General Market Overview- Gold

Gold has been a universal sign of wealth for thousands of years across varying civilizations.  Dating from ancient cultures to today, gold has been used to create jewelry, plates, cups, vases and many other ornate vessels.  Early societies equated gold with gods and rulers as they associated gold with power and beauty. This is easy to prove, as King Tut’s house was described as a House of Gold. The wisemen presented baby Jesus with three gifts- one of which was gold.  Even today, gold is offered to Indian deities and the Indian Hindu calendar has days that are considered favorable to buy gold.  The most early forms of money were made of gold, and the United States was on the gold standard, where the U.S. dollar was readily convertible to gold,  until August 1971! Gold also has numerous industrial uses and is an integral part of many high technology components. Recently gold has gained popularity as a mainstream investment vehicle.  There are many forces driving both the supply and demand for “gold” and reasons an investor would choose to invest in this precious metal.

Introduction to the Investment Gold Market

Generally, investors purchase gold as a hedge against economic, political, or currency crises (including investment market declines, increasing national debt, currency failure, inflation, war and social unrest). This market is subject to speculation as are other markets. In addition to physical gold products, there are other gold investment vehicles including, but not limited to: exchange-traded products (ETPs) including gold ETPs on major stock exchanges, derivatives such as gold forwards, futures and options, and gold mining company stocks where the investor is actually buying shares of stock in the gold mining companies. It is important to remember that this discussion focuses on one gold investment vehicle- the purchase of physical gold in the forms of gold bullion, semi-numismatic and numismatic coins, and fungible gold certificates.

 Introduction to the Physical Gold Market

The physical gold market provides investors several product options.  The choice of tangible gold product is largely a matter of the investors’ goals and resources.   Gold is primarily purchased as a store of wealth, as a “hedge” against inflation, and as insurance against the fluctuations and depreciation of paper money. Though less common, gold is also purchased for its bartering potential.  If necessary, fractional gold products (those that contain less than one troy ounce of gold) could be used as a medium of exchange.  However, because silver is available in smaller denominations and therefore more convenient, it is the preferred barter metal.  Even a one-tenth ounce gold coin would cost approximately $195.00 to $205.00 (as of June 14, 2020).  Varying “premiums” (which include dealer premiums and commissions, all shipping costs and insurance) and independent retirement account (IRA) regulations are also important to consider when deciding between the different products.  Currently, the U.S. Internal Revenue Service (IRS) allows specific physical gold products to be included in a self-directed IRA if certain rules are followed.

Gold Weights and Measures

When buying or selling gold, it is useful to better understand the relationships between weight (mass), fineness (or purity) and the gold content of these gold items.

The Troy Weight System

The troy weight system is the universal system customarily used to weigh gold.  The actual gold weight (AGW) of a bullion coin or bar is the amount of fine, pure, or intrinsic gold content measured in troy ounces.  It is typically used to describe gold coins.  In this investment context, it is the weight and purity of the gold content that is important, NOT the gross weight of the coin or bar (which often contains other base metals- see below).   This distinction is often a source of confusion.

The troy ounce is the standard used to weight precious metals such as gold and silver.  A troy ounce (31.103 grams) is actually 10.00% heavier and therefore worth more than traditional ounce (28.349 grams).

The Gold Karatage System

Pure gold is too soft for day-to-day monetary use and is typically hardened by combining with copper, silver or other base metals. The gold content of alloys is measured in karats.  Karat denotes the amount of gold by weight in an alloy, known as the fineness (or purity).

The gold karatage system is used to identify the fineness (or purity) of gold as a fraction of 24 parts. Pure gold (or fine gold) 24 out of 24 possible parts, “24K”, which has a fineness of 100.00% or 1.00.    However, 100.00% purity is unattainable, therefore 99.95% or 0.9995 purity can be designated “24-Karat” in commerce. 24 karat gold coins and bars generally come in two qualities- 999 (99.90%) and 995 (99.50%). 18-karat gold is 18 parts gold and 6 parts base metal, forming an alloy with 75.00% (18/24) gold. One karat is 1/24th gold purity by weight.  10 karats is the minimum recognized purity of an alloy to be called “gold” in the United States.  The popular jewelry alloys in the U.S.A. are:

22 karat or 22/24ths by weight of gold (91.66% pure gold) marked as 22K or 22kt
18 karat or 18/24ths by weight of gold (75.00% pure gold) marked as 18K or 18kt
14 karat or 14/24ths by weight of gold (58.33% pure gold) marked as 14K or 14kt
10 karat or 10/24ths by weight of gold (41.67% pure gold) marked as 10K or 10kt.

