Investors often use the direction of the US dollar as a bellwether for gold’s performance. However, over recent years, short-term movements in gold have been more heavily influenced by US interest rates and expectations of policy normalisation. Our analysis shows that the correlation between gold and US rates is waning and that the US dollar is again a stronger indicator of the direction of price. And, in our view, this will continue over the coming months – even while the dollar won’t explain gold’s movements entirely. Furthermore, the analysis shows that higher real rates have not always resulted in negative gold returns.
Linking gold, the US dollar and interest rates
There is no one single driver of the price of gold. Generally, gold’s price drivers can be grouped into four categories:
1) wealth and economic expansion; 2) market risk and uncertainty; 3) opportunity cost, and 4) momentum and positioning (see page 3).
Table 1: The influence of US rates on gold has fallen behind that of the dollar
Correlations between gold, the US dollar, and various interest rate benchmarks*
In the short and medium term, two variables attract investors’ attention most: the US dollar and interest rates. Historically, gold has had a consistently negative correlation to the US dollar (Chart 1). Gold’s relationship with the dollar is determined by US-based gold supply and demand, as well as by the status of the dollar as the reserve currency globally (Gold and currencies, Gold Investor, October 2013). And while the US dollar is often a good bellwether of gold’s price performance, in recent years, gold has seemingly reacted more to the behaviour of US rates.
Yet, gold continues to trend higher – increasing by 8.5% since the Federal Reserve rate hike in December 2017 – despite interest rates rising at an accelerated pace. A key question for investors is, therefore, what matters more – the direction of the US dollar or the direction of interest rates? The answer is, generally, the US dollar. But there are exceptions to this rule.
Chart 1: There is a consistently negative correlation between gold and the US dollar
Correlation between gold (US$/oz) and the US dollar real exchange rate*
Selling your gold coins is the point at which you crystallize your profits. After all, holding gold coins doesn’t pay you a dividend. The idea is that the value of the coins rises during the time you own them. When you eventually sell them, a handsome profit awaits. Simple! Or is it?
Perfect timing and luck needn’t be relied upon. If you follow our proven step-by-step commandments, it’ll ensure you squeeze every last penny out of your investment.
Commandment 1: Thou shalt not buy obscure coins in the first place
This may sound like a lot of forward-thinking but if you want to obtain the best possible prices for your gold, then you need to consider this even before you buy coins. That’s because not all gold is created equal. In a similar way to buying and selling property, some gold coins are deemed very liquid and others are far more obscure and may prove difficult to sell. It’s comparable to buying a 2 bedroom flat, close to a main station in the UK, rather than a quirky property in the middle of nowhere, that only a small handful of people will like.
Remember, the larger the buyer market for your particular coins, the easier it is to sell, and the better value you’ll receive. Play outside of these guidelines and you’re playing with fire. It may well be that you buy a strange and wonderful gold coin which was either ‘going cheap’ or had a fantastic design, but when you try to sell, no one wants it.
Infact, the three key things that you need to focus on when building your gold portfolio are liquidity, variety and value. Focusing on liquidity gives you the opportunity to rake in your capital at the time when you need it most. By buying obscure coins, you are defeating the very purpose of your investments. In order to capitalise on liquidity, your coins need to have a strong secondary market. Some of the most liquid coins in the world are the Britannia, the Krugerrand and the Sovereign. Invest in these and you can’t go wrong.
Of course, variety should be in another point of focus. As you continue to build your portfolio, you need to invest in gold and silver coins of different weights and dimensions. This ensures that you can sell off small portions of your holding at different price points in the market, rather than being forced to sell a large piece of gold at one price. Selling at different price points help you take advantage of rises in the spot price of gold. Value is yet another consideration.
You will probably find that you make end up paying hefty premiums for rare obscure coins. These types of coins are mostly purchased by amateur investors who end up believing that the coin they are buying is indeed something of great value. Sadly, at the time of selling, they are unable to recover the premium they paid. The best strategy to build value is to buy coins that have low premiums so that your capital outlay is minimal. Once the price of gold rises, you can sell off your investments at a decent profit margin.
Commandment 2: Thou shalt consider Capital Gains Tax
When you buy gold coins, focus on the best-known investment bullion coins. In the UK, that means focusing on coins issued by The Royal Mint; like various Sovereigns and Britannias. One way to maximise your selling price is to avoid paying any Capital Gains Tax (CGT) on your profits. This can easily be achieved by sticking to UK coins. These coins boast their own face value, qualifying them as CGT free. This way you get to keep all your profits rather than pay the taxman.
