American Gold Eagle bullion coins are an excellent way to balance your investment portfolio and reduce risk with the security and profitability of gold, the world’s oldest and most trusted asset.
The only gold bullion coins backed by the U.S. government for weight and gold content, American Eagles are the safest, most secure, and most convenient way to invest in gold bullion.
My blog is about contrarian investing, but this is way too contrarian of an investment, even for me!
The first problem I have with buying gold coins are the transaction costs. For example, based on some quick research, it looks like one faces a 5% premium over the price of gold plus shipping costs in order to purchase gold coins. I imagine that you'd lose most of that premium when selling, resulting in a significant bid/ask spread.
The second problem with gold coins is that you have to store them somewhere. You'll need to buy a safe, and that's still not a 100% guarantee that they won't be stolen or destroyed in a hurricane, earthquake, fire, or other disaster.
The most sensible way to buy gold is via the new gold ETF (NYSE: GLD). You can buy and sell instantaneously with hardly any transaction costs.
Perhaps some gold investors fear the ETF because they think that the financial system will collapse and their shares in the ETF will become worthless. But I don't understand why it's assumed that gold coins would be worth anything under these circumstances. If one is planning for the end of the financial system, perhaps a better investment would be a nuclear fallout shelter, guns and ammo, and a year of canned food and bottled water.
Even the gold ETF is a bad investment in my opinion. It's just not leveraged enough. If the price of gold goes up by 50% from here, that's really not such a great return on investment. I like to buy things that will at least double. That's why I own shares of DRD Gold (NasdaqSC: DROOY), a gold mining company. DRD Gold is highly leveraged to the price of gold and will increase in value many times if gold ever takes off.
Not that I own any... but the point of gold coins is if you think it possible that the monetary system collapses, and that the government massively expropriates wealth. (Which one comes first, well, doesn't matter.) Gold coins can be hidden. Ownership of an ETF cannot.
There's a good reason why some folks think that gold will still be valuable then: because gold has always been chosen as money by all peoples that have had any of it. Gold is simply the best money there is to be found in nature. Of course, it's not necessarily true that the experience of the last ~5000 years of human existence still applies today. But how would you bet, if you had to?
Posted by: Leonard | February 22, 2006 at 06:15 PM
FDR did make ownership of gold illegal, a really dark time in our nation's history when the country almost sank into communism, and we never really full recovered from the episode.
But nevertheless, I invest to get rich within the financial system we have. If everything collapses, you may find that when you try to cash in your gold coins, gangs of bandits will just steal them from you. Assuming that gold is even valued as goldbugs think it will be after a hypothetical financial collapse.
In the long long run, gold has proven to be a lousy investment. The reason to buy gold now is to take advantage of a commodity bull market that still has a long way to go. But you want to sell at the top of the bull market, and not be one of the fools who hung onto their gold in 1980 and watched all of their profits evaporate.
Posted by: Big Mike | February 22, 2006 at 11:29 PM
Hi, Big Mike
Not at all ...
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Posted by: real1 | February 23, 2006 at 08:39 AM
I invest to get rich too. And fully intend to sell my gold (GLD, more specifically) when I think it has topped. Nor do I think there will be a complete collapse of the financial system.
If I did, though, I would want to physically possess gold.
Why? Well, sure, roving bandits *could* dispossess me. But that's just could. Putting the same money into owning paper ... that's *will* dispossess me (or just see the value go to zero).
But I explained why I think gold would still have value: it's simply an observation of human action over the past thousands of years. Gold, if it is available at all, is the best money that people have found. Assuming that human nature is not changed fundamentally in the event of this hypothetical collapse, whatever it is that makes gold the best money will still operate. And it will continue to be the best money... and thus, a store of wealth that will transcend the disaster.
Posted by: Leonard | March 02, 2006 at 06:11 PM
Mike,
I agree that the ETF is a sensible way to buy gold - it mitigates the transaction costs. Or for more leverage, you could use the futures, especially the new CBOT 100 oz futures. For the individual, the CBOT's contract reduces execution risk through electronic trading (that the COMEX doesn't have). Either way, if you desired the physical gold in the end, you could always opt to take delivery on the contract (although, personally, I prefer the liquidity of staying in the futures).
I also prefer this to investing in gold stocks because when I buy a stock, I am investing in the profitability of the company. As we all have seen, companies go out of business, but physical gold will never go out of business.
