Precious Metals
With the US economy facing an uncertain future, more and more Americans are looking to protect their assets with gold. Gold has a reputation for performing well during tough times, and its performance during the 2008 crisis and its aftermath had many people wishing they had bought more gold.
But if you’ve never bought gold before, or haven’t followed gold markets, you may not understand all the terms surrounding gold. Gold is gold, isn’t it? Well, not really.
The type of gold you buy or the form it comes in plays a major part in how much you’ll pay for it, how or where you can buy it, and how easily you can sell it. So if you’ve wondered whether there’s a difference between gold and bullion, here’s what you need to know.
The primary sources of gold demand are from jewelry production and investment. Jewelry demand for gold can be price sensitive, as higher gold prices lead to higher prices for rings, bracelets, and necklaces, which can put a damper on demand.
Investment demand for gold can be price sensitive too, although demand can increase even with an increase in the gold price, as expectations for future price increases may rise. Additionally, gold is also a popular safe haven asset during times of economic crisis, and investment demand for gold can increase even when the gold price increases.
When most of us think of gold, we probably think of it in forms we’re most familiar with, like rings, necklaces, or coins. But gold comes in numerous different forms.
Gold jewelry is perhaps one of the best known forms of gold. It’s probably safe to say that more people own gold wedding rings than any other form of gold, even if the total amount of gold in those rings isn’t huge.
When you think of gold jewelry you may also think of gold necklaces, like Mr. T’s gold chains. Gold jewelry can run the gamut from relatively plain rings, bracelets, and necklaces, to elaborate and intricately designed jewelry.
Many of us in the West don’t think of gold jewelry as having any particular investment value. But in countries like India, gold jewelry is often bought as an investment or as a store of wealth.
The Indian wedding season, when newlywed couples are often gifted gold jewelry, is a major source of cyclical gold demand. And the Indian gold market treats gold jewelry as an investment just like gold coins or gold bars.
The major difference between gold jewelry and other forms of gold is that the gold content of gold jewelry is normally lower than gold coins or gold bars. We’ve all heard of 18-karat or 14-karat gold, which contain 75% and 58% gold respectively. That works well for gold jewelry that needs to be hard-wearing to survive daily wear, but it doesn’t cut it for coins and bars that generally are at least 90% gold and can go as high as 99.99% gold.
One of gold’s unique properties is its malleability. It is able to be pounded extremely thin without tearing. The resulting gold leaf, or gold foil, is then used to gild different products, from books to furniture, to buildings. There is even edible gold leaf that can be eaten or drunk. Goldschläger anyone?
Gold leaf is normally 0.12 microns thick, which is 500 times thinner than a human hair. One ounce of pure gold can be beaten into a sheet that would cover 9 square meters, or nearly 100 square feet.
The electronic device on which you’re reading this article contains gold. If you’ve ever looked at the pins on a computer chip or the contact points on RAM or video cards, they’re plated with gold.
Gold’s electrical conductivity, resistance to corrosion, and malleability and ductility make it an indispensable component of modern electronics. We don’t often think of it, but gold is what allows the electronics that power our daily lives to function the way they do.
Another popular form of gold is gold coins. Think of Scrooge McDuck’s money bin, chests of pirate treasure, or buried hoards of old coins. Gold has been minted into coins for thousands of years. In fact, some of the very first coins were minted from electrum, a naturally occurring alloy of gold and silver.
Gold coins continued to be minted in the United States for use as currency until 1933, and even today the US Mint produces gold coins for investors and collectors. The familiarity most people have with coins, and the designs of modern gold coins, make them a popular option for those looking to buy gold.
If you think of gold reserves or gold vaults, you’ll inevitably think about gold bars like those kept at Fort Knox. In fact, 400-ounce gold bars are the backbone of the international gold market, forming the basis for the Good Delivery system. You don’t have to be super rich to buy gold bars, either, as gold bars can come in sizes as small as 1 gram.
Gold bullion is gold in the form of coins, ingots, or bars that has been processed and formed for investment purposes. It can encompass many different sizes, shapes, and purities.
Normally when people refer to gold bullion they’re thinking of gold bars or ingots, especially those that have been refined to 99.5% purity or greater to satisfy the demands of international gold markets. But certain coins are sometimes referred to as bullion coins as well, because they are produced to be sold for their metal content rather than for their collectibility.
When it comes to coins, differentiating between bullion coins and non-bullion coins becomes a little different. In general, gold bullion coins are those that derive their value from their metal content. Very often they’re produced in large amounts.
Examples of these include the South African Krugerrand, the Canadian Maple Leaf, the Austrian 100 Corona and 4 Ducat restrikes, or even gold coins that haven’t been produced in years, such as the French and Swiss 20 Franc coins. All of these coins are popular with gold buyers, and they’re not rare or collectible, so they’re purchased primarily for their gold content.
On the other hand you have coins like older 19th century American gold coins, Roman gold coins, or other historic gold coins that derive most of their value from their age, rarity, or condition. These are considered collectible coins, or numismatic coins. Very often they’ll be graded by third-party grading services and placed in sealed and serialized plastic holders colloquially known as slabs.
