Many crisis investors believe the ultimate portfolio protection is the physical ownership of gold bullion or gold coins. This type of wealth accumulation can weather nearly any economic storm. Not to mention, every society on Earth sees owning actual gold as valuable. Even in the case of a complete economic meltdown, physical gold will retain its value as a means of commerce.
Gold bullion is any bulk quantity of gold valued by its weight. It is generally formed into ingots or bars and sold by dealers and some major banks.
Gold coins are created from gold and used by dealers, some major banks and individual investors as a convenient way to physically hold and trade gold. The value of the coin is based on the amount of actual gold used to mint the coin. The price of the coin is tied to the price of gold and therefore fluctuates with the spot price. The most well-known gold coins are the South African Krugerrand, the Canadian Gold Maple Leaf, the Australian Gold Nugget and the American Gold Eagle.
It's important to keep in mind the U.S. government guarantees the gold content in American Gold Eagle coins, whereas foreign governments may not guarantee the value of their own coins. The value of foreign gold coins is based on the melt value of the precious metal and generally not the overall grade level. The grade is the ranking of the overall condition of the coin.
There are two primary types of gold coins from the U.S. mint: Proof bullion and uncirculated bullion. Proof bullion coins are created specifically for collectors and sold mounted in a plastic case. Uncirculated bullion coins are only minted for investment purposes and sold directly to a limited number of authorized dealers.
Coins can also have collectable or numismatic value. The value of these coins is based on their historic or aesthetic value to collectors. Numismatic coins can greatly outvalue their melt value as a result of collector demand. Unlike gold coins minted by the government, numismatic coins are priced based on their grade level and in the numismatic world, the grade is critical. There can be thousands of dollars in pricing differences from one grade level to the next. While numismatic coins can serve as an effective crisis investment, expertise and passion for the subject is a prerequisite for success.
When investing in gold bullion or coins, be sure to pay heed to the following guidelines:
Dealers and banks often have different prices for the same coins or bullion. It's important to check prices with several dealers before making a purchase decision.
Unless you are an expert in the subject, it's wise to obtain an independent appraisal of what you plan to purchase. Dealers often inflate their appraisals to lure unsuspecting or new investors to overpay.
Be cautious of owning anything held by a third party
A common tactic is to sell gold bullion or coins and have the purchase held by a third-party storage facility. Be very cautious if this is offered as an alternative. If you don't take physical delivery, then it's impossible to determine the true amount or grade of your investment. Some con artists practicing this scheme have gone so far that the bullion or coins don't even actually exist.
Research the seller
The Internet is a great tool to research the seller's credentials. Check out the dealer's reviews and history online. There are a few unscrupulous and even fraudulent dealers in the physical gold/coin business. A little research can go a long way to protect you from fraud and scams.
Risks to Consider: The physical bullion world is rife with scams and fraud. Be sure you're dealing with accredited and reliable dealers prior to making any type of investment in this arena. In addition, always consider the storage and insurance costs when purchasing bullion or coins. Investors often don't consider these costs, which can be large in some circumstances.