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Gold Sovereign coins tick all the boxes
There’s no doubt that Sovereigns tick all the boxes for the gold investor, especially in the UK. They’re good value compared to many other coins, small and therefore very divisible, very well known and liquid and Capital Gains Tax free to UK residents.
However, Gold Sovereign coins fall into two main categories. Brand new mint condition Sovereigns still in their Royal Mint laminate blister pack, and circulated older sovereigns. So which should you buy?
Firstly, its important to point out that collectors may have diferent motivations to investors, and they may overlook value to complete their collections. From an investment angle though, its always important to be ruled by your head and not your heart. Collectors may also be happy to pay significant premiums for proof Sovereigns (perhaps 20% or more), but the investor should steer clear of proof coins and stick to bullion versions, unless you can buy at the same sort of price.
Indeed, the first place most gold investors will start is price. Usually I’d recommend that a Sovereign buyer opts for older coins for the simple fact that you can pick them up for about 3% less than brand new ones. When it comes to selling them back, you’d probably receive 1% less than for a new one so you’re up 2% net. So that’s the end of the story……
Lack of supply
…except that right now there is a distinct shortage of second hand Sovereign gold coins on the market. If you are able to source some, premiums on them are higher than that of new Sovereigns, reflecting the lack of supply.
Alterntaively, if you wait in the hope that the lack of old gold Sovereign coins supply will loosen, there is the real possibility that the underlying gold market price will move up from its current position. While some buyers obsess about the premium they’re paying for gold, it is the shrewd investor who realises that it’s the absolute price you pay and not the preium which will determine your level of return. It’s pointless waiting 3 months for the premium on circulated Sovereigns to fall 5% if the underlying price rises by 10% in that time!
Either way, we’ve seen the underlying gold price fall significantly in December and it has only just started to rise again over the past week. With European debt issues intensifying, everyone agrees that gold should make strong gains this year. The recent price dip at the end of 2011 represents a great buying opportunity.
So for my mind it’s best to act now before the price runs away, and as it stands Brand New Sovereigns ARE better value than old ones. They’re cheaper to buy, easier to sell (as they’re in perfect condition), and you’ll receive a higher price when you do choose to liquidate.