Can I avoid CGT even with non-UK coins?
If you have non-UK coins to sell, then offloading a large quantity all at once may incur capital gains tax on your profit. To maximise your profit, sell some before the Apr 5th tax year end, and the rest afterwards. Spreading the sale over two tax years could save you thousands in tax.
Some of the non-UK bullion coins are also very liquid; https://www.physicalgold.com/7-crucial-considerations-guide/like the Krugerrand, Maple Leaf and US Eagle. However, be aware that if selling back your coins in the UK, you’ll no doubt obtain better prices for UK coins than non-UK ones. This reflects the tax-free status of these British coins, which means there is a higher demand from UK investors for these, rather than foreign coins.
Commandment 3: Thou shalt give your dealer some notice when selling
Wishing to sell your gold coins immediately is one thing. But giving a dealer a few weeks means they can hook your sale up with a keen buyer. A really good gold broker will be able to work with you to achieve higher prices for your coins. They’ll have a large number of buyers and sellers on their books, so pairing buyers and sellers together can improve value for both parties rather than simply selling your coins back into the wholesale market.
Communicate your wishes early
Give them time to find a buyer (or buyers) who wants your coins. So, rather than calling your dealer on the day you wish to sell, call them a few weeks before you need the money. Let them know you’re keen on selling over the coming weeks and perhaps set a deadline. Any dealer worth their salt, will share this with their team and actively find buyers so they can improve your selling price. It may only improve the price by a percent or two, but this can add up to a lot in Sterling terms if you’re selling a large number of gold coins.
Commandment 4: Thou shalt not buy proof coins in flashy boxes
They tend to have a matt finish foreground detail with a shiny background. This makes the coin designs look more like Ultra HD TV than the Standard definition-like bullion finish coins. However, if you want to maximise the price you get when selling coins (and therefore boost your profit), then proof coins don’t represent good value. Most will be accompanied by expensive wooden presentation boxes when bought and include a certificate detailing the coin and its limited issue number. Like for like prices for a proof coin versus its bullion counterpart can be as much as 30% higher, for the same amount of gold.
But surely I’ll get more for a proof gold coin when I sell?
In all likelihood, a gold broker would pay you the same for a proof or bullion coin, or at most a few percent more. Almost always, you won’t receive back 30% more than you would a bullion coin. If you want to maximise your selling price (certainly in relation to your buying price), then stick to bullion coins. They’re cheaper to produce and buy, and far better value when you come to sell.
Commandment 5: Thou shalt plan ahead when thinking of selling gold coins
If you’re willing to plan ahead rather than leave your sale to the last minute, you can sell when the market spikes. While the gold price rises over the medium to long-term, it can be notoriously volatile in the short term. In any short-term window, the underlying price can vary considerably, and that’s the first reference point for the value of your gold coins. Preparing your sale ahead of time enables you to have everything in place to quickly close the sale when you see a daily spike in the price.
Commandment 6: Thou shalt love and cherish your coins
This is a simple one. Just like maintaining your property, gold coins are physical assets, so your price will be affected by their condition. Keep your coins safe and handle with care. This is especially necessary with 24 carat coins which can scratch, and then impact your sale price. Wash in warm soapy water if dirty. Plastic coin capsules can be purchased from dealers to house the coins, so you can still handle and enjoy them, without actually touching them.
Commandment 7: Thou shalt invest in a variety of gold coins
Did someone say that variety is the spice of life? Well, the same applies to gold coin portfolios. If you own all of the same coins, then you obviously only have one type of coin, and one price, when it comes to selling. This isn’t a major issue, especially if you stuck to some of our other commandments and bought UK gold coins.
But! We’re in the business of squeezing out every last penny of profit possible for you. And that may mean owning a variety of UK coins. Ideally, owning British tax-free coins of various sizes will add to your portfolio balance. So, depending on the number of coins you buy, that may be some half Sovereigns, full Sovereigns, Quarter and Half Britannias, £2 coins, 1oz Britannias, Lunars and Queens Beast coins, and perhaps some nice chunky £5 gold coins. Owning various age coins adds another dimension again. So, mixing brand new, nearly new and semi-historical coins can actually enhance your chances of maximising profits. Read our Do’s and Don’ts of buying gold.
How does owning various size and age UK coins help me?
First of all, some of the older coins can increase in value quicker than newer ones, depending on scarcity and demand at the time you buy and sell. The same can be said of £2 and £5 gold coins which usually include a commemorative element. For this reason, these coins can obtain better selling prices than new ones.