The following list can be used as a guide for converting gold fineness (percentage of pure gold) and karats in the U.S.:

24K (acclaimed 99.95%)= 99.95- 100.00%
23K (acclaimed 95.83%)= 95.83- 99.95%
22K (acclaimed 91.66%)= 91.66- 95.83%
18K (acclaimed 75.00%)= 75.00- 79.16%
14K (acclaimed 58.33%)= 58.33- 62.50%

Physical Gold Pricing

There can be a great deal of confusion over how the price of a physical gold product is determined. The price is constantly changing for all gold products as the market price increases and decreases. At the same time, two bullion products with the exact same amount of gold can sell for  different prices.  Understanding the pricing process and the different “parts” of the price is extremely important for investors.

“Parts” of the Gold Price

The price of a physical gold product consists of both the “spot” price and the “premium”.  The “spot” gold price is the market price, the price at which gold may be bought and sold RIGHT NOW, as opposed to futures or forward contracts.  The “premium” is the additional cost of the bullion above the market value of the gold it contains.  It accounts for the costs of doing business, and stems from many factors.

The “Spot” Price

The spot price of gold is the market price, the price that the gold will sell on the spot, that time of that day.  The spot drive for gold is constantly changing and fluctuates on a minute-to-minute basis, just like any commodity traded on the market.  Typically, spot gold is quoted in price per ounce using U.S. Dollars.

Like most commodities, the price of gold is driven by market conditions- supply and demand, including speculative demand.  There are many factors that drive spot gold prices.  It is not only bought as an investment, but also for use in other industrial, dental and medical uses and for jewelry. Some of the major influencers on the spot price include investment demand, jewelry demand, currency markets, inflation/deflation, monetary policy including interest rates, risk appetite of the investor, politics and equity markets.  The spot price is the generally accepted market price for a raw ounce of unrefined gold.

“The Premium”

Understanding premiums on precious metals is extremely important before purchasing any products.  It is the source of much confusion and varies greatly by specific product and by company.  Firstly, it is important to understand why there is a premium in general.  Secondly, one needs to understand why the premium changes depending upon the specific product.

It is virtually impossible to buy any metal at exactly the spot price.  The “premium” is the additional cost of a physical gold product above the spot price (the market value of the metal it contains). This additional cost over the spot price results from multiple factors, including manufacturing, distribution and administration costs incurred by the refiner in producing the coin or bar. Additionally, there is a mark-up representing the selling costs and the profit in bringing the product from the refiner to the investor.  This is similar to  other markets.  Typically all markets have additional costs when distributing any product from the producer to the buyer.  When we use the term “premium”, we are referring to any costs over the spot price including dealer premiums and commissions, all shipping costs and insurance.

When researching gold prices, one also notices that each product carries a different premium over the spot price.  As of today, June 15, 2020,

Gold Bullion Coins and Bars

Probably the most popular way to invest in physical gold is gold bullion.  The defining characteristic of gold bullion is that its market value is determined by its gold content and purity plus a “premium” over the spot price of gold.    Gold bullion is generally sold in two forms, bars and coins.

Gold Bullion Bars 

Gold bullion bars are refined and produced by large, independent companies (i.e. Johnson Matthay, Engelhard, and Credit Suisse). The purity for most bars is 99.9% or higher and will vary depending on the refinery and the refinery’s location.  Most bars manufactured in the United States and other western countries are 99.9% pure (24 karats).  The bars are produced in a wide range of gold weights and the manufacturers stamp their name, the troy weight, and the purity of the gold onto the gold bar.   This makes the gold bullion bars easy to identify and to sell or exchange.  The most common gold bars are one ounce, ten ounce, and kilo (32.15 ounces) weights.  The total physical size and shape of the gold bar (including base metals) will vary by refinery.  Gold bullion bars have no legal tender status, as they are produced commercially, and are not supported by a government or central bank.

