Updated on 02/07/17
Investing in precious metals is a turnkey way of diversifying a portfolio to hedge risk.
Where many investors get stuck is choosing what type of metals to buy (usually it's silver and gold coins vs. bars) and deciding the ideal allocations of each. You have a number of choices when making an investment in physical metals, each with their own unique properties and benefits.
The Case for Gold and Silver Coins
To get the most out of your investment, it’s important to buy precious metals at the best price and be able to sell them easily if you need to.
Gold and silver coins offer investors value, liquidity, and even the potential for returns in the long term.
Because gold and silver coins are minted by sovereign governments, they have the status of legal tender, which means their value is universally recognized and their weight and purity guaranteed. This becomes important if you were ever to sell some or all of your coins.
Unlike precious metals in bar form, gold and silver coins need no authentication to resell, which can save you time, effort, and the hefty cost of assaying fees.
They’re also an easy substitute for paper money in worst-case scenarios since they come in a variety of weights and denominations. And if you take delivery of a portion of your holdings to have on-hand in case of emergency, coins are portable and easy to store compared to other forms of metal.
Recommended Coin Sizes & Types
It’s best to have a variety of coin types and denominations in your stash, but when you’re making your first investment, here are some things to consider:
- 1 oz. gold and silver coins represent the best combination of liquidity and value. At 3.5% to 5% over spot, you’ll pay the lowest premium on gold coins. Silver coins are 12%–18% over spot. Fractional coins tend to have higher markups. However…
- Fractional coins (one-ounce, half-ounce, quarter-ounce, and tenth-ounce sizes) are less expensive overall. They can also be easier to liquidate and barter, which is great for trading.
As for purity, gold coins come in either 24-karat (99.99% pure) or 22-karat (91.67% pure) versions. While it’s true that the higher the purity, the more gold you get for your dollar, 22-karat coins are harder, so they’re less likely to be scratched or damaged if you’re keeping them on hand. Silver Maples are 99.99% pure.
The most popular coins in the US are the Gold Buffalo, the Gold or Silver American Eagle, and the Canadian Gold or Silver Maple Leaf. If you’re concerned at all with ease of selling, it’s best to stick to North American coins. They are more liquid in the US than coins like the Australian Kangaroo and Turkish Republic.
Do bear in mind though, gold and silver coins aren't really meant for trading. To reap the most benefit from your investment, you’ll want to hold on to them for at least a few years.
Unique Properties of Gold and Silver
There’s a reason why gold and silver are the most popular of the precious metals… and many reasons why experienced investors prefer to own a mix of both. Here are some characteristics of each to consider when making your allocations. Gold’s correlation to stocks actually drops during a recession. It’s the hedge of choice for both central banks and experienced investors, and it’s a low-volatility, steady growth investment.
Investment as a safe haven asset
- Gold’s correlation to stocks actually drops during a recession. It’s the hedge of choice for both central banks and experienced investors, and it’s a low-volatility, steady growth investment.
- Silver is more closely correlated to stocks because of its role in the industry, so if the economy dips, so could the silver price.
Investment for potential capital gains
- There are few commercial applications for gold. It also incurs the costs of insurance and storage. Unless the gold price spikes quickly, gold can be a negative-yielding investment. Silver is much more volatile due to industrial demand and low price point, but it can deliver faster gains.
- Silver is much more volatile due to industrial demand and low price point, but it can deliver faster gains.
Investment for worst-case scenarios
- Gold is an unbeatable long-term store of value. It has never gone to zero, not once in history. If you own gold, you can rest assured that it will always have value at any time in the future.
- Because silver is a smaller store of wealth, it is easier to trade for daily purchases if paper currency collapses. Buying a tank of gas with a few silver coins would be much easier than with a 1-oz. gold coin.
Silver and Gold Coins vs. Rounds
At some point while you’re shopping around for precious metals, you’ll come across offers for gold and silver rounds.
