Buying Gold Sovereigns
A Beginner’s Guide to Investing in Gold Sovereigns
Precious metals hold a coveted place as a favoured investment option as they offer both safety and appreciation. Over the last 10 years gold has provided a higher return (36%) than both commodities and UK shares. Out of all the precious metals, gold is perhaps the most popular with investors and buyers. Many savvy investors have chosen to buy into this yellow metal and in the process, hedged their investment portfolio. This makes sense since both the spot price and demand of gold increases during times of economic vulnerability or currency devalutions.
It is the view of many financial experts that gold will continue to outperform other asset classes and to offer great returns. Many UK hedge fund managers have placed as much as 10% of their assets in gold. While there are many forms of gold that you can invest in, the British Gold Sovereign is one of the more popular ones in the UK. Up until the 1970s the Gold Sovereign actually represented 95% of the total gold coins in circulation in the UK.
What are Gold Sovereigns?
Gold sovereigns are the UK’s most popular gold coins and were first introduced under the reign of Henry the VIIth, back in the 15th century. The King’s unchecked spending resulted in an emergency need for raising revenue and the first sovereigns were struck at this time to meet this need. However, the sovereign that is most commonly found today can be traced back to the Victorian era and was minted in 1816. These coins were actually minted in many places across the world and they were internationally accepted as payment method. These sovereigns bear the design of St George slaying the dragon. Among semi numismatic coinage, the British Gold Sovereign enjoys the distinction of being the most widely traded across the world.
Why Should You Buy Gold Sovereigns?
The fact that these coins have a good market across the world is a huge advantage for you, the investor. You can find a seller or buyer ready to transact with you whenever you need to exchange your coin for money or vice versa. This high liquidity makes the gold sovereign a good investment for someone who has a majority of his investments in illiquid instruments.
The other advantage with gold sovereigns is that they have historic or “numismatic value” far above their intrinsic “spot” value. Since this value can only increase with time, the gold sovereign is considered by many investors to be a much better option than gold bars. It has the potential to yield even greater returns. The intrinsic value and demand of the British Gold Sovereign is also one of the reasons why dealers can get away with charging higher premiums (up to 10%) than other coins such as the South African Krugerrand.
A third reason that makes gold sovereigns good investments is that these coins are relatively rare. It is believed that only about 1% of all of these coins minted throughout history are in collectible condition. This rarity makes them even more valuable and causes them to appreciate far more than other bullion forms.
Other than this, these coins also give you all the benefits you would gain from investing in bullion in various forms. Bullion has proven to be resilient against economic fluctuations. While all other investment options are affected to various degrees by geo political upheavals, gold remains fairly stable through such circumstances too.
The EU Gold Directive states that gold bullion and gold coins are not subject to Value Added Tax or VAT. In addition to this, British Gold Sovereigns are also exempt from capital gains tax. If you are considering purchasing a gold sovereign that was minted after the year 1837, the coin is still considered legal tender and thus is capital gains free.
Pricing as Compared with Other Forms of Bullion
While a gold sovereign may be slightly higher priced when compared with standard gold bars, it’s intrinsic value and history justifies the extra premiums, especially you manage to buy on in mint condition. The tax savings and the multiple ways in which the value of these coins appreciates makes them very sound investment choices for investors with varying risk appetites. Of course, the value of the coin itself depends on the date it was struck and sometimes even the design that you can find imprinted upon it.
These features also impact its resale value and degree of appreciation. This makes it important for you to pay special heed to these aspects before you buy any of these gold sovereigns as part of your portfolio. While the 15th century coins may sell for upward of $12,000 today in the market, the later day sovereigns are much more affordable. Considering that they do have sufficient numismatic value and historical significance, these are ideal for small investors who want to balance their high risk portfolio with some well established investments that will surely appreciate.