Many investors choose gold bullion bars due to the low “premium” when compared to other gold investments, even when compared to gold bullion coins.  The “premium” will vary by the specific refinery, by daily market supply and demand conditions, and by gold content.  In the case of gold bullion bars, the premium will decrease as the “size” of the bar increases, the “larger” the bar the smaller the premium.  Here, “size” and “larger” are referring to the gold content of the coin. The total weight of the coin (including base metals) and the shape of the bar are irrelevant. Similarly to the premiums on gold bullion coins, this change in premium discourages investors from purchasing gold bullion bars for barter potential as the smaller value bars that would be most convenient for trade have higher premiums upfront. However, this change in “premium”, “the larger the bar, the smaller the premium”, is advantageous for the investor purchasing gold bars as a store of value.  We only recommend Commodity Exchange Inc. (COMEX) deliverable bars that are used in future delivery contracts. Currently a premium between 3.75% and 4.50% (as of June 14, 2020) on these bars can be expected.  “Premiums” will likely increase as market conditions change.

Because gold bullion bars have smaller premiums than gold coins, they are ideal for self-directed IRAs. Regulations that govern IRAs call for a minimum purity of only 99.95% (24 karats), however, most gold bullion bars are 99.99% pure. Additionally, they must be hallmarked by a New York Mercantile Exchange (NYMEX) approved or Commodity Exchange Inc. (COMEX) approved refiner/assayer or national government mint. These bars are available in the following gold weights: 1 ounce, 10 ounces, kilo (32.15 ounces), 100 ounces, and 400 ounces. Below is a list of current (as of June 8, 2020) “premiums” by “size”:  

1 OUNCE 4.50%
10 OUNCES 3.75%
32.15 OUNCES

Gold Bullion Coins

Many countries—including the United States, Canada, China, Australia, and South Africa mint official legal tender gold coins each year, which are primarily meant for collectors and investment purposes and are not meant for circulation.  These government backed gold bullion coins derive their value from the gold content, rather than face value as money, although they are legal tender.  The market value of the coins is generally about equal to the market value of the gold content, not the face value (“legal tender value”).   For example, a 2018 1 oz. Gold American Eagle with $50 face value is worth and would sell for approximately $1838.00, the current spot price of gold plus the current “premium” as of today, June 14, 2020.   Though these coins differ in purity and actual physical size (including all base metals), they are popular because they all contain exactly one troy ounce of gold. An investor should expect to pay between a 6.00% to 7.50% per ounce “premium” on these 1 ounce bullion coins. The “premium” will vary with daily market conditions and by supply/demand conditions for each individual coin.  The table below lists the most well known of these government minted gold coins.
* All have exactly 1 troy ounce of gold

Fractional Gold Coins

Fractional gold coins are coins that contain less than one Troy ounce of gold. Most of the coins listed above can also be purchased in ½ , ¼, or  1/10 troy ounce increments.   Similarly to the 1 oz. coins, the “premium” for fractional coins varies with market conditions and by individual coin (i.e. American Buffalo vs. Australian Kangaroo).  Additionally, for the fractional coins, the “premium” does vary with the size of the coin, “the smaller the coin, the larger the premium.”  Here, “size” and “smaller” are referring to the gold content of the coin. The total weight of the coin including base metals and shape are irrelevant.  For ½ ounce coins the investor should expect to pay a 9.00% to 11.00% “premium”; for ¼ ounce coins a 11.00% to 13.00% “premium”; and for 1/10 ounce coins a 16.00% to 18.00% “premium”.  These premiums are current as of June 8, 2020, but change due to market conditions.

Many investors prefer these coins since many gold bullion coins are allowed in self-directed IRA’s.  To be eligible as IRA investments, gold coins must be at least .995 fine (99.5% pure) and be legal tender coins. This provision makes Canadian Gold Maple Leaf coins, Australian Kangaroo Nuggets and Austrian Philharmonics acceptable precious metals IRA investments.  Gold American Eagles (91.67% purity) are an exception to the purity requirement with 91.67% purity, but ARE allowed in the self-directed IRA.  Conversely, many gold coins, such as Krugerrands (91.67% pure) and old Double Eagle gold coins (90.00% pure), are not legal investments for precious metals IRAs.

Advantages to Gold Bullion Coins

There are multiple advantages when acquiring gold bullion coins. Firstly, they have a relatively low “premium”  when compared to other gold investments.  Secondly, as they derive their value from intrinsic gold content, it is a great store of value.  Thirdly, they are backed by the issuing government for content and purity and are considered legal tender in the issuing country.  Additionally, gold bullions coins are allowed in self directed IRA’s with certain regulations.  One disadvantage to purchasing fractional bullion coins results from the varying “premium” (which includes dealer premiums and commissions, all shipping costs and insurance); “the smaller the coin, the larger the premium.”  This discourages investors from investing in fractional gold bullion coins as “survival coins” (if needed for barter) due to the higher “premium” on smaller denominations of gold coins that would be most convenient if needed for barter.

