There are a plethora of metals to invest in, but one that stands unbeatable and has been a prime choice of investors for ages is gold. The reason behind the popularity of gold can be attributed to factors like its high liquidity and ability to outpace inflation. There are multiple ways to own gold, some of which are purchasing jewelry, coins, bars, bullion, gold exchange-traded funds (ETFs), gold funds, etc.
Amidst everything, gold coins and bullion have been appreciated the most. But investors and traders commonly confuse the terms “gold coins” and “gold bullion.” However, they are considered two different entities in the investment market. Before starting your investment journey, it is vital to understand the key differences between these two in terms of investment value, liquidity, purity, and global market recognition to ensure the right decision. In this blog, we have detailed everything you need to know about the gold market to the best investment option amidst coins and bullion. Read on to learn more!
Understanding Gold Market
The gold market functions 24/7, with the price of gold changing twice a day. Typically denominated in US Dollars (XAU/USD), the value of gold tends to rise when stocks and bonds falter, making it a trusted metal due to its ability to retain value. Its price is constantly traded based on the intra-day spot rate.
Before the 2008 financial crisis, gold prices remained relatively stable for an extended period. However, during the crisis, its value nearly doubled, which highlighted the role of gold as a hedge against economic uncertainty.
In recent years, gold prices have experienced notable fluctuations. In 2019, gold prices surged by 18.83%, followed by an impressive 24.43% increase in 2020.
These fluctuations were partly influenced by announcements from the Federal Reserve regarding anticipated interest rate hikes, which impacted investor sentiment.
When discussing the determination of gold prices, the London Gold Fix and the London Bullion Market Association (LBMA) are pivotal. The London Gold Fix historically established the gold bullion price per troy ounce in US dollars. However, in 2015, it was succeeded by the LBMA gold price, which continues to set the price twice daily, at 10:30 and 15:00 London GMT, still denominated in US dollars.
How is Gold Traded?
Gold and bullion are traded in multiple ways. Here are a few methods offering investors various avenues to participate in the market:
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Physical Gold Trading
Investing in physical gold involves purchasing gold bars, coins, or bullion. Buyers often opt for physical gold for its inherent value and as a hedge against economic uncertainty.
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Investing in Gold Mining Companies
Another approach to gold trading is through investing in shares of gold mining companies. This method allows investors to gain exposure to the gold market without directly owning physical gold. The performance of these companies is influenced by factors such as production costs, reserves, and exploration activities.
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Gold Options and Futures Trading
Gold and bullion options and futures contracts provide investors with the opportunity to speculate on the future price movements of gold. Options grant the right, but not the obligation, to buy or sell gold at a predetermined price (strike price) within a specified period. Futures contracts obligate buyers and sellers to trade gold at a predetermined gold bullion price and date in the future.
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Gold ETFs (Exchange-Traded Funds)
These funds typically hold gold bullion as their underlying asset and are traded on stock exchanges like individual stocks. Gold ETFs provide liquidity, transparency, and flexibility for investors looking to diversify their portfolios.
Differences between Gold coins and gold bullion
Now, let’s discuss the top two investment options in coins of gold and bullion.
Overview of Gold Bullion
Bullion gold typically comprises physical gold, commonly found in the form of authentic gold bars, ingots, or coins. Nations produce bullion gold according to standardized metrics, either adhering to 22-karat or 24-karat standards. 22-karat gold boasts a purity level of 91%, while 24-karat gold reaches a purity of 99.9%. The term “karat” denotes the purity of gold, while “bullion” specifically denotes gold traded by individuals for investment objectives.
There are multiple reasons why investing in gold bullion stands as a premier choice for investors. Here are some:
- Preserves wealth over time
- Acts as a hedge against inflation
- Offers high liquidity
- Physical and immune to cyberattacks
- Its value isn’t reliant on the economy of any single country
Overview of Gold Coins
Gold coins, typically issued by governments, carry a nominal face value and are legally recognized tender within their respective nations. Beyond their intrinsic gold content, they hold value due to rarity, historical significance, and collectible appeal. Coins offer greater investment flexibility and liquidity compared to other forms of gold. They are prized for their stability and enduring worth. Let’s explore some of the popular historic gold coin collectibles:
- American Gold Eagle (1 oz) – 91.67% purity
- Canadian Maple Leaf and other canadian gold coins (1 oz) – 99.99% purity
- South African Krugerrand (1 oz) – 91.67% purity
- Australian Kangaroo (1 oz) – 99.99% purity
These represent just a fraction of available gold coin options, each having distinct features and designs. Purity and weight are critical considerations when evaluating gold coin investments.
