sounds good, but a terrible idea if ecomomic history teaches us anything. And to allow business to thrive Ireland and America need to allow bankrupt and insolvent businesses to go out of business.

Instead economic zombies are being created which will suck the economic life out of western economies for years to come and draw resources away from new start ups and entrepreneurs who can build real wealth. In the face of these economic policies it’s inevitable that gold will be the benficiary for years to come.