Gold as Essential Diversification and
Gold bullion remains an essential
diversification and essential financial insurance to have in all properly
diversified portfolios. Besides the ever more important factors of inflation
hedging and financial insurance, gold is likely to continue to outperform
other asset classes and to provide significant returns to gold buyers.
Many of the world's major investment
banks are in agreement that gold is again in a long term multiyear bull
market. Many believe gold will surpass its inflation adjusted 1980 high of
$2,400/oz in the coming years.
Citigroup's former head of technical
research and managing director of Yamada Technical Research Advisors LLC.,
Louise Yamada sees gold on its way to $3,000 within a decade. ``Gold is the
purest play against the dollar,' said Louise Yamada, Yamada is highly
respected and was voted Wall Street's best technical analyst from 2001 to
Credit Agricole's (France's largest bank
and the fourth largest bank in the world) brokerage, Cheuvreux see the
possibility of a rise to $2,000/oz or higher.
How to Invest in Gold in Preparation for
Gold and Silver Investments Limited
agree and believe gold will surpass its inflation adjusted high of $2,400 per
ounce in the next 5 years.
This is why we continue to advocate
investors continue to diversify and increase their gold holdings. So, how
should one invest in gold?
There are many different ways to invest
in gold and one's motivation for buying gold should dictate how one buys
gold. Are you a speculator, investor or saver? Are you buying to make a
capital gain or as a hedge against systemic risk and using your gold as
financial insurance? Is your motivation a little of each?
ETFs, mining funds, digital gold, Perth
Mint certificates, gold bullion coins and bars in one's possession and or
semi numismatic gold coins are good ways to buy gold.
Given the extent of current
macroeconomic and systemic risk a diversified precious metals holding makes
sense and it should not be a question of "either or" rather a
combination of these various ways.
Having eggs in various gold baskets so
to speak is the most sensible and prudent strategy.
As part of this mix, older gold coins
should be looked at. Classic European and world gold coinage is an often
overlooked but extremely important sector in today's gold market. Pre 1933
and 19th Century European and world gold coins are an intelligent alternative
to modern gold bullion coins or bars as there is often more room for
appreciation with these beautiful old coins due to their rarity and yet they
can often be bought at bullion prices.
2006 Gold Proof Half-Sovereign depicting
Importantly from an investment point of
view is the fact that gold bullion and older gold coins are not subject to
VAT due to the EU Gold Directive. Even more important is the fact that unlike
the other forms of gold investment outlined above, British gold sovereigns
are also not subject to capital gains tax (CGT). Thus all post-1837 British
gold sovereigns due to them being legal tender and having a legal tender face
value are capital gains tax free, which is obviously a massive benefit to
investors vis-à-vis other gold investments.
The prices of these beautiful coins are
only slightly more expensive than modern gold bullion but offer many
advantages. Besides not having to pay CGT, other advantages include
increasing scarcity, aesthetic value and historical significance. European
and British gold coins are recognised as one of the most advantageous ways to
invest in "bulk" gold, by sophisticated investors.
European, American and world gold coins
are bought by both collectors and investors at a small premium to the price
of bullion coins. Perhaps the most popular semi numismatic gold coins
internationally are British Sovereigns.
The British Sovereign (originally the
one pound coin) is the most widely traded semi-numismatic gold coin in the
world. There is constant and excellent liquidity in most countries in the
world. For the investor looking for slight leverage to the gold price with
the potential for the premium (numismatic value) to rise, British Sovereigns
are a good way to invest in gold.
History of the British Sovereign - From
Henry VII to James Bond
The first British Sovereigns were minted
more than 500 years ago. They were minted under Tudor King Henry VII
in 1489. The coin got its name from that first mintage which depicts the
monarch seated majestically on the throne facing outward.
Sovereigns were then struck for Henry
VIII from 1509. Henry VIII needed to raise revenue as he was engaged in
George Bush style over spending which led to a flow of gold and silver to
Europe (equivalent of dollars to Russia, OPEC nations and China today).
The current design type with St. George
slaying a dragon on the reverse and the monarch on the front was introduced
nearly 200 years ago in 1816 under George III. The sovereign was minted
almost continuously from that date until 1932 when Britain went off the gold
Thus he was responsible for debasing and
devaluing English money when he reduced the precious metal content from 23
carat to 22 carat to 20 carat (96% to 91.6% to 83.33%). Silver coins were
debased even more and by 1551 silver coins had been reduced to 25% of their
face value in what became known as the ‘Great Debasement'.
