How to Buy Gold Bullion Coins:

A Quick Guide for Beginners 

“We desire gold not for its true value but for the glittering illusion of value it gives.” – Michael Masterson

Suddenly, everyone wants to buy gold!

I’ve been reading about gold for 40 years and writing about it for the last 20. During that time, gold’s popularity among investors has gone up and down in longish waves. Recently, the tide has been rising like a tsunami.

To answer all the questions I’ve been getting on gold, I’ve put together the following Q&A. It’s meant for tyros, but there may be information here that will surprise experienced coin buyers.

One caveat: The market is hot right now – which means that prices are high. Keep that in mind when you read the following and when you make your decisions.

Q: What is gold bullion?

A: Gold bullion is gold in the form of bars, ingots, or coins. In terms of purity, gold bullion can be 22 karats (91.7% gold) or 24 karats (99.9% gold). The value of gold bullion generally tracks the spot price of gold, plus a “premium” (additional charge) that covers the cost of minting, storage, distribution, and sales commission.

Q: What is the “spot price” of gold?

A: The spot price is what it cost to buy at any given minute. It goes up and down, like virtually every commodity, due to speculation in the markets, currency values, current events, and other factors. Although the spot price is very exact (down to the penny) and tracked to the second, it is a theoretical number in the sense that it represents the cost of gold without a premium. And there is almost always a premium, even between dealers. Still, it is a very useful metric because it tells you, as a buyer, how much of a premium you are paying for the coins you buy.

Q: What is a gold bullion coin?

A: It is a coin made by a private or public mint that is either 22 or 24 karats. Bullion coins are usually distinguished from numismatic coins.

Q: What is a numismatic coin?

A: It is a coin that is limited in supply and bought for its rarity and beauty, like fine art. Rare coins can make good investments. What I like about rare coins is that if you buy a bad one – a common coin in poor condition – it will still be worth at least the spot price of gold. But if you buy a truly rare coin in mint condition, it can eventually have a value that is 10 to 100 times the spot price of gold.

Q: Bullion coins vs. numismatic coins: Which type should I buy?

A: If you are buying gold coins as a hedge against inflation or as insurance against the collapse of the dollar, you should definitely buy bullion coins, not numismatics. If you are buying gold coins as an investment, you should consider numismatics. You can, of course, buy both kinds of coins – at a ratio of maybe 60/40 or 80/20 bullion to numismatics. If you do buy rare coins, it is very important to buy from a trusted source. (See more on that at the end.)

Q: Are there different kinds of bullion coins?

A: Yes, there are hundreds – probably thousands – of uniquely different bullion coins. But for beginners, it’s smart to group them in two categories: those minted by governments and those minted by private companies.

Q: So which kind should I buy?

A: For beginners… government-minted bullion coins – for several reasons: (1) They are minted in larger quantities, which makes them more liquid than privately minted coins. (2) The premiums (cost above the spot price of gold) are easy to track and therefore it’s easier to avoid overpaying for them. (3) They come with the inherent (and, in some cases, stated) backing of the government that mints them.

Q: Which government-minted coins do you recommend?

A: Most people buy bullion coins that are minted by the country they live in. Thus, most Americans buy American Eagles and American Buffalos. Most Britains buy British Sovereigns. And most Canadians buy Canadian Maple Leafs. But many experienced coin buyers like South African Krugerrands. My own stash of gold bullion coins is 50% American Eagles, 40% South African Krugerrands, and 10% Canadian Maple Leafs. I feel comfortable recommending all three.

Q: What are the differences between those three – the pros and cons?

A: The first difference is the purity of the gold. American Eagles and Krugerrands are 22 karat, which means they are about 92% (91.67%) pure gold. Canadian Maple Leafs and American Buffalos are 24 karat, which means they are 99.9% pure gold.

The second difference is the amount of gold. Maple Leafs and Buffalos are more pure, but Krugerrands and American Eagles are slightly bigger and weigh slightly more than their 24 karat cousins. That difference equalizes the difference. In other words, the amount of gold is the same (1 troy ounce) for all four coins.

The third and most important difference is the liquidity of a particular coin – how easy it is to buy and sell. Like every other asset class, the liquidity of gold coins depends on how many are available in a given market.

