Now that gold is in a consolidation phase it is time to take the opportunity to review your assets  and understand the real advantage that they have given you is  ”life insurance ” .  For those that already own gold coins and know the many advantages of them, it’s time to strengthen your holdings.

We have heard people say “Personally I think that the price of gold will continue to drop because of all this news about a recovery.”  Recovery? What recovery?  The recovery of city traders’ morale because they have been offered two or three jobs a day for the past few months?  The recovery of your bank manager’s morale now that he is able to do his job like he did “before“?  No one has spoken to me about a recovery.  The budgets of many companies are still frozen as they wait for better days.  The bank accounts of some are nearly empty and uncertainties about their employees’ jobs have never been so great.  The global debt situation is frightening and the UK national debt is reaching dangerous heights, estimated at £1.1 trillion next year. In summary, nothing has been settled and we are currently navigating through a period of uncertainty, a vast smoke cloud. Most experts agree that gold is in a period of correction that falls into a pattern that has been repeated through out the last decade. There will be consolidation and that could be around $1100 an ounce and that will be followed by a rise of anywhere between $1300- $1500 by the end of the year.

To continue with this metaphor, the house is on fire in the basement but there is still time for those who don’t have any insurance to take some out.  The structure has been affected but there are still embers alive here and there and no one really knows where and how to extinguish them.  You can even consider yourself lucky because you know that the house could soon burn down entirely.

In this context, buying gold is a bit like placing Pascal’s wager: by not having it you have everything to lose.  By having it the worst possibility is that you will keep it and have to catch up on the rest (stocks, property etc.) Or put another way “Gold is not an investment, it doesn’t earn anything.  It’s a security blanket when monetary markers disappear.  Which is the biggest risk: having gold or not having gold? Not having it of course.”  – Simone Wapier Chief editor MoneyWeek

Those who today believe that you shouldn’t buy gold because the stock market is showing signs of recovery are those that systematically buy gold when its price is rising because it is talked about on the TV who sell when the price is dropping because no one is talking about it anymore.  In short, the same people who systematically lose on shares because they apply the same strategy to their stock portfolio. The simple chart shows a typical investment  cycle where the heavy public buying is a result of  greed and and the selling follows fear and despair but the overall trend is upwards for the discerning investor who holds his nerve.  Gold is still at this time the preferred investment of contrarians even if others are discovering its qualities.

Today, the price of gold coins means they are still worth purchasing, particularly because Napoleons have a premium of less than 5% and Krugerrands have a premium of between 5 and 7% as have sovereigns if bought from the right source.

All gold coins are not equal depending on what you want to do and where the coins are located and where you live.  You must choose coins that correspond with your profile and you must know how to diversify. Coins are also global and it pays to understand how coins are bought and sold in other countries and how profit can be made outside of your own country. We have this international experience.

Generally in Britain we should buy sovereigns, Britannias as they are our national coins and free from both VAT and Capital Gains Tax (CGT) but we may also consider the Kruggerand but accept CGT will have to be paid on profit.  However, we should be aware of the vibrant gold coin market in France where we can take advantage of their obsession with Napoleons where the premiums will rise at the slightest hint of any trouble. People who live in France  should buy Napoleons, also we have advised them to buy Tunisian 20 Franc coins (not sought after in France therefore a low premium potential in France) because they have a second home in Tozeur, in the middle of the Tunisian desert (place where the premium for this coin will be higher because of strong demand for gold).  We  have advised other people to buy sovereigns rather than Krugerrands because they travelled between France and China for business.

Generally speaking we advise the following:

• Medium and long term investors buying and selling in the UK should concentrate on the sovereign, Britannia or Krugerrand.  Other coins to consider internationally are the Napoleon, the Swiss 20 Franc Vreneli and the 50 Peso Centenario.  For info: the Sovereign is highly sought after in all the former British colonies but also in Germany, Greece and China. Without doubt it is the coin that has the greatest worldwide liquidity and is the coin of choice for use in an emergency and is issued by many nations armies, to personal likely to be exposed to danger. The Napoleon is essentially recognized in France, Switzerland and Belgium and could be interesting to the UK investor for the reasons above.  The Krugerrand is the international gold bullion coin and wherever you go this coin is sought after it may also be useful in shorter term investments.  The Swiss 20 Franc is the gold coin familiar to all the former investors in physical gold in particular the Germans, Swiss and French.  Finally the 50 Pesos Centenario can easily be traded for cash in all Hispanic countries.
• Those who like to play the markets and like us think that the price of gold will continue to rise and that there might be a rush on gold coins towards the end of the year, can consider the  Krugerrands which could become short in supply.  They could also follow the price of the $ 10 and $20 US  (Eagle and Double Eagle) which have very large differential premiums ( the difference between the base premium and the highest premium) and buy therefore when the premium is low (don’t expect the base premium to be lower than 10% however).  Such coins could gain or lose £40-45 in less than one day.  Finally, for those that want to play the French card, our preferred coin for trying to make a profit with is undoubtedly the 10 Franc Napoleon or the half Napoleon which can make 10 Euros in less than a day (which is enormous for a coin that is listed for around 80 Euros).  In France the half Napoleon is the coin with the highest differential premium.  But be aware, we recommend it for experts only because you have to know when to buy it at the best time (premium between 12 and 20%) and you must above all be certain of its quality (minimum VF condition)
• For Insurance, Investment and world wide liquidity and the added advantage of no Capital Gains Tax in the UK  buy the sovereign

An index of the most popular investment coins can be found at http://goldcoin.org/investment-coins/

In summary:

• You still don’t have any gold coins?
• You already have coins? Don’t sell them, strengthen your holdings.
• For the long term: Buy Sovereigns (antique but not numismatic or Elisabeth II), Napoleons, Swiss 20 Franc or 50 Pesos.
• For the short term: buy Krugerrands, $10 or $20 Eagle or double Eagle with a declining premium, or even very good quality half Napoleons when the premium is between 12 and 20%.  You know that you are taking risks with these purchases but in terms of profits you could very quickly increase your outlay.  This takes time, but you have everything to gain by monitoring the price of these coins and by creating email alerts for when a threshold (price and/or premium) is passed upwards or downwards.

You will find the following articles interesting:

• Investing with gold coins.  The novices guide – (to be posted)
• Analysis of Gold – Price consolidation

The Sovereign and Kruggerand also have internationally appeal but  the Swiss 20 Franc Vreneli, and the 50 Pesos are also interesting due to its very low premium but strictly as a long term investment for the day when everything implodes…

Updated by Maurice Hall for the UK market from an original article by Jean-Francois Faure president and founder of AuCOFFRE.com

Tags: crisis, Gold, Gold coins, Investment, sovereign

This entry was posted on Thursday, March 18th, 2010 at 2:45 pm and is filed under France, Gold, Gold coins, Great Britain, Investment, Money, USA. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.