Updated on 02/07/17
So you’ve made the decision to buy gold bullion. Perhaps you want to diversify out of some paper assets. Or maybe you feel gold is attractively priced relative to other investment options. Whatever the reason, you’ve come to the right place.
Why gold bullion is best for investment
The range of gold products can leave even the most seasoned investor feeling a bit confused. It’s not uncommon for us to speak with clients who purchased large amounts of “limited edition” proof sets or coins adorned with cute animals such as a polar bear cub.
In certain situations, these coins can make great investments, but more often than not, the person finds them to be illiquid and trading at significant bid-ask spreads—sometimes more than 30%.
This means gold would have to increase in price 30% just to break even on the investment.
We prefer gold bullion products over collectibles. They’re generally the most liquid and reasonably priced. The spread between the bid and ask prices tend to be the narrowest, around 3%–5%.
We are often asked what the primary differences are between the 1 oz. gold bar and the 1 oz. gold coin.
Below, we cover the three main aspects of buying each.
Beginning investors often wonder why gold products sell for more than the spot price. Spot is the current price per ounce traded in global commodity markets.
This price does not include fabrication, minting, and distribution costs or a sales fee.
The spot price comprises approximately 95%–98% of gold bullion’s overall price. The remaining 2%–5% is production, distribution, and selling costs.
The purchase price of a refined 1 oz. gold bar or minted 1 oz. gold coin is anywhere from 2.3%–4.5% over spot.
Prices are also driven by local supply and demand conditions and market dynamics. These prices do not include a potential delivery fee.
The US mint charges 3% over spot for each gold Eagle coin it strikes. So the approximate fee you’ll be assessed to purchase a gold Eagle is 3%.
The sales fee for a 1 oz. gold bar should be very close to a 1 oz. gold Eagle coin, but the 1 oz. gold coin usually trades at a higher premium to spot price than a 1 oz. gold bar.
However, the purchase price is only one side of the equation. We should also look at a bid price. Any investment is worth only what someone else is willing to pay for it, right?
The following is an example of an ask price in New York with a gold spot price of $1,347/oz:
1 oz. gold bar: $1380
1 oz. gold American Eagle coin: $1406
The 1 oz. gold bar is 2.45% over spot, and the 1 oz. gold Eagle coin is 4.38% over spot—a considerable difference.
The same two investments, however, could be immediately turned around and sold for the following:
1 oz. gold bar: $1,324
1 oz. gold American Eagle coin: $1361
This raises the roundtrip cost of the 1 oz. gold bar to 4.06% and lowers the 1 oz. gold Eagle to 3.20%. Very close. In this example, at the time of writing, it would be more economical to purchase a 1 oz. gold Eagle coin.
Bid-ask spreads vary from day to day but are fairly consistent. For this example, we used the prices in New York. Prices in other markets—such as London, Asia, or Australia—have different bid-ask dynamics.
Anytime you buy bullion, make sure you understand what both the ask price and, perhaps more importantly, the bid price will be.
Another aspect to consider when buying an ounce of gold is purity. Despite a higher price, the 1 ounce of gold in a gold Eagle coin is 22 karat or 91.67% gold. Most 1 oz. gold bars are 99.99% gold.
If obtaining the most amount of gold is your primary concern, then purchasing a 1 oz. gold bar will be the better option.
When purchasing bullion for storage, it’s usually a longer-term investment. But you should still keep in mind the eventual sale of your gold.
Both a 1 oz. gold bar and 1 oz. gold coin will be relatively easy to sell.
Some companies allow you to ship the metal back for resale. But after including the costs associated with shipping and insurance, it is often more economical to sell the metal to a reputable, local dealer.
All else being equal, it is easier to sell a 1 oz. gold Eagle coin than a 1 oz. gold bar.
The price will be a little more transparent and can often be found by just calling the dealer.
For a 1 oz. bar the dealer may want to know the brand and who it was purchased from. He may also require a supporting document such as an account statement to verify the purchase.
The final verdict
Gold Eagles are competitively priced in the US and most major international markets. Some brands of 1 oz. gold bars sell at a higher premium, so be sure to research this prior to purchase.
If your main concern is ease of resale, we recommend purchasing 1 oz. gold coins. Generally, a 1 oz. gold American Eagle or Canadian Maple Leaf is easier to sell than a 1 oz. gold bar. As we’ve shown in the example above, a 1 oz. gold Eagle coin has a slightly higher resale value—relative to the spot price of gold—than a 24 karat 1 oz. gold bar.
However, if you’d rather pay less per ounce and receive more gold, then a 1 oz. gold bar would be preferable.
Another consideration is what type of account you want to buy the metal through and where you want to store it.
If you’re purchasing bullion with retirement funds through an IRA and want to store the metal offshore, then a 1 oz. gold Eagle coin is your only option. The Internal Revenue Code states gold or silver purchased through an IRA and stored outside the United States must be either a 1 oz. gold or 1 oz. silver Eagle coin.
There are no restrictions for purchasing and storing through non-retirement accounts.
More options to invest in physical gold
In this article, we focused on a 1 oz. gold Eagle coin and a 1 oz. gold bar purchased from a dealer within the London Bullion Market Association, LBMA. However, there are many other major 1 oz. gold coins to consider, as well as 1 oz. gold bars made by specific manufacturers.
At the Hard Assets Alliance, we offer a complete solution for investors to purchase bullion for immediate delivery or storage in various locations around the world, at competitive prices.
Additionally, our online account management system allows you to easily make transactions, fund your account, and see current bid/ask prices in one convenient location.