One of the most common mistakes people make is buying rounds under the assumption that rounds are the same as coins. They may look and feel the same in many cases, but there are some important differences between them. You should know how to identify one versus the other.
|Coins are legal tender that can be used to settle debts.||Rounds are privately minted and have no face value; their worth is determined by the metal they contain.|
|All coins are government issued with a universally recognized value.||Rounds may have a nearly identical design to coins, but they’ll have the letter R or the word COPY stamped on them.|
|Coins always have a date stamped on them.||Rounds are essentially medallions and are often printed with collectible or commemorative designs.|
|A coin’s melt value exceeds its face value.||Rounds cannot have the exact size and weight specifications as a government-issued coin.|
For your money, we recommend gold and silver bullion coins only. Rounds may be less expensive, but bullion is a better investment.
Silver and Gold Coins vs. Bars
The range of bullion products can leave even the most seasoned investor feeling a bit confused. And one of the most common questions we’re asked is whether to buy bullion coins or bars. Coins are obviously more affordable, but there are pros and cons to both bullion coins and bars that you should know about.
|Coins are legal tender with a universally recognized value.||Because you’re essentially making a volume purchase, you’ll pay a lower premium for bars than coins.|
|Coins are a smaller store of wealth and a more tradable size, making them more liquid than bars and easier to use in worst-case scenarios.||Bars are compact and easy to store, unlike coins. $50,000 of gold in bars is a lot less cumbersome than the same dollar amount in coins.|
|It is easy to cash in only a portion of your precious metals holdings when you own coins.||Bars are typically 99.99% pure, so you get more gold for your money compared to a 22-karat coin, such as a gold eagle, but can be more difficult to sell independently.|
What about Gold and Silver Ingots?
Ingots are another category of bullion product that investors often have questions about.
These are larger bullion bars produced by pouring the molten metal into a cast (as opposed to stamping them). Ingots are typically marked with their purity, weight, and manufacturer’s name and logo, and they are thicker than stamped bullion bars. This type of bar is often produced in larger sizes (such as 100 gram, 10 oz. or kilogram) and as such, are more suitable for large financial institutions as opposed to the everyday investor who would do better to shop for gold and silver bullion coins.
Gold and Silver vs. Platinum Coins
Platinum is used in manufacturing (mainly, the auto industry), but it is perhaps most widely recognized as a popular metal for making jewelry. It’s also extremely rare—even more so than gold.
Because of the very small supply, the price of platinum can be more erratic than silver and gold, which is one of the reasons it is not as popular with individual investors as its sister metals. But there is growing demand for platinum in both the industrial and investment worlds.
One-ounce and fractional platinum bullion coins are available from a handful of countries, including the US (Platinum American Eagles) and Canada (Platinum Canadian Maple Leafs). Though platinum isn’t as popular a proxy to holding wealth in cash as silver or gold, the coins are legal tender.
We don’t recommend investing only in platinum coins, but the metal’s rarity, collectability, and value make it a nice addition to round out your portfolio.
Gold and Silver vs. Palladium Coins
Palladium is used primarily in the auto, electronics, and jewelry sectors (gold and palladium make white gold), which gives it a supply/demand dynamic that looks similar to silver and platinum.
Investment demand at this point is mostly speculative, but as industrial demand grows, investors who own palladium coins could see handsome returns on their holdings.
Available palladium coins include the Canadian Maple Leaf and the Chinese Panda; however, it is worth noting that palladium coins will not be as liquid as gold and silver coins because the market is small and still relatively niche.
Whether you buy gold or silver, bars or coins, platinum or palladium is up to you—but there are reasons to consider each type of bullion as an investment:
|5 Reasons to Buy Gold and Silver Coins||5 Reasons to Consider Other Types of Bullion|
|Content and purity are guaranteed by the governments that mint them.||Bars have lower premiums than coins.|
|They’re highly liquid.||Bullion bars are good for large investments.|
|They require no authentication for resale.||Bars require less space than coins to store the same number of gold ounces.|
|Unlike rounds, coins are legal tender that can be used as a proxy for paper currency.||Platinum and palladium are extremely rare so they are likely to rise in price due to growing industrial demand.|
|There will always be a large market for gold and silver.||Platinum and palladium can further diversify a precious metals portfolio containing gold and silver.|
Making an allocation to precious metals is a smart move any way you slice it. Knowing the features of the various bullion products that are available will help you maximize the value you get from your investment.