There are a number of reasons why gold coins are a useful diversifier in an investment portfolio. Here we take a closer look at gold as an asset class, and some of the coin types that perform particularly well.

The gold price: historically, gold coins have shown impressive returns, and more recently we have seen all-time highs (up 35% in 2020). While this figure hasn’t been sustained, gold remains around 25% up on the year to October 2020.

The hunt for yield: many countries’ bonds have very low or even negative yields, and in addition to stock price volatility, the (taxable) dividend yields from equities are also trending lower.

Economic uncertainty: Covid-19 has dramatically contributed to rising government debt levels around the world. Individuals’ wealth is therefore at risk of devaluation — if it’s held in cash (negative interest rates), as opposed to real assets such as property, land and gold. Gold is a finite resource which is a liquid way to protect wealth.

There are many reasons why we see the gold price in the next 10 years being three to four times the value it is today — and by extension we are bullish for gold coins in general. If our view is right, gold coins have the added benefit of scarcity value, liquidity and ease of storage.

Supply and demand

Prices associated with gold coins are driven by the economics of supply and demand. While the supply of investment-grade coins remains fixed, demand is growing. The increase in demand for physical gold seen in 2020 has raised bullion dealer’s premiums above the spot price; gold coins such as sovereigns and Britannias are selling at a 3-5% premium in the second-half of 2020; and collectable gold coins are trading even higher.

Price stability

Gold coins are price stable in the medium- to long-term compared with other investments. This is because demand is increasing — most recently with heightened interest from BRIC countries. China, the world’s largest producer and consumer of gold, has mandated its central bank to increase gold reserves to match that of the United States — requiring 4,500 tons in the next four to five years. This, coupled with the supply chain disruption due to Covid-19, makes a compelling case for a continued rise in gold prices.

Hedge and diversify

Gold coins offer a hedge against and protection from inflation and currency devaluation, and act as a diversifier against traditional asset classes. Gold has reached all-time highs against the pound, which had weakened, but also new highs in many other currencies including the euro, Swiss franc and USD.

Capital Gains Tax (CGT) and Value Added Tax (VAT)

Selling or disposing of most assets in the UK attracts CGT. This can include paintings, antiques, most shares and any property aside from your main residence. Coins are CGT exempt for UK residents, as they are classified as legal tender. Additionally, gold enjoys a VAT exemption — The Coin Cabinet sales are therefore VAT free.

Other factors

Near- and long-term price trends of gold coins, and the underlying reasons why they represent an investment opportunity, are addressed in The Coin Cabinet’s blog, monthly newsletters, quarterly webinars and social media channels.

Read more about building a portfolio.

To discuss investing in gold, or for more information about building a portfolio, contact The Coin Cabinet’s Investment Director, Tom Pelc.

The information provided is for your general information and use and is not intended to address your particular requirements. In particular, the information does not constitute any form of investment advice or recommendation and is not intended to be relied upon in making buying or selling decisions.  We therefore advise you to seek your own independent advice before making any such decision.