Of the four, American Eagles are by far the most liquid. About 80% of the gold bullion in circulation in the US is in the form of the American Eagle. It is also the most-traded coin in the world. Krugerrands come in second. More than 50 million ounces of gold Krugerrands have been sold since production began in 1967. Maple Leafs come in third, with about 20 million in circulation. And Buffalos come in way behind with only about 2.5 million in circulation.

In terms of liquidity, I think Eagles, Krugerrands, and Maple Leafs are all a safe bet. Buffalos are safe, but I would not recommend them for beginners.

Q: Are there any other differences that I should be aware of?

A: There are a few that could be important.

Maple Leafs and Buffalos, being 24 karat, are softer than American Eagles and Krugerrands. That makes them more prone to bending and scratching. But condition is not a consideration in terms of tracking to the spot price of gold. They are all equal in this regard.

Another difference is the question of government backing as legal tender. As legal tender, the government that issues the coin guarantees that it can be used to settle a debt or meet a financial obligation. All four of these coins are guaranteed as legal tender.

Two final differences relate to investing and privacy. The American Eagle is an approved investment vehicle for Individual Retirement Accounts (IRAs). It is also exempt from the IRS’s Form 1099-B reporting requirements, which means your buys and sells are not publicly recorded.

My bottom line on these differences: All four of these coins are suitable as a chaos hedge and/or insurance against the collapse of the dollar. In terms of gold content and government backing, all four are equal. The small circulation of the Buffalo puts it fourth on my personal preference list. And the IRA and privacy advantages of the American Eagle put it at the top.

Q: I heard that Krugerrands are illegal for US citizens. Is that true?

A: No longer. They were banned in 1985 as a strategy to push South Africa to end apartheid. The ban was lifted in 1991.

Q: Are there denominations of bullion coins like there are with dollars?

A: Yes. Eagles, Buffalos, Maple Leafs, and Krugerrands all come in 4 sizes: 1-ounce, 1/2-ounce, 1/4-ounce, and 1/10-ounce denominations.

Q: What denomination should I buy?

A: That depends on your budget and your purpose. In general, the smaller the denomination, the greater, in percentage terms, the premium. This is not unfair. Think of the premium as the cost of minting, storage, distribution, and sales. Those fixed costs are the same regardless of the size of the coin. So it stands to reason that the smaller coins will tend to have relatively higher premiums.

If your objective is to minimize the premium you will pay, you should buy the largest denomination you feel comfortable buying. However, there is an interesting argument for buying the smaller denominations: In a scenario of total economic collapse, gold (and silver) will become the currency of choice. In that situation, having smaller coins will make trading them for things that you need much easier.

Q: I’ve seen bullion coins. Some of them have dollar amounts printed on them. For example, the American Eagle has $50 on it. Does that mean the coin is really worth only $50?

A: Not really. What you’re looking at is the face value of the coins. In theory, face value is what the coin would be worth as legal tender. And if you were concerned about that, Krugerrands would be your choice since they have no face value and the South African government’s guarantee behind them is correlated to the spot price of gold. But in practice, the value of all bullion coins is correlated to the spot price. This is not an issue I’m worried about.

Q: Can I buy bullion coins directly from the US and Canadian mints?

A: No. You have to buy them from a registered, private dealer – and each government publishes a list of those dealers. There was a time when you could buy American bullion coins from US banks, but that is no longer true.

Q: What about dealers that sell online? Is it safe to buy from them? Or is it better to go with a local dealer?

A: It is usually just as safe to buy from a well-established dealer online (or by phone) as it is to buy directly from a local dealer – and there are some distinct advantages. When you buy directly, you get immediate possession, you have no shipping or insurance fees, and you have more privacy. On the other hand, the selection is likely to be more limited than it is with an online dealer. Plus, the price you pay will usually be slightly higher (because of the extra costs involved in retail business) and liquidity will be less for large buybacks.

Q: What about the coins that I see advertised on TV and in newspapers. Are those dealers safe sources?

A: Sometimes yes. Sometimes no. But considering the cost of that sort of advertising, the possibility of paying more than you should is something to consider. So long as you compare the price of the coin to the spot price of gold, you can figure out if you are being overcharged. A problem with some of these dealers is that they have very persuasive salespeople that will try to get you to buy other types of gold coins with prices that are much higher than the spot price. The bottom line in buying gold bullion coins is the premium: how much the dealer is charging you above the spot price. Know the spot price. Demand a fair premium.