Semi-Numismatic and Numismatic Coins

Unlike bullion coins, the value of numismatic coins is not based on the amount of gold contained in the coin (the gold content) but solely on the price that a willing buyer will pay for the coin in an open competitive bid system.  These “rare” coins are collected and valued for their scarcity, individual beauty, age and condition.

Semi-numismatic coins are those that are either numismatic coins of a low grade or fairly common coins that still have some collector’s value. The primary value of these coins comes from the gold content, not the collector’s value.  Semi-numismatic are less expensive than true numismatic coins, but they do carry a higher “premium” than regular bullion coins because they are in demand among some collectors. The higher premium also results from the limited supply of these coins, as they are no longer produced.  These are the same coins that in higher uncirculated grades are called numismatic, “slabbed” or graded coins.

American Semi-Numismatic and Numismatic Coins

The term semi-numismatic gold usually refers to circulated United States gold coins struck prior to 1934 that carry a relatively small premium over the spot price. American semi-numismatic and numismatic coins are no longer in production; therefore have higher “premiums” when compared to bullion coins and bars. Semi-numismatic coins in higher uncirculated grades are called numismatic, “slabbed” or graded coins. Typical grades are XF, AU and uncirculated MS-60s, MS-61s and MS-62s.

If a client does decide to buy American semi-numismatic coins, it is better to purchase those with fine or almost uncirculated lower grades of uncirculated coins (MS60-MS62) or the circulated grades of XF or AU, not numismatic grades.  Clients should expect to pay a “premium” 6% to 15% over the coin’s gold content value.   The following table includes some NNA recommended American semi-numismatic coins.

American Numismatic Coins

For investment purposes, NNA does not recommend American numismatic coins when compared to bullion bars and coins.  Over the past ten years, the appreciation rate of numismatic coins has been about 33.00% less than the appreciation rate of gold bullion coins.  Another thing to consider is that the “premiums” charged by many firms are so high, the investor is never able to recover the initial investment even with gold’s rising price.  The most common of these numismatic coins are the $5 Liberty, $5 Indian, $3 Indian, $2.5 Liberty, $2.5 Indian, $1 Liberty type 1, $1 Liberty Type 2 and $1 Liberty Type 3.  NNA believes the low appreciation rates and the high “premium” on these eight coins make them relatively unattractive for purchase.

Foreign Semi-Numismatic Coins

Due to the small collector’s value of foreign semi-numismatic coins and the limited supply (as they are no longer being produced), the “premium” for these coins is higher than those for bullion coins and bars.  Therefore, they cost more per ounce to purchase.  On the positive side, they do bring a larger “premium” when the coin is liquidated.  Below is a list of gold coins to consider for purchase.

While there are many more foreign semi-numismatic coins, this is the list of the coins NNA feels are the best and most recognized worldwide.  These coins are durable, 22 karat gold and liquid anywhere in the world.  “Premiums”  should be between 5.5% and 8%.  These percentages will vary depending  on the rarity and availability of that particular coin.  The number of semi-numismatic coins on the market at any given time is not steady since they are no longer being produced. Some firms selling gold have these coins graded by the Profession Coin Grading Service (PCGS) or Numismatic Guaranty Corporation (NGC) and then sell the coins as rare numismatic coins with very high premiums.  This is a very common trap but should be avoided.

Gold in a Precious Metal IRA

Only gold coins that are legal tender with 0.9999 fineness are allowed in a Precious Metal IRA, with the exception of the American Gold Eagle, which has a fineness of 0.9167. Other gold coins allowed to be put into an IRA include the American Buffalo, Canadian Gold Maple Leaf, and Australian Gold Nugget. The popular South African Krugerrand is not permitted to be included in an American IRA because it’s fineness is only 0.9167.  The regulations that govern gold contributions to IRAs call for a minimum purity of only 0.995, but most gold bullion bars are 0.9999 pure.

