Investing in Fractional Gold Coins – Pros and Cons

The term fractional gold refers to coins that have less than one troy ounce of gold in them. Most numismatists will tell you that coin releases undertaken by large mints around the world include sizes that have less than one troy ounce of gold. The one exception may be the world-renowned Sovereign coin which weighs approximately a quarter of an ounce. Being a ‘full’ Sovereign, it tends not to be referred to as fractional.

When we think about it, it seems like an awfully small amount of gold. So, why should anyone want to invest in fractional gold? Are there any advantages or disadvantages? Why is fractional gold considered to be a hot investment category?

In this article, we will discuss the pros and cons related to buying fractional gold.

Most major precious metals mints will produce fractional versions of their flagship one ounce gold coin. Examples of well-known fractional coins from around the world are Krugerrands, Maple Leaf coins, Philharmonics, Eagles and Nuggets. Alongside the 1oz gold coin, there will usually be versions made in half ounce, quarter ounce and tenth ounce weights. Some mints even produce tiny 1/20 oz fractional gold coin. Usually, mintage volumes of fractional coins are far lower than the original 1oz version.

For UK investors seeking to be tax efficient and buy UK coins, there are a number of fractional UK gold coins available.

• Gold Britannia 1/2oz, 1/4oz, 1/10oz
• Gold Half Sovereign, Gold Quarter Sovereign
• Gold Queen’s Beasts 1/4oz
• Gold Tudor Beasts 1/4oz
• Gold Lunar 1/4oz, 1/10oz (limited)

Its worth considering buying fractional gold coins  for several reasons. With gold’s popularity with retail investors growing each year, demand for smaller fractional coins is also increasing. Their many benefits appeal to smaller investors and collectors and mints have responded by producing more fractional coin varieties.

Well, the simplest factor that comes to mind is, of course, the price of the gold. Needless to say, larger and heavier coins are way more expensive. If you’re a numismatist or a hobbyist, you may not want to commit very large sums of money while spending on building your collection. Fractional gold coins allow you to build a collection without breaking the bank. Fractional coins allows investors to buy little and often, rather than having to save up for a 1oz gold coin. This can be appealing for those wishing to regularly ‘Dollar Cost Average’ into gold.

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Major currencies around the world continue to fall in value year on year. The post-Covid inflation spike has highlighted the falling purchasing power of major currencies such as the Dollar, Sterling and the Euro. Speculation mounts that if global economic issues deteriorate further, then many ‘fiat currencies’ will be worthless as we know them.

Owning smaller gold coins provides many customers with peace of mind that if the unthinkable happens, they could use the small gold coins to barter and buy goods. Owning large 10z coins would provide difficult to exchange for goods with any fairness. But owning 1/10oz coins or smaller, would enable people to exchange them for a variety of day-to-day goods or services.

Building your collection from scratch can be an absorbing experience. So, that’s all the more reason why you need to get more bang for the buck. Investing in fractional gold coins will mean that you’re buying your bullion in smaller sizes and can, therefore, acquire more for the same price. If you keep at it, over and over the years, your collection will grow and you could have a formidable gold coin collection.

Many collectors frequently sell a few gold coins for a bit of liquidity and cash flow. Fractional gold coins are ideal for this purpose, as it is possible to trade in them without selling off the more expensive coins from your collection. This is why some collectors like to invest in fractional gold coins.

Numismatists all over the world are constantly on the lookout for trading opportunities that can help them acquire better coins for their collections. In terms of liquidity, fractional gold coins are great as they offer good bartering opportunities, which is not always possible with gold coins that contain a higher amount of gold, with a larger value.

As the price of gold rises, the value of your fractional gold coins is also likely to increase. As discussed earlier, fractional gold coins are typically cheaper to buy and so, investors looking to make quick returns from the price of gold would buy these coins when the price of gold falls. Later on, as the price rises, they can cash in these coins and get quick returns.

Gold investors are always looking to hedge their risks in the event of a global economic crash. However, liquidity is also an important factor. In the event of a global economic meltdown, most investors would move to gold and the price of gold would rise swiftly, as it did in 2011. At a time like this, if an investor wants to free up some of their capital, fractional coins are ideal as they can be sold to raise funds for smaller purchases. Selling a large amount of gold is not always ideal as the investor may not want to liquidate large amounts of gold, when not required.

Although it might seem that investing in fractional gold coins is a smart idea for investors, these investments also carry certain risks and costs.

As mints produce large amounts of gold coins, their setup cost for manufacturing these are typically more expensive when it comes to producing gold coins that contain less than an ounce of gold. Usually, 1-ounce gold coins are available at the best price per gram. Therefore, fractional gold coins would always have a higher mark-up price when compared to other gold coins produced by the same mint.

Mints often charge mark-up’s that range between 9 to 15% on fractional gold coins. Many investors see this as an undesirable factor, as the mark-up is not recoverable when trading in the coins.

This may sound basic, but tiny coins are easier to lose than 1-ounce coins. We’d recommend keeping fractional coins in a tube or bag to prevent loss.

We also sometimes see that smaller coins can wear slightly quicker due to their tiny size, so treat with care to maintain their integrity.

At Physical Gold, our gold experts have many years of experience in being able to advise investors on products that are ideal for building a gold portfolio, while maximising the opportunity to invest at the best possible capital layout. Call us now on 020 7060 9992 or get in touch with us online to speak with a member of our team. We would always be happy to discuss your investment plans with you and advise you on the best products that suit your investment goals, no matter how small your requirement.

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