Q: So what is a fair premium for a gold bullion coin?

A: When I was buying gold coins, from 2002 through 2004, the spot price of gold was low (in the $400s) and the premiums were low – about 3% for 1-ounce coins and 5% to 6% for 1/2-ounce coins. Today, the spot price of gold is nearly $2000 and the premiums are about twice what they were back then. Amaru, our crack researcher, did a survey recently and found that even the most competitive dealers are charging 6% premiums for 1-ounce coins and 12+% for half-ounce coins.

Q: So, historically speaking, both the spot price of gold and the premiums are high. Is that fair?

A: The spot price is absolutely fair. It reflects supply and demand in a free market. The premiums are also fair in the sense that dealers have the right to charge what they want. They aren’t holding a gun to your head. But if you know the spot price and do a bit of shopping on the premiums, you should be okay.

Q: Should those high prices dissuade me from buying coins?

A: No. If you think of gold as an inflation hedge and/or as insurance against economic Armageddon, the premiums are reasonable. The one-time premiums you pay for almost any other form of insurance are typically in these ranges – and for life insurance, sometimes higher.

If you are buying bullion coins for investment purposes, a premium of 6% or 10% is relatively high. It means that the spot price for gold will have to go up $120 to $200 an ounce before you make your first percent of profit.

Of course, if the spot price of gold goes to $10,000, as some are predicting, current prices and premiums will seem cheap.

I didn’t buy gold as an investment and I’m not starting now. But I certainly understand the reasons why you might want to. If you do decide to buy bullion for investment purposes, consider this: Krugerrands or Maple Leafs have, on average, premiums that are significantly lower than Eagles. If, instead of paying a $120 premium for a 1-ounce Eagle you could buy a 1-ounce Krugerrand or Maple Leaf for a premium of only $80, why wouldn’t you do it?

Q: One last question: Are there any dealers that you can personally recommend?

A: I can recommend two companies: David Hall Rare Coins (my personal dealer), and APMEX (recommended to me by Tom Dyson).

David Hall Rare Coins – These are my go-to people because I’ve known them for 30 years and trust them 100%. The owners are David Hall and Van Simmons. They specialize in high quality rare coins, but they will sell you bullion coins at competitive prices. If you are interested, contact Van Simmons at Van@Davidhall.com or call 800-759-7575.

APMEX – Founded in 1999, APMEX (American Precious Metals Exchange) is one of the largest online bullion dealers in the country, with over $11 billion in transactions. Based out of Oklahoma City, APMEX sells gold, silver, platinum, and palladium products and also buys gold and silver from customers. Their prices are competitive and transparent (no hidden fees beyond shipping/item costs).

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In the mid 1990s, when I began consulting with Agora, the business had its headquarters in a mostly black Baltimore neighborhood. It was about a mile from the inner harbor, where I had an apartment on the sixth floor of a new, rather luxurious, building. On pleasant days, I’d walk to work, always stopping for breakfast at a little market about a block from my office that was run by a family of Koreans.

There was nothing about the place that was exceptional. The lighting was poor and the aisles were narrow. But the shelves were overflowing with every sort of consumable you could possibly need. And it had a counter that was just long enough to accommodate four stools. The only way you could not have a clear picture of what I’m describing is if you have never been to any large- or mid-sized city in the USA.

The family that owned it – the parents must have been in their late fifties – had three teenage daughters. The parents worked from opening to closing. The girls worked after school and on weekends. They were not, by American standards, friendly. But because I wanted to get to know them a little, I gradually and gently pushed against their modest formality.

The parents were immigrants. They spoke just enough English to communicate with their customers. The children had been born in the US. They were intelligent, hardworking, and extraordinarily respectful of their parents. All three of them were accepted – on scholarship – into good local colleges. The family was, in other words, an Asian-American cliché.

What struck me at the time was how the family managed the girls’ education. While the eldest was in college, the other two continued working at the family business. When the eldest graduated, she went back to work and the second daughter went to college. When the second daughter graduated, she went back to work and the third daughter went to college.

I asked the girls if they thought it was fair – if they thought they should have been able to go off and start their own careers (and lives) once they had a diploma. They had no idea what I was talking about. My question made no sense to them.

