Look carefully and tell me what you see.
Yes, my friends. I have been buying gold coins as a wealth-preservation tactic.
You are looking at a gold coin minted by the Royal Mint. What you probably don’t realise is that this is my gold coin; my virginal venture into buying gold coins as an investment and hence, I hope, the first of many.
Hopefully, by the time you’ve finished reading this post, you’d be persuaded that buying gold coins as an investment is not half as dumb as it sounds. First I tell you how I got to buy my first gold coin; this is personal and you could skip this part. Next, I’ll give you the reasons why buying gold coins as an investment makes sense. I’ll also tell you what my research about the best, and cheapest, way to buy gold coins as an investment concluded.
Now, let us start.
Why I decided to buy cold coins as an investment
Gold coins are part of my childhood and early memories of childhood rivalry. When I was very young – we are talking four, five years old – I lived with my grandparent. Apart from running wild in the fields around their farm and feeding myself from the garden, I spent countless hour rummaging through old chests that smelled musty of the times that have been.
I found many things. I found old pieces of paper, broken fountain pens and old photographs. One of these sepia photographs I found particularly intriguing. It showed a young couple, leaning towards each other and smiling at the camera. These were my great-grandparents. He had a formidable moustache and she was wearing the most bizarre necklace I’d ever seen: it went from her neck almost to her waist and was made of row after row of different gold coins.
“Who would want to wear all these coins?” – I thought.
Later I saw my grandmother – you know the same grandmother who didn’t worry about her retirement – showing my mum a large gold coin. It sparkled in warm honey hues that made me want to touch it, stroke it. I was not allowed to do that.
“This is for my oldest granddaughter.” – my grandmother said.
It wasn’t for me. Oh well; I’ll have to make my own way in the world then, I’ll have to get my own gold coin.
When I grew up, I forgot about that. I earned money, spend money, got in debt and paid it off and always used my wealth to nourish my life. Some years back I started investing and I’ve experimented with value investing, toyed with dividend investing, invest with digital wealth managers and bought and/or started businesses. I never thought of buying gold coins as an investment.
Until about six months ago.
What happened six months ago?
I looked at the world and it seemed a very unstable place to me. Armies moving around Europe, North Korea shooting nukes, the UK leaving the EU and the rise of the ultra-right in politics. Shall I mention the melting of the ice cap and the rest of our pressing ecological concerns? No, I better not. Still, you get where I’m coming from and where I’m going with this one.
The image of my great-grandmother and her necklace shot through my mind. Suddenly I realised that the necklace wasn’t a piece of jewellery, it was peace of mind. This was the liquid part of my ancestors’ wealth that she carried around with her.
That is when I knew. Investing is all too well; keeping our money behind plastic cards is convenient. When things really get bad investments and bank balances will help little for survival. What I need is gold coins.
After discussing it with John, I ordered our first coin.
I still didn’t see buying cold coins as an investment, though; I saw buying gold coins as my peace of mind, my source of security in a volatile world.
Feel free to laugh; I may be a Business School professor and like the finer things in life but still deep down there is a peasant from the Balkans that remembers what it takes to have to get up and run for your life. And what it takes to survive.
Why buying gold coins as an investment is not such a dumb idea
I thought of buying cold coins as my private source of peace of mind until I did some research and some thinking. Now I think it’s worth having some of our investments in gold coins.
Before we go any further, I must tell you that not all gold coins are created equal; which probably kept me away from buying them to begin with.
On the one hand, there are the collectable gold coins. These have dual value – they are valuable because they are rare and they are valuable because they are gold. These are not the gold coins that interest me: somehow, collecting coins in my mind is up there with train spotting as a worthwhile way to spend time.
On the other hand, there are the so-called bullion gold coins. These are Sovereigns, Britannias and Lunars. Bullion gold coins are valuable only because they are gold and track the price of gold. These are the gold coins that interest me.
Having got this out of the way, let me tell you what makes buying gold coins a worthwhile investment.
Gold has returned a good profit in the past
There is something that somewhat surprised me: gold has historically given very good returns. Yes, I know that past performance is not a guarantee for what may happen in the future but it is the best we have. Also, looking over a sufficiently extended period provides some comfort.
Looking at very recent history, I’d agree that buying gold coins as an investment is not worth it (remember that I mean bullion gold coins). Let’s put it this way: between 2012 and 2013 the price of gold dropped by over 27% and has been moving gently up and down ever since.
Looking at the last 20 years, however, shows a very different picture. (Yes, I’m such a hopeless nerd I looked over the last 200 years but won’t bore you with all these numbers.)
Between 1995 and 2015 the price of gold went from $387 to $1,060. In other words, the price almost tripled which is an annual average return of 5.17%. For comparison, during the same time, the FTSE100 rose at 5.4% per year (although the average investor got only 2.5% per year.)
Gold bullion coins are exempt from VAT and tax
“Well” – you may be thinking – “why would I buy gold coins when the stock market still outperforms gold?”
Didn’t you hear what I said? The average investor and this includes most of us, is lucky to get a 2.5% return.
There is also the fact that the stock market seems to be going up and down as a yo-yo in the hands of a toddler; gold, according to data is somewhat more stable.
Still, this is the small stuff. Here are the two things – and doubt you know this – that makes buying gold coins as an investment even more attractive.
#1. Gold bullion coins are exempt from VAT. Doesn’t sound like much but this is 20% in the UK now.
#2. Gold bullion coins are free of capital gains tax. This means that you can buy them on top of your ISA allowance.
Gold coins are very liquid
Remember that a key rule of investing is to keep a high level of liquidity? Gold coins are very liquid – you can buy them and sell them very easily.
Also, you can keep your gold coins with you: either safe in your home or in a safe in your bank.
Gold coins are a source of security
This is very difficult to argue because it is very personal and impossible to measure. For me, having some gold coins makes me feel more secure and less fearful of the future. This is important for me: reducing my levels of worry leaves more space to focus on the things that bring meaning to my life.
Maybe this is just me.
Where to buy gold coins as an investment?
When I was only thinking about it, I looked at the gold coins in the local pawn shop. Yes, you heard right – it is a weird pawn shop where they also offer the best rate on currencies, sell jewellery and buy and sell gold coins.
When I got serious about buying gold coins I looked on the internet. I chose to buy my first coin directly from the Royal Mint. You see, it was enough that I decided to add some sparkle, literally, to my investment portfolio and worrying about authenticity and whether the coin would reach me were things I didn’t wish to concern myself with.
It turns out that I probably should have looked wider. When I compared the cost of gold bullion coins across three providers – The Royal Mint, Coininvest.com and BullionByPost.com – it turned out that the Royal Mint is the most expensive and Coininvest.com the cheapest.
You don’t have to take my word for it – look around. Just make sure that you don’t get cheated (collect as much information on providers as possible).
Finally…
I bought my first gold coin as a way to ensure my peace of mind: in my opinion, the world is a very dangerous place again. When the world is a dangerous place wealth, or at least some of it, should be easy to access and even easier to carry with you. Gold coins are a perfect match.
Looking more carefully, I found out that buying gold coins as an investment makes sense. The price of gold has increased by over 5% per year in the last 20 years and bullion gold coins are exempt from VAT and free of capital gains tax. Sounds good to me.