With economic uncertainty and market volatility, many investors are looking to diversify their portfolios with alternative assets like precious metals. Gold coins, such as the American Gold Eagle, have long been seen as a way to hedge against inflation and geopolitical risks. However, gold coin investing also comes with some caveats. This article examines the pros and cons of using American Gold Eagles as an investment vehicle.
Gold Eagles provide direct exposure to gold prices
The biggest advantage of Gold Eagles is that they provide direct exposure to the price of gold. As official legal tender, their value is directly tied to the prevailing price of gold on the open market. When gold prices rise, the value of Gold Eagles rises. This makes Gold Eagles attractive to investors who want portfolio exposure to gold. An investor does not need to own mining stocks or ETFs to benefit from a rising gold price – the coins themselves capture this upside.
Gold Eagles have collectible value above the gold price
In addition to their gold content value, Gold Eagles also have a collectible premium. This means they tend to trade at a slight markup above the prevailing gold spot price. This collectible premium comes from the coins’ beautiful design and their status as official U.S. legal tender. Limited edition proof versions of the Gold Eagle command an even higher collectible premium. For investors focused on long-term appreciation, the collectible aspect of Gold Eagles can provide added return potential.
Purchasing and storage costs reduce net returns
While Gold Eagles provide direct exposure to gold prices, investors pay a premium over spot to acquire the coins. This markup averages 5-10% when purchasing from dealers. Investors also incur storage and insurance costs when holding physical gold coins. These expenses reduce the net investment performance of gold coins compared to owning gold directly through an ETF or online bullion account. Taxes on collectible gains further dampen net returns for some investors.
Gold Eagles offer a physical hedge and disaster insurance
Owning physical gold coins provides security in times of crisis that financial instruments can lack. Gold Eagles offer a tangible asset that is not dependent on financial systems. In an extreme scenario like war, natural disaster, or economic collapse, Gold Eagles could theoretically be used as an emergency currency. For investors focused on disaster preparedness and insurance, this physical aspect offers unique advantages over paper and digital gold exposure.
Gold Eagle coins provide direct exposure to gold prices while also carrying collectible value and physical security benefits. However, the premiums and costs associated with buying and holding coins can reduce net investment returns compared to cheaper forms of gold exposure. Overall, Gold Eagles are best suited for investors focused on holding physical gold as opposed to maximizing pure investment performance.