I’ve talked in the past about working out if a company is a good investment based on turnover, profit, free cash flow, etc but today I thought I’d talk about a different kind of beast, and that beast is gold.
I have in the past made a lot of money from gold coins, but just how do you safely buy and then sell them, and what should you be looking for?
Here is my lowdown on how to:
Since the middle ages, and in fact before that – even as far back as the ancient Greek and Roman civilisations, gold has been recognised as “real” money.
This is because it cannot be manufactured, created, or mimicked effectively, there is a limited supply of gold that has all occurred naturally, it has to be dug from the ground, and is extremely hard and costly to extract.
Originally all money was in the form of coins made from metal, there were no paper currencies until the 17th or 18th Century when the Scotsman John Law went to France and convinced the King to take coins out of circulation and replace it with paper that was backed with gold and silver.
It didn’t end well for the French when the King couldn’t understand that printing more and more money just debased the currency, and so in the end it bankrupted the nation.
One other problem that led to gold and silver coins being taken out of circulation was that if a coin was minted today and had a face value of £1 (since it contained £1 worth of gold), in another 2 or 3 or 10 years time the coin still only has a face value of £1, but the metal content is now worth much more than the face value of the coin.
This led to people taking the coins out of circulation, melting them down, and selling the gold or silver for more money.
In other words you could go to the bank with £100 in paper money, take £100 of silver coins, melt them down, and then sell the raw silver for £140 or whatever.
It was literally a license to print (or is that melt) money.
Subsequently gold and silver coins were taken out of circulation and became investment devices rather than something you’d buy your shopping with at the local shops, and as the value of gold has continued to climb, a coin that may have originally had a value of £1 may now have a value of several hundred pounds.
This is what people mean when they talk about inflation – it is the reduction of the buying power of the currency.
An old £1 being equal to a few £hundred pounds of todays money – just get your head around that.
Because the price of gold changes it is a bit like shares etc, but there is a bit more to it than that.
About Gold Coins
Gold coins are usually minted by the issuing nation’s government and as such they are highly trusted and have to adhere to strict specifications pertaining to the amont of actual gold that they contain.
In the UK the 2 most popular coins are the Sovereign and the Krugerrand, I’ll cover a bit about each below.
The Gold Sovereign
Sovereigns are still minted every year since they are highly collected, one thing to bear in mind if you buy a brand new sovereign from the mint is that you’ll pay a hefty premium over the value of the gold.
If you’re buying them for an investment then you’re far better off really buying old coins, since then you’re not paying for the manufacturing cost, you’re just paying for the gold itself.
Modern sovereigns were introduced in 1817 and were worth £1, that is to say they contained £1 worth of gold (today worth about £250 to £300), which is just short of ¼ of an ounce of gold.
You can also get half sovereigns that are exactly half the gold content.
After the first world war, inflation, and the end of the gold standard, gold coins were taken out of circulation and replaced with paper money instead.
The Krugerrand is one of the best known gold coins in the world, it contains exactly 1 ounce of gold (so much bigger and heavier than the sovereign), and consequently worth much more money as well.
Produced in South Africa there are also smaller Krugerrands available at half, a quarter, and a tenth of the size of the full coin, each containing the relevant amount of gold.
One thing to bear in mind with owning any kind of gold is security and insurance – if you are burgled and your gold is stolen then you are going to be seriously out of pocket since it is not easily traceable.
In fact I heard one story that what burglars had taken to doing was carrying around an envelope from one of the gold companies you see on TV so that after they had robbed a house of gold jewellery etc they could stick it in a post box and if they did get caught by the Police they had nothing on them.
You also need to be sure that you buy your gold from a reputable dealer, and of course the same when you sell gold.
The last thing you want to do is hand over your money and get nothing in return, or send off your gold only to find it has gone to a conman who vanishes with it. It does happen, so be warned.