When stock markets become volatile and unpredictable, investors usually consider investing in gold as an alternative home for their capital. Gold is solid, tangible and almost always in demand and that makes investing in gold coins a serious and viable option.
In fact, many people collect gold coins not necessarily for their investment potential but also for the aesthetic enjoyment of collecting these coins as a hobby. And as far as pastimes go, it can be an extremely fulfilling and, in some cases, very profitable hobby.
What’s the appeal?
For collectors, gold coins have an additional appeal. First and foremost, they are drawn by the attraction of buying and owning these beautiful and historic coins. They will enjoy many benefits from their ownership: from the intricate design features on the coins to the historical events commemorated, through to the sense of security they gain from holding the weight of the coin itself in their hands. It is not just a ledger entry on a computer screen.
At the same time, these coins do have an underlying economic value. Historic coins are rare collectables and getting rarer. It is believed that countless historic coins were melted down for their bullion value during the 2008 financial crisis when the price of gold surged.
In effect, the bullion content of coins gives them a secondary value and there is a steady demand for gold for investment reasons. For example, central banks regularly buy gold as a strategic reserve and the Royal Mint will buy gold back from retail investors based on live prices. This makes gold a commodity which is easy to buy and this liquid market adds to its appeal.
Selection criteria
The gold coin market is dominated by the so-called ‘Magnificent Seven’ coins valued for the superior quality of their gold. These include coins such as the American Eagle, Sovereign gold coins and the one name which dominates the gold coin collecting industry – Krugerrand gold coins.
So, what are Krugerrands and why are they sought after? Krugerrand gold coins were introduced in 1967 as a way of owning gold and have also been used as a useful hedge against the incredible depreciation in the South African Rand. The design depicts the face of four-time President of South Africa Paul Kruger, with a Springbok on the reverse.
It is not as pure as some other valuable coins such as the American Eagle. It is 91.67% pure gold with a relatively high proportion of copper which gives it a reddish finish similar to rose gold. However, these 22 carat gold coins can be just as good an investment as 24 carat coins.
Carats are a way of measuring the gold content of an object. The ratio of pure goldness is worked out by using 24 parts for the whole. As such, 22 carats represents 22 parts of the 24 while 24 represents the purest type of gold.
However, value depends on the actual gold weight of the coin. A one-ounce gold coin will contain one troy ounce of gold regardless of whether they are 22 or 24 carats. The 22-carat coin will probably feel a little heavier in the hand, but it can affect the value of a coin were you to melt it down for its gold content. This is usually referred to as the melt price.
Buying gold coins
Government owned agencies such as the Royal Mint is one of the most secure places in which to buy gold coins. They have a great range of old British gold coins and other rare or historic items as well as a number of collections.
The Royal Mint also has some of the latest limited-edition gold coin collections to be released. More recently for example, they have promoted limited editions celebrating Sherlock Holmes and D Day.
One of the most common collection themes for investors is to acquire all of the magnificent seven coins. Dealers can produce collection packs or help start the collection by gradually delivering the coins as and when they become available.
Coin collecting fairs are also another source of rare gold coins. The most famous of these is the London Coin Fair which is held annually in June, but there are others around the UK. Not only do they present an opportunity to buy or sell gold coins, but they also provide a forum to build knowledge, make contacts and meet other like-minded people.
Tax implications
Gold bullion coins, unlike other bullion coins, are VAT-free and that extends to coins such as Sovereign gold coins and Britannia coins However, the tax issues around investment grade gold are complex and HMRC guidance in this area can be read here.
Any profit earned from buying and selling gold coins is liable to capital gains tax (CGT) on any gains made over and above the CGT allowance £12,300 (tax year 2020/21) subject to the allowance not being utilised against other investment gains on shares or property, for example.
It should be pointed out that If you do find yourself buying and selling gold coins in with increasing frequency (and at a profit) then strictly speaking you will probably be deemed a trader or dealer by HMRC and you should register as a self-employed business.
Risk warning
The internet is awash with sites where you can buy gold coins; so, it is important to buy through outlets which are established and reputable. Ensure that any gold coin you do purchase online is sent in secure, discreet packaging and is insured by the seller should it go missing in transit.