Asians in America, Part II:

Why Are They So Successful? 

“Immigrants have been coming to our shores for generations to live the dream that is America. [We] have seen time and again that that dream is achievable.” – Nikki Haley

On Monday, I talked about the amazing success Asian immigrants have had in America. In terms of wealth, health, education, and optimism, they outrank every other racial group, including White Americans.

Why is that? Why is it that Asian-Americans, themselves victims of bias and discrimination, have achieved so much?

One factor may be that so many of them are first- and second-generation immigrants. There is a theory that immigrants are by nature an above-average group – more ambitious and enterprising than their countrymen that choose to stay home. So this could well be a key reason why Asians have done so well in the US.

But there are other reasons, too. If you spend even a single day researching Asians in America, you will discover that, despite the differences among them, they share some cultural characteristics. Specifically, they have a belief in and a commitment to:

1. Hard work – and not just hard work but working harder than their peers.
2. Education – and not just getting good grades but being better educated than their peers.
3. Family values – a respect for the nuclear family and parental authority.

Hard Work 

Asian-Americans have a pervasive belief in the rewards of hard work. In a recent poll, 69% said they believed that “anyone can get ahead if he or she is willing to work hard.” More importantly, 93% described themselves and members of their country of origin as “very hard working.”

But do Asian-Americans actually outwork other races?

According to the Bureau of Labor Statistics, Asian-Americans work about the same number of hours as every other racial group. Here is the data:

* White Americans – 38.9 hours per week (on average)

* African-Americans – 38.7 hours per week

* Asian-Americans – 38.9 hours per week

* Hispanic-Americans – 38.2 hours per week

As you can see, the differences in terms of hours worked are very small.

But as I said on Monday, there are some stark differences when you look at unemployment figures. Asian-Americans – at an astonishing  3% – have the lowest unemployment rate of any racial group.

That could indicate not just a commitment to work but also a shame in not working – two very different values.

Education 

Asian-Americans place a high value on education. And they work as hard as, or harder than, any other racial or ethnic group in America at educating themselves and their children.

As I pointed out on Monday:

* 87% of Asians aged 25 and older are high school graduates.

* 53% have a bachelor’s degree or higher.

* 23.6% have a graduate or professional degree.

And they’re great students.

There have been many studies done on why Asian-Americans do so well in school.

In one, a meta study of two national surveys that followed about 5000 students from kindergarten through high school, researchers were looking for evidence to explain the superior academic performance of the Asian-Americans. They had theorized that it had something to do with their innate cognitive ability – but that’s not what they found. Instead, it seemed to be due to a high-effort mentality instilled in the children by their parents. Asian-Americans, the researchers said, view education as a primary means for upward mobility – and they exert considerable pressure on their children to succeed.

Family Values

Compared to other racial groups, Asian-Americans place a higher value on family, marriage, and parental fealty.

Consider this:

* According to a Pew Research Center study, the majority of Asian-American adults list having a successful marriage and being a good parent as two of the most important things in life.

* Asian-Americans are more likely than other racial groups to live in a multi-generational household. Some 28% live with at least two adult generations under the same roof.

* 84% of Asian-American children (17 or younger) belong to a household with two parents. This compares to 68% of all American children. And only 16% of Asian-American newborns have an unmarried mother, compared to the national average of 40%.

* Asian-Americans have a strong sense of respect for their parents. About two-thirds say that parents should have a lot of or some influence in choosing their children’s profession (66%) and spouse (61%).

This is at least partly influenced by philosophical and religious teachings. Filial piety is an important element in Buddhism, Korean Confucianism, Taoism, and in Japanese and Vietnamese cultures.

* And here’s something I found noteworthy: In a recent study, 62% of Asians said that they believe American parents do not pressure their children enough.

Hard to Argue

Those are the facts.

What’s interesting is that this amazing story of Asian-American success in the US is not being told and celebrated. It is being ignored and even disputed because it suggests that a major thesis of identity theorists – that systemic racism is the cause of income, wealth, and education inequality in America – may be wrong. It also suggest that the solution to financial, social, and educational inequalities may not be as easy as making political, regulatory, or economic changes.

I’ll come back to this and related “identity” questions in future essays.

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