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Gold Bullion Coins

The South African Krugerrand Gold Bullion Coin

The South African Krugerrand Gold Bullion Coin

There are may different ways to own gold, but one of the most popular is in bullion coins of which the South African Krugerrand was the first on the market in 1970. It is denominated in ounces of pure gold, rather than having a face value and over the years more than 54 million Krugerrands have been circulated worldwide. One of the questions often asked by investors is what is the difference between modern bullion coins, and those termed semi-numismatic or numismatic ( collectible to you and me!). The answer is very simple – modern bullion coins are bought for their investment grade gold only, whilst collectible coins are bought partly for their gold content and partly for rarity or collectibility. By investment grade gold we mean between 0.90 and 0.9999 fineness. In simple terms this defines the purity, so a 0.99 means the coin is 99% pure gold. The value of a bullion coin is solely determined by the gold spot price of gold in the market, whereas the semi-numismatic and numismatic are priced according to their rarity or collectibility.

Gold bullion coins provide a very stable market for both buyers and sellers, and their attraction lies in the fact they are easy to transport, are available in small denominations and are accepted throughout the world as a universal currency. Typically they are available in 1 ounce, 0.5 ounce, 0.25 ounce and 0.10 ounce weights which are generally the most popular sizes with one ounce being the most popular. Larger sizes are sometimes available and can often be bought as 2 ounce, 10 ounce and even 1 kilo!! The most popular bullion coins after the Krugerrand are the Canadian Maple Leaf, introduced in 1979 and slightly different from its South African counterpart, in that it is a pure one ounce gold coin. The Krugerrand on the other hand contains a small amount of alloy and is rated at 0.9167 or 91.67 pure.  In 1986, the US mint began producing the United States Eagle which is identical in fineness to the Krugerrand at 0.9167, and this was followed in 1989 by the Austrian Philharmonic with a fineness of 0.9999. The key point to remember with all these coins is that each one contains the same amount of gold, namely one troy ounce.  In addition to the above already mentioned there are several others as follows :

  • Britannia – A British coin from the UK Royal Mint
  • Nuggets – Original natural gold nugget or Kangaroo/Wallaby from Australia
  • Panda – A beautiful panda design from China
  • Buffalos – Fine gold coins ( 0.9999 ) from the US
  • Lunar Calendar – Original Chinese lunar calendar designs from the Perth mint
  • Manx cat crowns – Gold bullion coins from guess where, the Isle of Man!

The next question is which one should you buy which, of course, will depend on your reasons for buying, but the main points you need to consider are as follows. First of all the size is important, and the one ounce rules the world in this respect, as it is the most popular size by far, largely due to the fact that the Krugerrand led the market in this respect. In my opinion I would avoid the smaller sizes if possible as they make buying gold more expensive. The costs of production of smaller size coins are similar to the larger sizes and therefore a higher percentage cost when compared with the larger sizes, so stick to the ounce size at all times where possible. Of the larger sizes ( two ounce, ten ounce and one kilo) these tend to be less popular again largely due to the cost as they are only marginally less expensive than the one ounce, and are more difficult and costly to ship and insure which is why most investors avoid them and in general they tend to be bought as gifts.

The next issue is that of premium or how much you will have to pay over and above the gold spot price. One of the lowest is the Krugerrand and hence its popularity with dealers buying at only 3% of the spot price of gold bullion. Even allowing for shipping costs insurance and dealer profits you should be able to buy at between 4% and 5 % over their gold content for larger quantities, and up to 10% over for single pieces. Fractional sizes are generally issued to dealers at anywhere between 5% and 9% so by the time these premiums are passed on to you, this makes buying these smaller sizes very expensive in comparative terms to their larger one ounce cousins. The final cost of a quarter or half ounce bullion coin could be as much as 10% to 15%, and for the tenth of an ounce anywhere from 20% to 50%!!! So remember, please buy the one ounce wherever possible as it provides the best value, as well as being the most widely traded and accepted bullion coin size around the world. Finally, remember that in the UK and the rest of the EU,  investment gold coins became VAT free from January 1st 200o under the EU Gold Directive of 2000. So which bullion coins would be my top three recommendations? – well here they are in order of preference!

American Gold Eagle Bullion Coin

American Gold Eagle Bullion Coin

My first choice would be the American Gold Eagle, first issued in 1986 and by far the most popular coin in the US. Each coin is 22 – karat gold and has an image of Lady Liberty on the front with a nest of eagles on the reverse. These bullion coins are backed by the US government for content and purity which make them widely accepted and liquid. They are available in four principle sizes, namely one ounce ( $50), 0.5 ounce ( $25), 0.25 ounce ( $10) and 0.10 ounce ( $5). Naturally for the smaller sizes the premium over the spot market will makes these more expensive.


Gold Canadian Maple Leaf Bullion Coin

My second choice is the Gold Canadian Maple Leaf mentioned above. These are beautiful 24 karat gold coins with a fineness of 0.9999, and an image of Queen Elizabeth II on the front and a maple leaf on the reverse. These coins are guaranteed by the Canadian government for their content and purity and like the Gold Eagle, just as widely accepted. They appear in the same denominations but this time in Canadian dollars not US! A word of warning here though – if you do decide to buy these coins be careful as the gold is pure and therefore very soft, so can be easily damaged. Always wear gloves and store them safely on velvet or similar.

My third and last choice must be the South African Krugerrand which was the forerunner for all gold bullion coins. Accepted worldwide and with a low premium on purchasing, these coins will always represent a sound investment decision and an image is shown at the top of page.