The key is owning a variety, as the supply/demand dynamic for each type of coin is fluid. In other words, at the point you come to sell, it may be that Edward VIII Sovereigns (for example) are trading at a premium due to a relative supply drought in the market. Alternatively, Victorian coins may be trading cheap due to a spike in secondary market supply. Or even Elizabeth coins may be sought after if our cherished queen has passed away. By possessing the different size and period coins, your gold dealer should be able to match selling your coins with the optimum time.
Premiums can vary up to 5% for regular coins and 20% for limited issue coins, so timing shouldn’t be underestimated.
Commandment 8: Thou shalt shop around when selling gold coins
The price one dealer pays may not be the same as another. At the end of the day, they run a business with stock. So, it may be that one dealer will pay less for coins if they already have a huge stock than another who could benefit from the additional stock.
You may also find that certain gold brokers simply pay more for certain coins than others. We tend to pay market leading rates for UK tax free coins such as Sovereigns and Britannias; as investment coins are our niche. We probably pay less for some more extravagant coins.
Commandment 9: Thou shalt use a reputable dealer
Using a trusted gold dealer means you’ll receive gold
of the finest quality and which is protected. Your gold should be supplied with a Certificate of Authenticity, meaning you have authentic paperwork when you come to sell. The dealer you purchase from is the one you should approach first about selling your gold, as a reputable dealer should have a ‘Buy Back Guarantee’.
How about selling privately?
Certainly, if you have older coins, taking the time to find a private buyer or a specialist dealer may increase your sale value.
While a dealer needs to consider selling your coins on, whether to other customers or into wholesale, private buyers will simply pay a price depending on their desire.
Especially if you own limited issue coins, coins that are part of a collection, or gold coins of 100 years in age or more, then finding a private buyer may unlock further profits. Clearly, there are additional risks when dealing with individuals, and it will undoubtedly take far more time and effort to sell coins off piecemeal. For these reasons, you’ll need to weigh up your priorities and sell accordingly.
Commandment 10: Thou shalt think long term
Many investors (usually failed ones!) think that timing and luck play a huge role in investing. This is driven by laziness, greed and impatience. The appeal of buying gold coins at the very bottom of the market and selling them a week later at a huge profit is sometimes what drives many to bad decision making.
Enjoy our YouTube video – “Gold coins – collecting as a hobby and for profit”.
The fact is that the price of gold and the subsequent value of gold coins fluctuates. Over the short term, there’s a fair chance that the market will be lower than when you bought. That’s because there’s a vast array of elements that can impact the gold price on the macro-economic level. In other words, over the short term, the performance is unpredictable. Not only that but there’s a difference in price between where you can buy a gold coin and sell it. This is known as the bid-offer spread. In practice, trying to buy gold coins and sell for a profit in a very short time period, won’t give the market long enough to overcome the buy/sell margin.
So how can we use this knowledge to increase my profits?
There are two strategies to surmount this challenge. Firstly, try to buy the gold coins in bulk. Gold dealers generally offer discounts with quantity orders. If you plan to buy 100 gold coins, try to do this in one purchase. Then you’ll achieve a larger discount than if you buy 25 coins on four separate occasions. This tactic essentially reduces the buy/sell spread, furthering your profit margin and reducing the amount of time needed to be in profit.
Secondly, and more crucially, you need to buy and hold over the medium to long term. This timeframe irons out any short term volatility and negates the chances of bad luck and timing. Just looking at the last decade, while gold returned north of 30% in 2010 and 2016 for example, it lost 27% in 2013. Buying gold coins and selling them within a year could have been very profitable but also could have been very painful, all depending on which year you chose! However, when we average the returns over the entire 10 year period, price increases are more than 10% per annum. Compound that over the decade, and profits are very handsome indeed.
Not only that, but studies show that this buy and hold strategy (both in precious metals and the stock market) provide far greater profits than short term trading. Luck aside, that’s because the five greatest one-day gains in these markets have generally followed close on the heels of the five worst-performing days. By holding over the long term and riding out any bumps, both markets have proven over many decades to provide large profits.
Buy and sell your gold coins with Physical Gold Limited
Whether you’re seeking to buy or sell gold coins and bars, the Physical Gold team of dedicated specialists are here to help. We’re able to share our expertise and network to ensure you maximize your precious metals profits.
