How do gold sovereign coins compare to other gold investments? [UK]

Question

I'm starting with the assumption that gold is sometimes useful for diversifying risk, responding to economic instability, or generally commodity trading. That stated, there are obviously different ways of investing in gold, with different costs and risks: coins, bars, stocks.

In the UK gold coins and bars are VAT free, but gold sovereign (also Britannia?) coins are, uniquely, capital gains tax free. I wonder then, if we have a view to invest in gold; are gold sovereigns a worthwhile consideration for a British citizen? And is the fact they are more expensive to buy/transport/store/insure than something like shares, ever offset by their exemption from capital gains tax?

EDIT: I'm not asking "is gold a good investment?", I am asking specifically regarding the aforestated tax status of aforestated gold coins in the UK, and thus how this compares against other means of investing in gold. I hope that clarifies the question.

Answer 1

The stated tax advantage is only going to have value for you if your investments lead to gains that exceed the annual UK capital gains tax allowance. This is currently GBP 11,100 per year. So unless you are in a position to make a large investment in gold coins, then I wouldn't consider the tax-free status of coins to be of any real value.

The disadvantages of gold coins would be liquidity and what appear to be very large bid/offer spreads - i.e., the difference between the buying and selling price. Looking at a popular UK gold coin trading website, this is currently about 13.2% on a bog standard gold sovereign. That means you are looking at a 13.2% price movement (upwards) just to break even. The problem of liquidity is also relevant. If you have many coins to sell at once, then the spread between the buy and sell price may get worse, depending on the market circumstances. In very volatile trading, you may not find a buyer at all.

Playing the gold price using a liquid ETF would, in almost all cases, appear to be a more profitable proposition. There are London gold ETFs which claim to back up your holding with physical bullion, though the real value of such a claim is not clear even if it would (for me) be more reliable than the promises of the gold coin traders. Using the annual capital gains tax allowance to eliminate or at least minimize any tax liability while enjoying solid liquidity and a very small bid/offer spread (less that 0.1% compared to 13.2% for coins) seems to be a superior way to invest in gold.

Answer 2

Years back I worked at the numismatics dept of a bank here in Switzerland. They traded coins. From my experience in wealth management I would make the following distinctions between gold coins and "other" gold investments.

Every coin is unique. That is, unless you melt it - which is clearly hardly ever the objective when buying coins. I recall, that we scrutinised each coin for genuineness, defects, even packaging. Sometimes we rejected buying coins on this basis or just because we could not imagine finding a buyer ourselves. Result: Transaction costs go up and Liquidity can be terrible, both lowering your expected total (risk adjusted) return.

My advice if you go down this road - talk to a couple of reputable coin traders in the UK and make sure you buy coins that are traded frequently.

Hope this helps.

Answer 3

Can't speak to Sovereigns in particular, but the traditional advantages coins claimed over other forms were (a) that the assay was guaranteed by a government, and (b) that even if the metal loses all value, the coin has a face value also guaranteed by the government.