Allowed- Minimum Fineness Required 0.995

Below is a list of gold products that are acceptable for being held in a precious metal IRA account:

  • American Eagle coins¹

  • Australian Kangaroo/Nugget coins

  • Austrian Philharmonic coins

  • Canadian Maple Leaf coins

  • Credit Suisse – Pamp Suisse Bars 0.999

  • U.S. Buffalo Gold Uncirculated coins (no Proofs)

  • Bars and rounds manufactured by a NYMEX or COMEX approved refiner/assayer or national government mint and meeting minimum fineness requirements²

Not Allowed

Examples of unacceptable gold products for being held in a precious metal IRA account:

  • Austrian Corona and Ducat

  • Belgian Franc

  • British Sovereign and Britannia

  • Chilean Peso

  • Columbian Peso

¹”Slabbed” coins are not permissible.

²Gold, Silver, Platinum, & Palladium bars must be fabricated by NYMEX or COMEX approved refiners or national government mint.

Reporting Requirements

This is one of the areas where people have the most number of questions.  Of course, this information can change at any time.  We are not an accounting firm, registered accountants, attorneys, or tax experts. This information is intended to assist you and is not intended to be used as sole guidance for complying with these regulations.  You should always contact your accountant, CPA or attorney with any tax questions, issues or concerns.

The only reporting requirement when purchasing Precious Metals currently involves cash and money orders. You can purchase up to a maximum of $9999 in cash or money order without having to fill out the form 8300 to report the transaction to the IRS.  If you write a personal check or wire funds there are no reporting requirements regardless of your purchase size.

The reporting requirements on the selling side are more complicated.  This is where the 1099-B form may apply when liquidating certain items.  The question involves the type and quantity of product that you are liquidating.  A brief summary of reportable and non-reportable gold products and quantities follows.

Reportable Gold

The following require a 1099-B to be issued when you sell the listed coins, bars or certificates in the quantities listed by the end of the calendar year.  A combination of the above products that together go above the limits also count for reporting purposes.  For example, if you were to liquidate 12 Canadian Maple Leafs and 13 ounces of South African Krugerrands in one calendar year, you would be be required to report this transaction.

  • Austrian Gold Philharmonics: 25+ ounces per year

  • Canadian Gold Maple Leafs: 25+ ounces per year

  • Fungible Gold Certificates: 32.15+ ounces per year

  • South African Gold Krugerrand: 25+ ounces per year

  • 24kt. Gold Bars: 32.15+ ounces per year

Non-Re-portable Gold

There are many more gold products that fall into this category. However, these are the most popular ones.

  • American Gold Buffaloes

  • American Gold Eagles

  • Austrian 100 Coronas

  • British Sovereigns

  • French 20 Francs

  • Mexican 50 Pesos

  • Swiss 20 Francs

*We are not an accounting firm, registered accountants, attorneys, or tax experts. This information is intended to assist you and is not intended to be used as sole guidance for complying with these regulations.  You should always contact your accountant, CPA or attorney with any tax questions, issues or concerns.*

In Summary


+ “Premium” currently 3.25% -5.00% over spot price
+ Easy to store and transport
+ Currently allowed in U.S. self-directed IRA’s if certain requirements are met
+ Easy to identify due to identifying information stamped on each bar
+ “the larger the bar, the lower the premium” if purchasing as a store of value
– “the larger the coin, the lower the premium” if purchasing for barter potential

-Not legal tender


+    “Premium” currently 3.75%-6% over spot price for 1 troy ounce coin products

+    Legal tender

+    Backed by the producing government for content and purity

+    Easy to store and transport

+    Globally recognized highly liquid

+    Currently allowed in U.S. self directed IRA’s (Krugerrands excluded)

+    Considered as having physical “beauty”

+    Easy to store and transport

–     Fractional sizes have higher premiums.  “The smaller the coin, the larger the premium”

American Semi-Numismatic and Numismatic Coins

+Legal tender

+ Easy to store and transport

– High premiums  currently 9%-15% over spot

– NOT currently allowed in U.S. self directed IRA’s

–  Liquid with larger “bid-ask” spreads in wholesale market

Foreign Semi-Numismatic Coins 

+  premium currently 5.5%-8% over spot price

+  Globally recognized highly liquid

+  Most Fractional coins are at low premiums

+  Coin premiums could increase because coins due to limited supply

+  Global demand could increase coin premiums

+   Easy to store and transport

–   Not Legal Tender

–   NOT currently allowed in U.S. self directed IRA’s