Key Differences Between Gold Coins And Gold Bullion
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Legal Tender Value
Gold coins carry a nominal face value, making them legal tender, just like buying silver. For instance, the American Eagle gold coin holds a face value of $50 USD, although its actual market worth far surpasses this due to its gold content.
In contrast, gold bullion, including bars and ingots, derives its value solely from its gold content, lacking any face value. Its valuation is directly tied to the overall market gold bullion price.
Recognizing the difference between face value and market value is important for investors, as it impacts the legal and tax implications of owning canadian gold coins versus bullion.
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Gold Bullion Offers High Liquidity
Gold bullion, represented by standardized forms like bars and ingots, has greater liquidity compared to gold coins. This ease of conversion to cash stems from its direct link to gold market prices. Investors typically find it easier to sell gold bullion close to market value, whereas selling gold coins may require access to specialized markets or interest from collectors.
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Gold Bullion Exhibits Higher Purity
Bullion is often manufactured at higher purity levels, often reaching 99.99% gold content. On the other hand, gold coins like the British Sovereign are typically minted with lower purity levels, around 91.67% (22 karats), and incorporate alloys for enhanced durability. Purity level significantly influences a gold item’s market value, highlighting an important distinction in investment quality between coins and bullion.
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Storage and Transport:
Coins are often smaller and more portable, making them easier to store and transport, especially in smaller quantities. Gold bullion, particularly larger bars or ingots, may require more secure storage facilities and can be less convenient to transport and store due to their size and weight.
Investing In Gold Bullion Over Stock Market
Investing in gold bullion over the stock market can be advantageous for various reasons:
Minimizing Risk
Gold is considered a safe investment option as it’s more stable as compared to the volatility of stocks. While stock values can fluctuate significantly based on a company’s market performance and other factors, gold’s value tends to remain relatively steady. Although gold may not yield the high returns associated with stocks, it also mitigates the risk of substantial losses often associated with stock market fluctuations.
Hedging Against Inflation
Gold bullion serves as a solid hedge against inflation due to its ability to retain value over time. When interest rates rise, and the dollar’s value declines, commodities like gold become particularly valuable as they maintain their purchasing power.
Stability in Shaky Economies
The stability of gold makes it an attractive investment option during times of economic turbulence, offering protection against rising inflation and banking instability. Even when the stock market is unpredictable, gold’s value usually stays steady. Historical data shows that during six out of the last eight significant stock market crashes in the last four decades, gold prices rose.
For instance, during the recession from October 2007 to March 2009, the S&P 500 plummeted by 56.8%, while gold prices climbed by 25.5%, according to data from GoldSilver.
Diversification
Adding gold to an investment portfolio can enhance diversification and reduce overall risk. Gold’s low correlation with other asset classes, such as stocks and bonds, means that its value often moves independently, providing balance and stability to a diversified portfolio.
No Credit Risk
When you buy stocks, you are purchasing ownership shares in a company. The value of a stock is closely tied to the performance of the issuing company. If the company experiences financial difficulties, such as declining revenues, increased debt, or operational challenges, the value of its stock may decline, potentially leading to losses for shareholders.
On the other hand, when investing in physical gold bullion, there is no credit risk associated with counterparties defaulting on payments, as there would be with certain fixed-income securities or bank deposits.
Wrapping Up
Investing in gold bullion provides investors with a hedge against market volatility, inflation, and economic instability, offering stability and wealth preservation in uncertain times. If you wish to invest in gold, silver, and other precious metal bullion in Windsor, you can do so by contacting the best bullion dealers: CanAm Currency Exchange! Contact us at our toll-free number, +1 844-915-5151, to learn more. Your seamless gold trading experience awaits!