But again, age doesn’t necessarily mean collectibility. The French 20 Franc gold coins were produced by the hundreds of millions, nearly 60 million Swiss 20 Franc gold coins were produced, and tens of millions of 20 Franc gold coins were produced by the other Latin Monetary Union countries such as Italy and Belgium. Because there are so many of them, they’re not generally in demand from collectors and are treated essentially as bullion coins.
The same goes for older UK gold sovereigns, of which over a billion were produced. While there may be some years of production that are collectible, in general these are considered bullion coins.
But where you start to begin to run into trouble is when you conflate older gold bullion coins with modern gold bullion coins, especially if you take advantage of modern gold investment vehicles like a gold IRA.
IRAs by law are forbidden by law from acquiring collectibles, which include metals and coins. But certain coins and metals are exempt from that definition.
Specifically exempted are the Silver Eagle, Gold Eagle, and Platinum Eagle coins issued by the US Mint, as well as any gold, silver, platinum, or palladium bullion meeting the fineness requirements for a futures contract. For gold, this means that any bullion with a minimum fineness of .995 (99.5% gold) is not considered a collectible for purposes of acquisition by an IRA.
This is where the difference between modern and older gold bullion coins becomes important. Coins like the Austrian 4 Ducat, the Krugerrand, or the UK Sovereign are all popular bullion coins because they have been produced in such great numbers that they trade for their metal content rather than any collector value. But because their gold fineness is less than .995, they’re not eligible to be purchased by a gold IRA.
Modern bullion coins, on the other hand, like the Canadian Gold Maple Leaf, the Austrian Philharmonic, and the numerous gold coins Goldco offers from mints around the world, are IRA-eligible because their gold fineness is higher than .995. So while gold bullion coins run the gamut from old to new, only certain gold bullion coins are IRA-eligible.
This is why it helps to work with partners like Goldco if you’re starting a gold IRA, to ensure that the gold coins you’re buying for your gold IRA are IRA-eligible. If you were to buy non-IRA-eligible gold coins for your gold IRA, it would be treated as a distribution of IRA assets and would subject you to taxes and potential penalties.
There are two primary methods that are used today to buy gold coins. The first is direct cash purchases. These can be made over the counter from coin dealers, online from various marketplaces, or from trusted gold partners like Goldco.
When you make a direct purchase of gold coins, you’re responsible for figuring out how to store those coins. You could store them at home, in a bank safe deposit box or, if you purchase a large enough amount, you might even be able to store them at a bullion depository.
The second popular method of purchasing gold is through a gold IRA. The gold coins purchased for a gold IRA must be administered by an IRA custodian, just like the assets that any IRA holds. And the gold coins or gold bars you purchase for your gold IRA will be stored at a bullion depository. Goldco works with reputable depositories that have significant experience storing precious metals, to ensure that your gold assets remain safe and secure.
One of the reasons gold has become so popular as a safe haven asset is because of its reputation for performing well even during recessions and economic crises. During the stagflation of the 1970s, for instance, gold averaged a more than 30% annualized rate of growth over the course of the decade. And during the 2008 financial crisis, the gold price gained 25% during the same period that markets lost over 50% (October 2007 to March 2009).
Many Americans are undoubtedly hoping that gold will repeat this same pattern of performance during the next recession or financial crisis. If it does, those who had the foresight to buy gold ahead of the downturn could end up seeing their gold holdings increase significantly in value.
The decision on whether or not to buy gold is a personal decision that you’ll have to make based on your own personal financial situation and your financial goals. If you think that the US economy is headed for recession, that stock markets will fall at least as much as they did in 2008, and that the subsequent recovery might be rough, you might consider buying gold to protect your assets or hedge against loss.
On the other hand, if you think the US economy is doing just fine, that stock markets are at permanently new highs, and that fears of recession are overblown, then you may not see any reason to buy gold. Just as with any financial decision, subjective judgments are going to be just as important as objective observations.
But if you want to learn more about the benefits of gold, including how a gold IRA can help protect your retirement savings, the experts at Goldco are happy to answer any questions you may have. With over $2 billion in precious metals placements and over 5,000 5-star reviews, Goldco has helped thousands of customers benefit from owning precious metals. Call Goldco today to find out more about how you can benefit from gold.
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Free Precious Metals Guide
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DISCLAIMER: This site is general in nature and not tailored to the specific goals of any individual. All investments carry risk. Some of those risks associated with precious metals include the following: prices may rise and fall, which means the value of your metals may go up or down over time and you may sell for more or less than you paid. Past performance does not guarantee future results. Goldco cannot guarantee, assure, or promise future market movement, prices, or profits. Even though Goldco and its representatives are precious metals specialists, we are not licensed financial advisors and do not give financial advice. Additionally, Goldco cannot provide tax or legal advice and will not advise as to the tax or legal consequences of purchasing or selling precious metals or opening a Precious Metals IRA. Individuals should consult with their investment, legal or tax professionals for such services.
