Do private investors prefer gold coins over bullions?

In their latest Gold Demand Trends Report, the World Gold Council stated that global demand for gold coins and bars was at 257.8 tonnes in Q1 2019, down slightly by 1.4 per cent year-on-year. However, an individual look at coin and bullion demand shows that the performance of the two most common tradable kinds of physical gold differed greatly. While demand for gold bars receded by 5 per cent, gold coin purchases rose by 12 per cent, or 56.1 tonnes, compared to Q1 2018.

Decisions by private investors drove worldwide demand

Demand for both bullions and gold coins was primarily driven by private investors. First and foremost, the drop in demand for bars was due to Japanese net disinvestment and declining interest among Chinese private investors. The significant growth in demand for coins, on the other hand, was caused by strong purchases by private investors in Iran, South Africa, Turkey, the UK and US. Regional preferences might therefore be responsible for the significant differences in demand for bars and coins in Q1 2019.

Are gold coins the superior investment?

When private investors buy small amounts of gold, it does not matter whether they buy coins or bars – provided that the gold coins are globally recognized products guaranteed to consist of 99.9 per cent gold, such as the Vienna Philharmonic coins, Maple Leaf or Krugerrand. In addition to such coins, there are special mintages and limited edition coins. Due to their limited number, they may cost more than their actual gold value. Investors should exercise caution with these products since, depending on demand, their collector's value can decrease to their pure gold value. When buying larger quantities of gold, gold bars are preferable because of their significantly lower trading cost. However, this only applies to the purchase of large gold bars; with the small denomination preferred by most private investors, the cost advantage comes into perspective rather quickly. Talking about costs: In addition to transaction costs, gold owners must factor in storage costs; after all, the valuable bars or coins should not fall into the hands of burglars. The answer to this threat is either a good safe combined with an extended household insurance or a safe deposit box at a bank. On the other hand, 100 per cent gold-backed ETCs (exchange-traded commodities) such as Xetra-Gold have been proven a significantly more cost-efficient alternative to physical gold. Investors need only pay 0.3 per cent p.a. for the storage of the gold bars their Xetra-Gold investment entitles them to. Xetra-Gold is also a highly fungible financial instrument, since with an average gross margin of 0.1 percent, hardly any costs are incurred for its purchase or sale. As the German consumer organization "Stiftung Warentest" found in their 2015 study, the trading margin of gold bars was between 1.9 and 4 per cent of the purchase price, reducing possible profits with every buy or sell decision.

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