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Home » Buying Guide » What Are the Ways to Invest in Gold Bullion?

What Are the Ways to Invest in Gold Bullion?

When it comes to gold, the most common question asked by any investor is what is more preferable - gold coins or gold bars. Most investors who are new to bullion investment find themselves in a corner and it can be quite tough to decide whether the gold coins will be more profitable and better investment or the gold bars. The truth is that both gold coins and bars have their own advantages and disadvantages and hence it is essential to research well before making an investment in gold bullion.

Investors need to identify their circumstances, market condition, and their need for investment in gold in order to help make an informed choice. Some of the important factors that you need to consider when making your decision include source of your investment, product premiums, value of the investment, type of investment (short or long term), how you will store gold bullion, and Capital Gains Tax if you are planning to sell.

What is a Premium?

A premium is any additional cost that will be charged over and above the gold spot price. This additional cost can be attributed to several aspects like cost of manufacturing, handling and packaging, insurance of the gold, and delivery. In the early 1960's, premium on gold sovereigns jumped to almost 40%. The exact premium as well as price of gold depends largely on several market factors at the time investment. An important thing to note is that changes in the gold bullion market take place every hour on a day to day basis.

The good news is that there are several reputed bullion dealers who would charge their investors a small percentage in premiums to remain competitive in the market although the dealers have to buy gold at a price above the spot price. The only way to minimise the premiums is through investing in gold bars, which attracts a lower premium as compared to gold coins. This is because gold coins have a lower unit size and hence higher manufacturing costs leading to higher premiums. Let's look at an example to understand this. There are two options available - a single 1kg gold bar and ten 100gm gold bars. Which one will have lower premium? The single 1kg gold bar! This is because the manufacturing cost will be lower for a single bar than 10 bars. Even though the quantity of gold will be same in either, you will end up with a saving of at least 1% or £350, which is a substantial amount. Single 1kg bars are perfect for those investors who are looking to keep them long term.

Are you a New Bullion Investor?

If you are new to bullion investment then you should consider investing in gold coins as well as bars. Gold coins are considered the best for low value investments. The most common question that new investors ask is how much should they invest initially?

The starting investment should ideally be around or less than £3,000. Right now the cost of 100gm gold bars is around £3,500; 50gm bars cost £1,700 while 1 ounce gold bars will cost around £1,000. These are approximate costs and can change quickly. If you are looking for an investment of less than £1,000 then you can choose from 1gm, 2.5gm, 5gm, 10gm, and 20gm gold bars.

The starting investment for gold coins can vary depending on the type of coins you want to invest in. Some of the popular investments include South African Krugerrand coins costing around £1,000. Coins are quite the favourite as they attract some of the lowest premiums and take less space because of their small size. British Gold Sovereign is also very popular and costs approximately £257 while 1 ounce Gold Britannia costs around £1,000. One salient aspect of investing in British Gold Sovereign is that it is exempt from Capital Gains Tax. You can even start your investment in Half Sovereign or quarter sovereign costing around £130 and £70 respectively. Some of the other choices in gold coins include 1 ounce gold nugget (£1,000), currency coins of UK (£250), 1/2oz Gold Britannia (£600), and 1/2oz Krugerrand (£600).

Opportunities for Large Bullion Investors

If you are planning to invest big sum of money in gold bullion then what you really need to focus on is return on investment. Will gold bars provide you the best return on investment or gold coins? Normally, it is recommended to invest in large gold bars like the 1kg gold bar, which costs around £34,500. You can also invest in the 500gm gold bars costing around £17,500 or opt for the 5kg silver bars costing around £4,000. The bigger the bars, the higher the value of the investment! If you buy in volume then the unit cost will be less and this will ensure a higher return on investment. 

Apart from the bars, it is often recommended to have a collection of precious gold coins like Gold Britannia, Gold Sovereign, and Gold Krugerrand. Since Gold Sovereign and Britannia are exempt from Capital Gains Tax, selling them will ensure higher profit for you. The only drawback is that you will have to pay a higher premium as compared to large gold bars. In order to derive maximum value, it is also recommended to buy gold sovereigns from different years as opposed to a specific year as it will be cheaper.

Last but not the least, investment in gold bullion offers a lot of flexibility. When it comes to higher value, gold bars are definitely the right choice for buying but might not be the best choice for selling. In fact, the smaller gold bars like the 50g and 100g gold bars offer higher flexibility during resale. Flexibility here denotes the ability to sell a part of your investment to make a quick profit or to access quick cash, which is not possible in a 1kg gold bar. If you have ten 50g gold bars, you can sell 3 and keep 7 for later but if you have a single 1kg bar then you will need to sell the bar itself. This is where flexibility really counts.

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