So you want to buy some gold as prices are rising? You are afraid of high inflation? Hold gold bars like a movie villain? Not so fast pal. Let’s first understand a few things.
What drives the price
First of realize that gold is a commodity metal. That means prices are determined by commodity markets. What does this mean? It means prices are set by supply and demand. Gold demand comes from jewelry, electronics, coins and other such uses. Supply comes from the ground as in mining and melting down of old gold jewelry and coins. People have been doing so for thousands of years. You can check prices in the Wall Street Journal and on Google.
Gold Bars like in the movies?
Ok should I buy gold bars like I see in the movies and on TV? No. I say this as they are very expensive and also possible to fake by making tungsten core ones as they all pretty much look the same unless you drill into them even if the weight is the same. Instead I recommend well known gold coins instead. They are harder to fake as they have intricate designs on them to prevent counterfeiting. See the section below on how to test and you will see why.
How we price gold coins
If you wat to buy gold first realize that prices are set by spot and futures markets. That means you know exactly what a coins is worth. Let’s say you are interested in a common 20 Franc Swiss coin or French Franc coin
Price of gold per gram 63.37 USD per Google
Coin weight 6.45 grams
Purity of coin 90% gold, 10% copper
The math is as follows.
6.45 * 63.37*0.9 = $367.86
You should not pay more than spot price for this coin. The only way the price goes up if the price of gold goes up. The price could also decline if the price of gold goes down.
Pricing of old coins..it’s a volume game
But these coins are old! From the 1800s! So what? Are they rare? Well look on Numista.com and likely they are not. They were produced in the millions as many were used as money in the 1800s and 1900s. Some coins are indeed rarer and command a premium over spot price. An example is a French Louis d’Or from 1786. That coin will command a few hundred dollar premium over the spot price as they are more rare. The rarer the coin the bigger the premium collectors will pay for the coin. This isn’t investing however but coin collecting and out of scope for our discussion.
What type of common gold bullion coins are good?
- 20 Francs Swiss/Helvetia 6.45 g @90% as shown above
- 20 Francs French Rooster, Angel, Napoleon 6.45 g@ 90%
- 20 Francs Belgian 6.45 @ 90%
- 20 Mark German Empire 7.965 g @90%
- USA 1 oz, , 0.25 oz, 0.5 oz Eagles
- Canada gold maple leaves
- Austria gold philharmonic and ducats
- UK sovereign. The full soveregn coins are the most interesting as long as you can get them near spot price.
- UK Brittania
- Australia gold kangaroos
- Chinese Panda as long as you know it is real
- There are other 20 Franc type coins weighing 6.45 grams like ones from Tunisia, Holland, Austria-Hungary, Italy, Finland etc.
These are all common gold coins that should be available at spot prices or very close to that. I prefer the 20 mark, 20 franc coins and sovereigns as they are older and historical to the newer coins. They also have intricate designs that are harder to fake. as they were used as money at one point. For example the German/Prussian 20 mark coins say Gott Mit Uns on the side edge along with a picture of the emperor at the time such Wilhelm 1 or 2. They a nice weight to them similar to the ¼ oz US and Candian coins.
How to test a gold coin to see if it is legitimate?
- Start by looking up a coin on Numista for its details
- Weight it on postal scale. These usually cost $10 to $20 USD. Gold is heavy.
- Measure the diameter and thickness with a ruler
- Ping test it. By this I mean flip the coin from your thumb into the air until you hear a sound. Gold is very distinct bright sound versus other metals and coins. Tungsten makes no sound.
- Look at pictures of other such coins. Is the design identical? Are there molding lines from a press? Look at the pics on Numista or other similar coins for sale.
- Note you can’t really do any of these tests other than weighing with a gold bar that you can do with a coin. Now you can see why I prefer coins.
- Take it to a dealer to examine
Where to buy gold coins
- Reputable coin dealers in your town
- Online dealers with good reputations (higher prices)
- Ebay buy it now it now auctions. If the price is too good to be true then it is. Coins never sell for less than spot.
- Maybe pawn shops if you know what you are doing
Let’s say gold prices have risen and you want to sell. How do you do that?
- Sell to a dealer at spot
- Sell on Ebay. Note however that Ebay takes a ten percent sales commission. PayPal also takes a cut of your payment. You will need to price above spot to get spot back.
- Sell at a coin show
How much gold should you buy? Not much. It can be part of your investment portfolio but not more than say 5%. Stick with stocks, ETFs and mutual funds. I have a few small coins for fun but am not a serious investor in gold. I figure of high inflation comes to paper money I won’t be left totally penniless. See my post on inflation and hyperinflation.
What about other precious metals like silver? I don’t recommend silver as it tarnishes and is lower priced metal that is used for more industrial purposes. The coins are heavy and hard to store. If you have to ship them it will cost more. I found it bulky and unsatisfying. Forget about platinum, palladium and other such rare metals. They are used in catalytic converters and the markets for these coins are thin.
Where do you store it? Some place like a safe or safe deposit box if you have them. Or hidden away from prying eyes and hands.