Friday, August 22, 2008

British gold sovereigns

By Mark O' Byrne, 'Why you should buy British gold sovereigns'
Source: Money Week

'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, we believe that gold is likely to continue to outperform other asset classes and to provide significant returns to gold buyers, and eventually surpass its inflation adjusted 1980 high of $2,400/oz in the coming years.

In fact, 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 2004.

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

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 because of their rarity - and yet, they can often be bought at bullion prices.

What is important, 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 – because they are legal tender and have 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 higher than modern gold bullion, but they 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 by sophisticated investors as one of the most advantageous ways to invest in 'bulk' gold.

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...'

More: Money Week

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