Buying diamond wedding rings with golden coins

Lotsd of gold coins come in two general classifications (i) numismatic coins and (ii) gold bullion coins.  A numismatic coin has a price that doesn’t relate to its bullion value so   much as rarity and desirability for collectors.  A bullion coin, on the other hand fairly accurately shadows the bullion price. Small bars behave similarly to bullion coins.

Advantages of bullion coins and small bars:

1. Coins and small bars are generally a liquid market, so you can find silver sellers and buyers when you need them.
2. They are relatively accessible to smaller investors.  Coins in particular can be bought with modest amounts of money while bars of 1 kilo (2.2 lbs) start at about $15,000.
3. Coins are mostly recognizable, which makes them exchangeable for goods in some circumstances.  This monetary characteristic makes them attractive to people who want to take possession of gold as a means of surviving a catastrophe.
4. Genuine coins have the added endorsement of a government mint that provides a level of guarantee.

Disadvantages of bullion coins and small bars:

1. The local custody problem.  It is often the case that when gold becomes really valuable gold coin usage is made illegal by governments, or is so heavily taxed and constrained that it is nonsense to use them ‘above the counter’.
2. There are fakes, and these are usually only spotted by dealers, although there are tools that might help the less experienced.  Dealers rate themselves at spotting fake coins from their surface, but because bars are generally bigger than coins they can be ‘drilled out’.  This obviously illegal activity leaves the serial numbered bar skin behind and fills the interior with an alternate, like lead.  This has a consequence on resale, even by the innocent.  The dealer may not trust assay marks on bars that have been in private hands, and may require an analysis before payment.  Even where the bar is perfectly sound it means the seller may still end up having to pay for the refining.
3. Next to most types of investment the difference between buying and selling price is significant. On the face of it this can cost 7%, but the reality is usually worse.  Demand tends to come in waves, with the market producing a surfeit of buyers or a surfeit of sellers at any given time.  With a wide spread to play with the dealer will shade high when most customers are buyers, and low when they are sellers.  For example an international incident that encourages gold buyers might set the underlying bullion price at $400 per ounce and encourage buyers.  The normal 7% differential indicates a $28 spread, but instead of being centered on the $400 mark the dealer anticipates demand and makes a spread of $396 – $424.  When things calm down and people liquidate their hoards the spread, even on the same underlying $400 bullion price, will shade to the low side, and the dealer will make a price of $376 to $404.  It appears to be a $28 spread, but the result of being predictable will be an effective spread for the significant majority of $376-$424, which is 12.8% rather than 7%.  These sorts of spreads greatly diminish the probability of worthwhile profits to the investor.  (Although note the considerable advantage for those who trade against the crowd and enjoy a 2% spread.)

Coins and small bars can be an appropriate gold investment method for sums from $100 to $10,000 especially for people whose view is long term and for whom physical possession is all.  In this range it would be typical to suppose dealing costs, delivery and ownership costs in the 10-15% range overall.