Posted by: Chad Butler | March 21, 2006 at 10:39 AM
There is very little doubt that should the financial system collapse that a metal with the following characteristics would serve as the primary medium of exchange - not becuase it has any instrinsic value, but precisely because the failure of the financial system will derive from systemic problems unaffiliated with the following: 1) Finite supply (for all practical purposes. 2) Knowledge by users of medium that supply is finite. 3) Knowledge by users that others will accept the medium; and 4) knowledge by users that others are familiar with Points 1, 2 and 3. Gold, Silver, leaves of grass (if they were finite and not easily forged) or anything with the abovementioned characteristics could serve as the primary medium. Given the historical role played by Gold, it is the likely alternative, with silver.
Posted by: tim | March 25, 2006 at 01:25 AM
gold has been currency for 5000 years . The main reason gold bugs buy physical gold is they fear fiat currency . A world that values US currency at 10 or 15 percent less then it was a year or two ago .
Posted by: Sean Berberick | April 02, 2006 at 03:20 AM
Gold has a lousy investment history. It is going to go up? Who says so? the sellers love to talk like that. Sorry, I was invested in gold in the early 80's, enjoyed some run up in price, sold out for school expenses, just in time. Then watched a crash at lasted two decades. Lucky me. I will not be back. Hmmm, Gold made a huge drop yesterday, how can that be?
Who will buy your gold in the financial collaspe? will you trade one coin for a meal? Get real.
Posted by: Ron | June 14, 2006 at 12:55 PM
Just dug this up and was curious if any original posters have changed their minds with the recent spike in the price of gold at over $800/oz?
Posted by: Jeff | December 23, 2007 at 11:07 PM
I'm posting this on Jan 5, 2008 and all I have to say is enjoy eating your words. $863 and going to $2000. I have to say that I am happy that I bought all I could four years ago and it was bullion, so I guess that little dealer markup has paid for itself already. It's still cheap even now, so buy up and buy physical holdings, and a gun to protect it if your scared about a bad guy coming for it.
Posted by: Ryan | January 05, 2008 at 09:17 PM
Wow! 928! I bought when gold was $253. I'm thinking $1000 might be time to bail; any thoughts?
Posted by: Sundancer | January 29, 2008 at 12:35 AM
I have been a gold coin collector for over 20 years and track my financials religiously. All my coins are worth substancially more today than I paid for them to the retun of an average gain of 12%.some over 100%!!!
Additional when the time comes to sell ,it will be to another private collector so I will not pay any capitol gains tax. Not the case with your ETF.
$250 buys a safe that is practically indistructable these days.
Posted by: ken | February 15, 2008 at 09:58 AM
I cannot agree more with Suzan, Capital gains can kill the gold investment. Coins are at a different things, not so liquid as ETF.
Posted by: ongrowthtrack | March 05, 2008 at 12:27 AM
I contend that coins are actually *more* liquid than an ETF. With an ETF, I have to go through the process of selling the shares followed by inter-bank transfers before I see any cash from the sale. (which usually takes a week or more, in my experience.) With a coin, I can go down to the local coin shop and have cash within the hour.
Posted by: Anonymous Coward | March 27, 2008 at 10:08 AM
Ive never had any trouble liquidating gold at a moments notice
Posted by: Don | May 08, 2008 at 01:11 AM
One can say that rare coins hold there value in a falling market and tend not to crash when the market rebounds. Gold Coins are not only an investment but a collectors item as well. Some coins run in the hundreds of thousands for dollars not because of weight but because of rarity. Collectors will continue to gravitate to this type of investment because you can actually hold and look at the coins. Lets face it Gold Coins if bought correctly are a great investment. Just keep them in a Safty Deposit box and choose wisely. Dont think about weight think about rarity and weight.
Posted by: John | May 28, 2008 at 02:15 PM
Mike,
DRD chart shows the stock at $35 in 2004 and is currently trading at $5.27? Gold has almost tripled?
Let me know if I am missing something.
Thanks
Tom
Posted by: Tom | August 07, 2008 at 06:24 PM
It is easy to miss the point on an investment. One type is short term--try to hit a run up and then sell. You can make money with lots of stuff that way. But if you look at gold for the long term, forget it. If one had bought gold in 1970 at $35, not much chance of that now, and sold now at $750, you would have a whopping 6% return Cool? It gets worse starting in the 80's. Gold has no long term history that suggests it to be a long term money maker.
If the world goes bankrupt--who sets the value on your gold: the one selling you something. As someone pointed out, will your double eagle be worth a $1000, $20 or the price of a meal? How is change made when you agree on a price of $20 and the coin is worth $25? Do you bite off a piece?
Speculate all you wish, just don't call it a long term investment.
Posted by: Ron | September 23, 2008 at 08:37 PM
Hi Mike, I just reviewed the chart for your recommended DRD Gold (NasdaqSC: DROOY), a gold mining company. A company that you mentioned "is highly leveraged to the price of gold and will increase in value many times if gold ever takes off." A company in which you mentioned you would prefer to invest your money over gold coins.
