Frequently Asked Questions - :
Not yet, but we can arrange for places in South Africa to buy from you.
If you are buying Gold then the best deal for the average person is the Gold coins such as the normal Kruger Rands, Maple Leafs Gold Eagles etc as there is no VAT payable. The large bars give you a better price to gold ratio but you have to consider how you wish to own it. Also silver coins with a monitory value are also VAT free so again good value. We are not talking about limited edition coins here as they are priced according to the number minted and are much more expensive.
They can be potentially good as an investment but you have to know what you are doing. If they are Gold or Silver and you need to sell them in a hurry they will be only worth their Gold or Silver content which will in all probability be much less than you paid for them.
Gold is a comparatively dense, shiny, yellow metal. As an element, gold is quite resistant to corrosion (by oxygen, but also many other chemicals). There are medical (dentistry), chemical and industrial applications of gold (see also the entry for gold in Wikipedia).
Despite its relatively limited applications, it is well known that gold is comparatively expensive (e.g. when compared with the same amount of iron or copper). So, why (at least over the last couple of thousand years) has humanity perceived gold as one of the most expensive materials on the planet? The reasons are in fact very simple: gold is rare, gold cannot be created (synthesized under economic costs) and, as mentioned before, it is shiny and does not oxidize. The latter property made gold an ideal material for jewellery and other representative uses. The ever growing demand for jewellery and the rareness of gold hence determined its price. In return, the high price made gold an ideal store of wealth. In today's prices (Feb 07, 2007), one kilogram (around two pounds) of gold is worth around EUR 16,000 (equivalent to GBP 10,600 or USD 21,000). One kilogram of gold would have the volume of a small bar of chocolate and could easily be stored under your pillow or on the ground of the fish pond in your garden (no packaging required).
As gold was perceived as an ideal store of wealth, its importance as a medium of exchange in trade grew. Finally, this lead to the invention of gold currencies. However, instead of exchanging real gold coins, it would be enough to only exchange the right on or the promise of a certain amount of gold. Paper money was born. As a relict of the times when currencies were backed by gold, many financial institutions (central banks, the IMF etc.) hoard large quantities (several thousands of metric tons) of gold until today. Up until 1971, the US-Dollar was one of these gold backed currencies. Since many other countries linked their own currencies to the Dollar by more or less fixed exchange rates, gold was De-facto the world currency.
The amount of gold that has been found or dug out in human history is estimated at 120,000 to 140,000 metric tons (1 metric ton = 1000 kilogram). This amount of gold would fit into one massive cube with edges of a length of 19 meters (imagine a cubic 6-storey house made of massive gold). Around 20-25% (30,000 metric tons) of this gold is hoarded by central banks. The rest is privately owned jewellery (70,000-80,000 metric tons) and bullion (20,000 metric tons). In other words, most of the world's gold is in private hands. The amount of gold that is mined per year is comparatively stable at just above 2% of the world's above ground gold (around 2,600 metric tons per year). [All figures in this paragraph were taken from Galmarley.]
Reader J. J. sent in the following questions,
- How are bullion (24k, 99.99% gold) and 'collector proof coins' different and do they contain the same gold content?
- As a collector, which is worth more?
- As an investor which would be worth more?
- I read your article about your least favorite and most favorite ways to collect coins. You mentioned that buying from the "Franklin Mint" and "Bradford Exchange" are not the best deal. Does this include the U.S. Mint?
The Franklin Mint and Bradford Exchange are privately-owned companies who put out "collectibles" of various types, including coins, but because their coins are not from an official government entity, coin collectors are generally not interested in them. Although certain products issued by these companies (and their competitors) do have some modest secondary market value, their coins have historically done very poorly. With the exception of a couple of early Franklin Mint sets, coin dealers just throw these coins on a scale to weigh them, and pay about 92% to 95% of spot price IF they're even made of silver or gold, which many of them aren't. The U.S. Mint, on the other hand, is an official government mint, and its products do fairly well on the secondary market, especially over time.
As for the bullion offerings (e.g. 24kt Gold Eagles, Silver Eagles, etc.), the Proof and Mint-marked versions of these coins sold on the U.S. Mint Web site have the same bullion purity content that the regular coins do, but they're struck to a higher standard of quality and in limited numbers. Both types of coins have the potential to be good investments, but which one you buy will depend on your collecting or investing goals. If your main purpose is to buy gold bullion as an investment, my recommendation is that you don't buy these coins at all, but buy generic gold bullion ingots and bars that are sold for a couple of percentage points over spot price.
The U.S. Gold Eagle, as well as the Canadian Maple Leaf, Chinese Panda, and a few other coins issued by government mints all have premium mark-ups on them. The South African Krugerrand usually has lower premiums, but lowest of all are the ingots and bars issued by European banks and certain recognized private refiners. Some examples of the European bank ingot makers and refiners that are reputable are Credit-Suisse, PAMP, and Johnson-Matthey, and in the U.S. there's Engelhard and SilverTowne.
If you are buying gold just to store bullion, then buy the types that carry the smallest commissions on them, which are the ingots and bars made by these refiners. If, however, your interest is more in collecting beautiful coins that also happen to enjoy the solidity of bullion, you would go with the American Eagles, Maple Leafs, Pandas, etc., or better yet, buy classic U.S. gold, such as the Saint-Gaudens Double Eagles, which trade at bullion value plus about 8%-10% for most dates and grades. These coins have the benefit of double potential: the gold in them will always be worth bullion value, no matter what, but the fact the bullion is stored in a 100-plus year old American coin also adds the possibility that it will increase in value for its rarity. We have no idea how many were melted during the melting spree in early 2008 when gold topped $1,000 an ounce, but these coins will only get rarer over time, and the premiums on them right now are minimal considering their rarity and potential.