Why are Gold Sovereigns such a great investment?

gold sovereign coins

The many reasons to buy gold have been very well documented over the past few years. Most people are aware that the price has increased dramatically, they understand that gold offers great portfolio balance, protection against inflation and security against economic and political uncertainty.

What’s less obvious is which forms and types of gold to invest in. Like any tangible asset you buy, it is the price you ease you can sell it for which will determine your profit. If you buy a piece of gold that no one wants then it doesn’t matter how much the gold spot price has risen.

Gold Sovereigns

Sovereign gold coins offer a number of compelling reasons to invest.

First of all, they’ve been around for hundreds of years so enjoy a very well established reputation and deep developed secondary trading market. This means they’re easy to sell anywhere globally. The very fact that there are a huge number in circulation throughout the years also means a buyer has a great choice when buying. This contrasts with another UK coin, the Britannia, which has only been around for 20 or so years. So buyers generally only have the choice of brand new coins.

As a relatively small coin, they offer the chance of owning a larger number and variety than PHYS01_Animated_Gif_3_MPU1oz coins. Variety and diversity are always good benefits when you’re seeking a balanced gold portfolio. Because you get roughly 4 Sovereigns to an ounce it is easy to liquidate the portfolio in smaller fractions. This increased divisibility offers the investor a high degree of flexibility with their gold coins. It is also easier to find buyers of coins worth £200 or so than £900.

A major selling point of Gold Sovereigns is their tax free status. As a 22 carat coin Sovereigns are classified as investment gold and so are VAT exempt. This contrasts to some other forms of gold such as jewellery and gold nuggets, and indeed other precious metals such as Silver and Platinum which all attract VAT of 20%.

Tax Free Gold

The real bonus with Gold Sovereigns is that they’re also Capital Gains Tax free for UK residents. As legal tender in the UK, the Government don’t tax the movement of legal currency. This means that unlike some great foreign coins like the Krugerrand and Maple Leaf, investors get to keep 100% of their profits upon disposal rather than pay up to 28% to the tax man!

So the case for buying Sovereigns is strong, but you still need to ensure you’re getting the best value for money.  Almost always avoid buying proof Sovereigns if you’re an investor. You can pay 15-30% premium over bullion coins and will likely receive a fraction of this benefit when you come to sell. You should only consider proof coins if you’re paying close to the bullion price or if you’re a collector.

If you’re considering choosing between full Sovereigns and half or quarter Sovereigns, then always go for a full Sovereign if you can afford it. You’ll likely pay a higher premium for the smaller fractional coins equating to less gold for your money. I also think there is less demand for the half and quarter Sovereigns as they really are very small coins. Conversely I think the £2 ‘double Sovereign’ and £5 ‘quintuple Sovereign’ represent good options.

Finally, you need to ensure you buy the right age of Sovereign. This rule is relatively simple. Right now brand new Sovereigns remain expensive in my opinion. While they are beautifully finished you can pay 5% or more on top of second hand prices. Like buying a car, that coin will not be the latest mint year within a year, so will represent bad value. I don’t see a huge difference in the various years of issue in second hand Sovereigns. In fact I see value in holding a nice mix of coins, whether they be Elizabethan, Edwardian, Georgian or Victorian. As long as the condition is decent, it can be beneficial and enjoyable to hold coins from a number of eras. Some dealers may pay a little more for Edward VII Sovereigns purely because of his short stay on the throne but the difference is marginal.

All our semi-numismatic Gold Sovereigns are of at least selected quality which means we handpick our coins for a large number, rejecting those that may be showing their age more than others.

Happy investing!

Daniel Fisher

Daniel Fisher formed physical Gold in 2008, after working in the financial industry for 20 years. He spent much of that time working within the new issue fixed income business at a top tier US bank. In this role, he traded a large book of fixed income securities, raised capital for some of the largest government, financial, and corporate institutions in the world and advised the leading global institutional investors. Daniel is CeFA registered and is a member of the Institute of Financial Planning.

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