I analyzed the following 12 year period to compare their stock prices:
10/1/96: DROOY price: $84.22/share
10/1/08: DROOY price: $3.64/share
I calculated an annualized and compounded -23.04% return (yes, a NEGATIVE 23.04% compounded annual return). Of course such a return would decimate any amount of money invested in DROOY.
I am not surprised in this significant drop in stock value as the performance of DROOY over the past 10 year period has been dismal at best:
DROOY Annual After-Tax Net Income Reported Numbers:
1998: -$20,000,000
1999: -$11,000,000
2000: -$168,000,000
2001: -$10,000,000
2002: -$52,000,000
2003: $37,000,000 (the only positive after tax net income year in 10 years)
2004: -$26,000,000
2005: -$41,000,000
2006: -$1,000,000
2007: -$36,000,000
Total: -$328,000,000 (after tax net income 1998-2007)
Due to this extremely poor operating performance, DROOY had their debt increase and equity decrease over the years which resulted in a negative net worth of: -$9,000,000 on their balance sheet for their fiscal year end 2007. Yes, that is a negative nine-million dollars in equity for their fiscal year end 2007. History dictates that once a company achieves a negative net worth, it falls into a dark abyss where borrowing becomes difficult, vendors are chasing the company for payment of accounts payables, layoffs occur, etc.
Me personally, I would absolutely run from a stock like DROOY. Making an investment like this is not comparable to investing in gold. It is investing in the management of DROOY and their ability to execute as a company. Another inherent problem in investing in a gold mining company is that they there is a reasonable opportunity that a gold mining company could produce minimal results in their mining.
I personally would absolutely choose to invest in gold coins over a company like DROOY. DROOY is such an extremely poor recommendation, I am quite curious as to your basis for this recommendation and if you actually poured into their annual performances as I do in any investment I make and as I did in my analysis above.
Posted by: Stan | December 24, 2008 at 06:08 AM
I believe that one should not invest everything in gold. However, given the fact that our current US government policy is going to lead to massive inflation in years to come, I believe that gold will prove a worthwhile investment. Also given the Madoff scandal, I think I would prefer holding my gold in hand, rather than have a slip of paper that tells me there is gold somewhere in a safe of which I am a fractional owner.
Posted by: KDUBZ | January 25, 2009 at 11:24 AM
BUY GOLD COINS !!!!! Even buy just scrap gold, buy all you can and hold on to it... you will not be disappointed...but you will have a great investment, gold will be at $2000 an ounce just after 2010 !!!!! Buy all you can buy and remember what i say !!
Posted by: Joe Knows !!! | February 26, 2009 at 12:54 AM
Gold ETFs must be backed by physical gold. I imagine once gold takes a massive run on demand the ETFs will not be able to keep up. Yes, you hot ETF will be closed while those holding physical assets will have the power. Physical gold is recognized and traded around the world; your ETF is not. You can easily buy and sell physical gold without capital gain tax, sales tax, fines, or fees. Gold is a TANGIBLE asset; not an electronic or paper asset.
Posted by: Joe | May 10, 2009 at 02:57 AM
Gold has an intrinsic value that has been recognised and utilised by man for thousands of years. In times of economic instability, gold has maintained or even increased it's value. Gold coins are a practical and legal way for individuals to physically keep gold.
Posted by: Buy Gold Coins | May 22, 2009 at 12:57 AM
After I read this post I e-mailed it to my broth in law who recycles silver. He was trying to talk me into precious metals. He just e-mailed this back to me. He knows I lost 300,000.00 in really good conservative stocks funds, and a smattering of hedge.
After I read BIG MIKE's post I never looked back. Until today. OOPS If I had followed my brother in laws advice I would be 450,000 ahead. This post cost me 3/4 of a million. Not seriously. I never would have gone 100% but seriously considered 15. I ended up at 3 and that was my biggest winner the last three years. YUP. I purchased bullion and sold it last spring when I needed to save my business.
THis summer I buy 10 oz of gold and 2200 oz of silver. My brother in law will sell it to me at spot. Lets talk in three more years.
Posted by: John | June 09, 2009 at 06:35 PM
The only people who make money on a regular basis by investing in gold are the brokers. Buying gold can be a hedge against inflation but not gold coins.
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Posted by: Gold IRA | July 07, 2009 at 07:12 AM
The stock he originally mentioned seems not to be tracking the increase in the price of gold... seems like it would have been a loser...
Posted by: TheDude | October 10, 2009 at 11:04 AM
Wow. Did the author completely miss this one or what?
Posted by: Pete | October 18, 2009 at 06:51 AM