When investing in physical gold, there are various formats from which the investor can choose. Each of them has its advantages and disadvantages and, to a large extent, the choice will depend on the tastes and particular circumstances of each one. In this post we are going to explain the main options that exist and some details.
Regarding ingots, there is little doubt: everyone knows how to identify them without fear of confusion. They can be of very variable sizes, from just a few grams to more than 12 kilos.
On the other hand, those weighing more than one kilo are made in the traditional way: pouring the molten gold into a mold, from which it is extracted when it cools and then polishing it.
This very simple way of manufacturing, together with the few details that they usually show, allows the manufacturing costs that are passed on to the client on the price of the metal (known as ‘premiums’) to be smaller than in the case of coins.
In their favor is also the fact that their storage is easier than in the case of coins, since they have a more compact shape that allows better use of space in safes or vaults.
Among the drawbacks of bullion as an investment asset is its larger size, which causes its value to be higher, which discourages many investors from storing it at home, for security reasons.
Depositing them in a specialized custody company, outside the banking system, is the most recommended option, although in this case the additional costs incurred must be taken into account.
In addition, the greater weight of the ingots means that, when liquidating them, there are greater difficulties than with smaller pieces. In fact, few companies are going to offer investors a price higher than the spot price for their bullion, especially if they are small businesses.
On the other hand, if the investor has his metal in the form of large bars, he may only need some liquidity, which he could obtain by selling a fractional part of the bars. However, he is forced to liquidate the entire piece.
Investment or bullion coins
Bullions have the advantage that their value is universally recognized and appreciated, especially if they are minted by the most prestigious mints. This is the case of the MünzeÖsterreich Philamonic , the American Eagle of the United States Mint , the Kangaroo or the Koala of the Perth Mint , the Chinese Panda , the Britannia of the Royal Mint , the Maple Leaf of the Royal Canadian Mint or the Krugerrand of the South African Mint .
In all these cases, these pieces have an active secondary market, so their liquidity is immediate. In addition, since they are small pieces, it is easier to liquidate them in times of need and adjusting sales to what you want to obtain.
Some investors also appreciate their design: accumulating simple gold or silver bars is not the same as these pieces, some of which (Panda, Kangaroo, Koala) change their reverses every year.
On the other hand, the premiums that investors pay over the spot price of the metal contained in these coins are often much higher than those imposed on bullion or medals.
In particular, bullions minted by certain government mints such as the US Mint or the Royal Canadian Mint, due to their enormous popularity, carry even higher premiums. And investors appreciate the added value of these coins being legal tender.
Medals or ’rounds’
The other option to invest in physical gold are the medals or ’rounds’, which are coin-shaped pieces, minted by private mints, but which, unlike those, have no face value and are not backed by any condition.
For this reason, the premiums charged by the mints that mint them are lower than those of bullions, although higher than the premiums of ingots.
It is an interesting option for the price, although it must be taken into account that, since it does not have the prestige of the bullions, it can be more difficult to obtain liquidity in the secondary market.
The collecting variable, which also intervenes in the case of bullions, is very important in the case of medals or ’rounds’, since it is its main component.
Gold or silver?
There are also differences between gold and silver, not only in price, but also in premiums. These are made up of manufacturing costs, on the one hand, and the market forces themselves, on the other.
When deciding whether to invest in gold or silver, one of the issues that must be assessed is precisely that of the premiums.
In this case, the premiums charged on silver products are higher than those of gold. The explanation is that the cost of minting or manufacturing a silver ingot, coin or medal is much higher in proportion to the value of the metal.
For example, if the mint charges a premium of $2.50 per ounce , that is equivalent to almost 10% of the value of the ounce of silver itself . However, in the case of gold , this cost barely represents less than 1% of the value of the metal.
Another influencing effect is the dynamics of the market, which means that certain products, especially those made of silver, are very scarce in relation to the existing demand in the market, as has been verified in the last 18 months, given the avalanche of requests of silver bullion, which caused supply problems and caused premiums to rise.