In a contest between gold futures vs gold coins and bars, which is it best to hold?
Although there has been, over the past few years, an introduction of new vehicles for gold investment such as EFTs, gold futures and the like, the feel and attraction of owning and having physical gold is still an important factor in the gold investment field. These activities require a lot of work, for example with gold futures trading one needs to keep well up with the gold futures news and be really up to date with the gold futures prices.
"There are "paper" representations of gold available, including futures contracts, certificates, pool accounts and exchange-traded funds," said James Turk, founder of GoldMoney.com. "They provide investors with exposure to the gold and silver price but have "counterparty risk". You only own someone's promise to give you the metal if you ask for it, and even a cursory look at monetary history clearly shows that promises are frequently broken." He continued. "On the other hand, the physical metal does not have any counterparty risk when you own and store it safely,"" he said.
And Jon Nadler, an analyst at Kitco Bullion Dealers also stated, "Gold has been a physical asset for 5,700 years, The very tangible nature and high 'fondle factor' that is associated with gold has traditionally made it an investment that people tend to actually hold in coin or bar form."
In the east the physical ownership of gold has been the norm for centuries, but in the west, in recent years, the apparent 'easy route out' to the physical issues of storage, security, insurance etc, and the costs associated with them, has been to let someone else handle the gold and just play with the money side. This has been more attractive for the trader perhaps than the investor but even so the larger range of products available for gold investment has made such choice items as gold futures, for example, more attractive.
"The physical sector tends to be one of the unique quirks limited to the precious metals complex, as the metals offer not fixed returns -- as you would expect with treasuries or equities -- and cost you money, as you have to pay insurance and storage costs," commented James Moore, an analyst at TheBullionDesk.com.
Physical gold is usually sold in the form of newly minted proof and uncirculated coins, bars and biscuits, bullion coins and rare coins as well as the larger bars and ingots. The larger the gold parcel sold the more such cost items come into the pictures, such as transport, insurance, storage etc. These can add to the cost and so it is the larger companies that buy gold in bulk with collectors tending to be content with the smaller easily transportable coins and small bars.
Nadler recently observed that U.S. and Canadian mints sold about 3 million one-ounce Eagle and Maple Leaf gold coins to global investors from 2001 to 2005. "Modern bullion coins retail for between 2% and 4.5% over the live market spot rate for gold, so they "track the actual gold price," he said. Most small and medium investors opt for these types of coins." he said. "They are highly liquid, but they are not meant for traders -- rather buy and hold investors and savers," he continued.
The reasons for collecting coins vary of course. Investors may collect for future income or asset retention and growth whereas collectors collect mainly to be the only one or, at least, one of the few to own that coin.
But now, despite the issues of costs associated with handling physical gold in bulk, in gold futures vs gold coins and bars, the trend is definitely moving back towards investors, as well as collectors, preferring to own and have physical gold in their hot little hands, come what may.