British sovereign 'kings' minted during
the reigns of Edward VII and George V are probably the most widely owned and
recognized pre-1933 gold coins -- so much so that the U.S. Army included them
as part of its special forces survival pack for a number of years.
In 1816 the British Sovereign as we know
it today was first introduced, and as the British Empire expanded under Queen
Victoria during the 1800's, this coin came to be the world's most widely
distributed gold coin. Minted originally in London, the Sovereign came to be
minted all over the world as Australia and South Africa came to be large gold
producers. Mints in Pretoria, Bombay, Ottawa, Melbourne, Sydney and Perth
minted thousands of sovereigns during the late 1800's and early 1900's.
The design of Saint George,
aboard his brave steed, slaying the dragon is common to the reverse of all
variations of the coin. Saint George who is believed to have lived from 275
to 303 AD was a soldier of the Roman Empire, from Anatolia, now modern day
Turkey. He was venerated as an Islamic and Christian martyr.
George was immortalised in the tale of
George and the Dragon in a collection of hagiographies and lives of the
saints known as The Golden Legend or Legenda Aurea. He is the patron saint of
Canada, Catalonia, England, Ethiopia, Georgia, Greece, Montenegro, Portugal
and Serbia, as well as a wide range of professions and organisations. This
gives sovereigns an international appeal not enjoyed by many coins.
Actual Gold Content: .2354 troy ounce.
Purity or Fineness .917
Minted 1816 - 2004
Edward VII (1901-1910)
Edward VIII (1937)
George VI (1938-1952)
When coins were sent to places such as
the United States for international payments between governments, coins were
frequently melted down into gold bars because of the Federal regulations then
in force. When gold coins were finally withdrawn from circulation in 1933 in
the US, many thousands of British gold sovereigns were consigned to the
melting pot in this way.
Gold sovereigns were accepted as money
and as payment throughout the world at the height of the British Empire and
indeed this international currency may have helped create and strengthen the
More recently, many armies around the
world (including the US army) gave their servicemen an emergency supply of
gold sovereigns. They are still recognised in most parts of the world and
unlike paper dollars will not be damaged by shredding, water or intense heat.
This is why Q gives James Bond 50
gold sovereigns in From Russia with Love. Near the beginning of the
movie Q gives Bond a special black briefcase. Hidden in the case are 40
rounds of ammunition; a flat throwing knife; an AR-7 folding sniper's rifle
and imbedded in 2 straps hidden inside the lining of the case are 50 gold
It is estimated that only 1% of all gold
sovereigns that have ever been minted are still in collectible condition. It
is this relative rarity in relation to bullion coins and bars that leads to
leverage whereby in gold bull markets, the value of these coins increases by
more that the actual price of gold.
Unlike paper investments or
speculations, British gold sovereigns have a real and permanent tangible
value. Therefore, they offer two ways to build wealth. They can offer the
best of bullion and numismatics in one investment. They contain the intrinsic
security of bullion or precious metal in a pure form and can also offer
additional profit potential due to their aesthetic and historical appeal.
The legal tender gold British Sovereign
has always been a popular coin for collectors and is becoming increasingly
popular with risk conscious value investors seeking to avoid having to be
capital gains tax (CGT).
Today premiums remain very low on the
world's most famous gold coin and even beautiful Queen Victoria sovereigns
from the second half of the 19th century can be bought at great value bullion
prices, near spot or melt value.
Experienced, knowledgeable investors
have long known that semi numismatic gold coins can be solid investment
choices. They retain their value in times of global geopolitical instability
and when there is economic uncertainty, during systemic and monetary crises
and in recessions and depressions. With systemic risks increasing and more
banks runs possible in the coming months, the wisdom of holding a few gold
sovereigns in one's possession or in a depository will be clearly seen by
It is important that investors look at
their portfolios holistically and have a financial insurance component to
their portfolio. Used correctly, a small allocation to British sovereigns can
be a highly effective component of a properly diversified investment
Gold Investments will provide further information or
contact details on any of the options listed above to interested parties.
Questions and comments are welcome to firstname.lastname@example.org . Gold Investments
do not endorse any of the offshore bullion storage options listed (except for
the PMCP and VIA MAT) and investors should do their own due diligence on all
Mark O'Byrne is the Managing Director of Gold and Silver Investments Limited,
Asset Diversification and Wealth Preservation Specialist ( www.gold.ie ). He
is regularly quoted and writes in the financial media and was awarded Ireland’s
prestigious Money Mate and Investor Magazine Financial Analyst of 2006.