HOME
LIVE CHARTS
VIDEO INTERVIEWS
ARCHIVES

Should I Buy 32 Krugerrands or a 1 Kg Gold Bar?

By: GoldCoin

After all they have the exact same weight in Gold.

For a long time the buying and selling of gold has been outside the reach of the average citizen. The predominate banknote and the dominant currencies previously managed to position themselves very well in respect of the precious metal during stable periods. However, it is during difficult times that the true, safe value of gold really stands out. A lot of businesses which were deemed lucrative and reliable have been unmasked since 2008 thereby clearly exposing the reality of the situation. Similarly, quantitative easing and currency wars have highlighted the volatility and vulnerability of currencies during recent years. Countries like China with huge Forex reserves, institutional investors, pension funds and even personal saving accounts alike have lost significant value in the blink of an eye as currencies have weakened.

The reality to which we are referring is the stability and confidence of an investment in gold. Fortunately, nowadays it is easier for you to convert your savings into gold. Think for a moment of the real value of a banknote or currency. They are hopelessly vulnerable given that the price of coloured paper is not worth anything. Let’s not kid ourselves. Your savings are safe if they are converted into gold given that since it was first admired by human beings, it has been desired, sought after and treasured through the centuries.

The first step in buying Gold

If you have already decided to buy gold to transform your savings into something of value, perhaps you don’t know where to start. Since the US, UK and Canada, amongst others, entered this crisis in the spring of 2008, many business involved in the buying and selling of gold have sprung up in towns and cities everywhere. Many of these are actually looking to buy your gold, offering you cash in so called great deals, but most have been exposed as a rip-off because they are part of the recycling business. It is normal for you to be asking yourself whether these businesses are reliable. Do they sell 24 carat gold? Do they give you a good price? What do you do when you want to sell? The common denominator is that such businesses spring up because the demand for gold is so high and so lucrative. There is not an infinite quantity of gold on our planet so recycling surges like this indicate that demand is high, supplies dwindling and of course that the price of gold is rising. The prices paid for recycling your gold are far inferior to the headline spot price quoted because companies have to make their margins.

It is probable that your bank is not able to advise you either because it is not their speciality or they prefer you to invest in their own portfolio of investment products. If you decide to go to a dealer in Hatton Garden, Downtown New York, Sydney or Toronto, it is probable that they sell whole gold bars or smaller fractions as gold ingots. At first sight it seems very safe and easy but be careful what you pay. The price of a 1Kg bar shoul be near to the gold price plus a few percent. However, the smaller ingots do not compare so well. Often these are sold up to 50% higher than the spot price. You buy the gold over the counter and then what. Ideally you should store it in a vault for security but remember that your bar or ingot loses value immediately because it has left the professional circuit. When it comes to selling you will need to pay (and find) a professional to assay (verify) your gold Also, the issue is will you make a good return on your investment. In the case of expensive smaller ingots the gold price will have to increase drastically to recoup the 50% premium before any return is made.

We should also point out that a 1 Kg bar has certain disadvantages. To start with, if you wish to sell it in fractions, it is obviously difficult to cut up and so when you wish to sell it has to be the whole bar and you need to find a buyer who has the money for a whole bar and trusts you that it is what you say it is. It is also difficult to transport because at airports it is considered as a blunt instrument. It is impossible to send by post because it can only be insured for a maximum value of five thousand Euros (or equivalent) and there are also false ingots which are either plated or filled with tungsten. The list is long but most importantly the price of bullion bars only increases with the spot price. This is important to remember at resale. The most important moment for a gold investment is the moment at which you choose to sell it i.e. for a maximum return on investment.

There are some new innovations on the market that offer smaller ingots at prices similar to a 1Kg bar. These are good value as they allow investors to enter the market and pay a reasonable price plus they are easier to sell because they can be sold separately. The other important factor for any gold investment is where to keep it. There is only one safe place- in a Vault. This protects the integrity and value of your investment because it never leaves the professional circuit and there are no unnecessary transport costs to eat away at your investment. It also makes resale very simple because the gold does not have to move.

In summary, beware of over-priced small ingots, do not take possession of gold and when you buy a 1Kg bar ensure that it is from a reputable professional source and close to the spot price. However, bars and ingots do not maximise the benefits during periods when the price of gold is high, especially during the current crisis, although allocated physical gold is always preferable to “paper” gold as an investment.

If Gold bars are good but not the best physical gold investment then what is?
What should I do if I have about thirty six thousand Euros to invest?
Buy a 1Kg Gold Bar or Gold coins with 1Kg of pure gold content?
The answer is clear: buy thirty two Krugerrands (that contain 1Kg of pure gold).

Gold, the value of confidence

The word crisis means change and we do not doubt that on many occasions this is positive, but if it is about our savings, our confidence in the future, then the crisis shakes us and makes us anxious and uncertain. Many Europeans have always had confidence in gold and now, in these unstable times, they feel satisfied with their choice. For example, our French neighbours hold between three and five thousand tonnes of gold, almost double that held at the Bank of France. But are they Gold bars? No, they are coins and, specifically Kruggerands. How is it possible to feel confident saving if our confidence is based on paper? It is clear. There is nothing more reliable than gold. Has it not survived thousands of years up until now?

How can we measure its value?

During these uncertain times in which we are living, selling gold coins is easier than buying them. We have now witnessed a period of high prices for gold. We are able to calculate the value of coins by a so-called premium. The premium can be zero or very low which is when coins are being sold at the price of the gold they contained.
To explain, the premium of a gold coin is the difference between its actual selling price and the price for the gold content it contains. This is expressed as a percentage.
As demand increases for coins so the premium increases. Please note that the premium of a Gold coin can rise dramatically even if the gold price doesn’t. This means buyers are seeking the coin as a store of wealth and safe haven.
The benefit of Gold coins is that they can rise in price with the gold price (reflecting the pure gold content they contain) and because demand is high (their premium increases).
The premium can be different depending on location representing a differential in demand.
This difference can be illustrated and calculated by taking the price difference between a one ounce Kruggerand in the UK, for example and the same in the USA or Australia. These two coins have the same weight and the same quantity of gold (Law of 900 °/oo) and yet the price can be different given that the Kruggerand is much more in demand in one country or in limited supply.
These differences in price for the same coins are known as the Premium differential and they can be used as a measure of supply and demand but also as a means for judging the value of a gold coin investment. Remember that 2 factors change the price of a coin, the gold price and the premium.

It’s a case of Heads you win, Tails you win!

We decided to use the example of the one ounce Kruggerand because this is a very well-known coin, but we could equally have chosen the Swiss Vreneli, the Sovereign or the American Gold Eagle, all which are recognised throughout the World.
Finally, physical gold investment is an excellent way to protect your wealth, especially during times of crisis and instability. Protecting your investment and maximising its return means keeping it safe and secure in a Vault. If you have the means to make the choice between a 1 Kilo Gold Bar and 32 Krugerrands, which one is the best investment?
32 Krugerrands everytime!

GoldCoin.org

Posted Wednesday, March 09 2011