Gold has been recognised as the ultimate collectable for centuries because it is scarce and extremely tough. Gold can be melted down to change its form and shape, but once extracted and refined it is virtually indestructible. Furthermore, it does not depend for its value on the spending power of other collectors in the way that many collectables do.
Bullion coins have long been a popular medium for owning physical gold and other precious metals. Several countries and territories including the UK, US, Isle of Man, Australia, Canada and South Africa all offer bullion coins available of different sizes and weights. But modern bullion coins are not scarce. They reflect the underlying value of the bullion they contain rather than the scarcity value that a conventional antique coin might attract.
Gold bullion has exhibited a positive return over the long term. Gold has risen by an average of 4 per cent a year since 1968. The simplest example of the durability and power of gold as an investment comes if you calculate the return from 1971 when President Richard M. Nixon was forced to cut the link between gold and the dollar. The day before Nixon's decision you could have bought an ounce of gold for $35. Today, 33 years later, you could sell it for more than 11 times that amount an annual rate of return of about 8 per cent.
Manufacturing costs mean that bullion coins attract a small premium over the underlying value of the gold in them. The premium is always small, though, and will probably be recouped, less the dealer's margin, when the item is sold.
Coins such as Krugerrands, British Sovereigns, American Eagles, Canadian Maple Leafs, Isle of Man Nobles and other variations on the theme are usually available in a range of weights. Premiums on coins are generally higher than on small gold bars but, if you buy a significant number of them at once, the premium paid can fall to levels comparable to small bars. Coins have the advantage of divisibility, meaning that you can sell part of your hoard without disturbing the rest.
Premiums paid do, however, depend on supply and demand at the time and can fluctuate. Large bars are usually the most efficient way to buy gold, but in certain circumstances coins can be a better investment. The Krugerrand, arguably the classic bullion coin and the most popular, usually has the lowest premium.
Gold bought for investment does not attract value-added tax in the European Union, UK bullion dealers apply certain terms concerning mainly anti-money laundering measures and tax.
Purchasers must provide proof of identity and the first purchase of gold by any individual of more than £5,000, or an aggregate purchase of more than £10,000 of gold in one 12-month period, will be reported to Customs & Excise.