As with any investment, there is a certain amount of risk to negotiate when investing in gold or silver. Here at Physical Gold we have many years of industry experience and can help you make an informed decision when purchasing precious metals. Here are some of our top tips for mitigating some of the risks involved in purchasing gold and silver:
Buy from a trusted dealer
When purchasing gold and silver in any form, whether it’s jewellery, bars or coins, it is always important to make sure you do so through a trusted dealer. There’s a huge amount of counterfeit goods out there, particularly online, so it’s always important to go to a recognised dealer and do some research on them beforehand. You also need to be aware of any hidden fees and costs when purchasing gold and silver as a lot of dealers advertise really low prices but then charge extortionate prices for handling, shipping costs etc.We’re members of vaious trade associations, including the BNTA and British Numismatic Society.
Understand the pros and cons of investing in different forms of gold & silver
People invest in many different types of gold and silver. Whether it’s coins, bars or jewellery, it is always important to understand your requirements and what the best options are for you. For example, many people like to invest in bullion coins because they are easily stored and have a guaranteed purity. They are also fairly liquid should you need to raise money quickly. Some forms of gold and silver, including legal tender bullion coins such as Britannia’s and Sovereigns, also come with added tax benefits and are capital gains tax-free, making them an ideal purchase for many investors.
Do some background research
If you’re thinking about investing in gold or silver, then you should always make sure you do your research first. Have a look at look at futures tables and forecasts to make sure you get a picture of how the market is shaping up and consult with an expert if you’re unsure about anything. It is also worth checking the current spot price of gold and silver as this will give you a basic idea of what people are paying.
Think about different storage options
Before investing in any form of gold and silver, it is important to think about how you are going to store the goods. If you’re planning to store your goods at home for ease of access, then you will want to think about how this may affect your insurance and whether you have a suitable and safe place to store your gold or silver. You also need to be careful about who you divulge any info to regarding where the goods are secured as you don’t want them to be stolen.
If you’re purchasing gold and silver purely as an investment, then you might want to consider whether it’s worth storing it in an allocated vault. The cost of transporting gold and silver as well as insuring the content is often very expensive. You can save considerable costs by keeping your goods stored in a secure vault and it will also give you complete peace of mind that your items are safe and protected.
Why do King George V Sovereigns make a good investment?
Gold sovereigns are one of the finest examples of British craftmanship, a symbol of a time when the British Empire was still considered great. George V was one of the country’s most popular monarchs and reigned during a time of great change, not just in Britain but throughout the world. His time on the throne saw the rise of new political movements such as socialism, communism and fascism, however, the advent of World War I in 1914 would have the biggest impact on his reign.
Up until the first world war, gold sovereigns were still a major part of everyday life. Just days after the start of the war in August 1914, however, people were urged to donate their gold coins. Sovereigns continued to be mined overseas but this period marked the end of an era for what had been one of the most important coins in British History. After the gold standard was abolished, there was less of a need for gold sovereigns and so the number of coins being minted started to go into decline.
Gold Britannias or Gold Sovereigns – which is the best investment? – a Physical Gold Video
It was under George V that the final two branch mints would be opened, one in India and one in South Africa. George V Sovereigns are the only coins to have been produced in six branches of the Royal Mint.
Gold sovereigns are considered semi numismatics. This means collectors buy them for both their bullion content as well as their numismatic (rarity/historical value) Due to the coins everlasting popularity with collectors from all over the globe, gold sovereigns are relatively liquid which means they are easily exchangeable for cash.
The 1917 George V Sovereign
The 1917 George V gold sovereign is considered incredibly rare and is highly sought after by many coin collectors. This is due to many of them being melted down after World War I in a bid to help pay off Britain’s war debts to America.
The Ottawa Mint
The branch mint in Ottawa ceased all production of gold sovereigns during George V reign. Gold sovereigns produced at the mint up until 1919, when it closed for good, are considered exceptionally rare and valuable due to the mint producing far fewer sovereigns than other mintages. 1916 sovereigns, in particular, are highly sought after, as only 6119 of them were produced in that year.
George V gold sovereigns were produced in 91.67% fine gold (22 carats). The design of the coin was changed in 1929 to incorporate an inner circle and beading around the outside edge. This extra level of security made it much harder for forgers of the time to replicate the coin which is why the sovereign is still held in such high regard by collectors and investors.
Purchase George V Sovereigns through Physical Gold
Physical Gold offers a wide selection of gold sovereigns spanning over the last two centuries including those minted during the reign of George V. To browse our full selection of gold sovereigns please click here. For more information please give us a call on 020 7060 9992.