Fractional gold coins have spawned a debate for years. Specifically, potential investors and coin collectors are asking themselves whether fractional gold coins are a worthwhile investment. However, it really depends on which fractional gold coins you plan to buy.
The 5 best fractional gold coins to buy are:
- Gold American Eagle Coin
- South African Gold Krugerrand
- Austrian Philharmonic Gold Coin
- Chinese Panda Gold Coin
- Australian Gold Kangaroo Coin
Coins in the list above are affordable for most people and do not require a huge outlay of cash all at once in the way gold bars or large coins do. The question of whether they are a worthwhile investment depends on your plans for them, and we discuss this in more detail below.
What You Need To Know About Fractional Gold Coins
Everyone understands that gold as an investment is difficult to beat. It has been considered a precious metal for virtually all of human history. Plopping down thousands of dollars to buy a large denomination gold coin, though, is not practical.
What might be, however, is purchasing fractional gold coins. Not only are fractional gold coins not as expensive as buying large denomination gold coins, but they also let you buy more coins for your coin collection, whether you manage it purely as a collection or as an investment.
What Is A Fractional Gold Coin?
In the simplest terms, fractional gold coins are coins that have a gold content that is less than one ounce in weight. That can be due to two reasons:
- The coin is not large enough to weigh one ounce
- Other materials in the coin dilute the gold as a percentage of the entire weight of the coin
Gold As A Hedge
The ounce amount is important because gold is generally measured in ounce portions. If a fractional gold coin, for instance, is valued at one tenth of an ounce and an ounce is selling for $1,000, then that coin’s spot market value is $100 ($1,000/10).
Prices for gold in a spot market are the prices an ounce or portion of an ounce will sell for via fiat currency. Gold, because of its perceived permanency, is a hedge investment against volatile currency or economic times. To see how this works, consider the following timeline of when gold prices skyrocketed in the USA over the last 20 years.
When the housing and subprime loan bubble burst, the economy went into a tailspin. The prospect of massive economic disaster was so acute that Congress and the President passed stimulus for individuals and small businesses and a massive bank bailout to stabilize banks that were over invested in subprime loans or real estate.
As this was happening, gold prices shot through the roof. On multiple occasions, the price of gold per troy ounce broke records.
The spike in gold prices during this time was due to a few issues. First, the financial fallout of the “Great Recession” was still stifling economic growth. Secondly, banks had not recovered or opened lending criteria, leading to fewer business loans and less expansion.
Thirdly, at least half the country was concerned with the passage of the Affordable Care Act, a massive government administrative initiative in healthcare delivery. Finally, the Fed continued to hold artificially low interest rates and was creating monetary policy that, in the short term, reduced the value and prestige of the US dollar.
All that added up to a populace that was very concerned and looking for ways to blunt further economic problems and possible economic collapse. Gold prices spiked again, and gold as a barter-investment made fractional gold coins popular.
While not on the pace of the first two examples, gold prices have been on an upward trajectory since early 2020. This was certainly due in part to the COVID-19 pandemic, as well as civil unrest over the 2020 summer and then the 2020 presidential election and its aftereffects.
The lessons in these three instances is that gold, as an investment, always goes up in certain environments. Primarily, the more social, economic and civil unrest there is, the higher gold prices climb as a hedge against that unrest.
Determining Value Of Fractional Gold Coins
The value of a collectible is the result of 3 factors:
- Spot price
Demand is obviously how popular a coin is. The Canadian Maple Leaf and American Eagle, for example, are the two most popular coins in terms of collectability, but overseas, the Maple Leaf is the preferred coin as legal tender. Two factors probably influence this:
- The Canadian Maple Leaf is 24 karat gold with a guarantee of .9999% purity
- American currency is not always appreciated because of the country’s reputation
The next factor is availability. The coins in this list are all heavily collected, and supply is not usually an issue. It can develop into one, however, when the economy tanks or civil unrest is rife. These gold coins are not ever “rare,” but the ease with which you can get one can be influenced by external variables.
Spot price is affected by the same influences as availability but is also subject to market volatility. If there is a rush on gold, for example, gold prices can skyrocket. If people are dumping gold, the spot market price will go down rapidly. So, with these factors in mind, let’s consider the 5 best fractional gold coins to buy.
The 5 Best Fractional Gold Coins To Buy
1. Gold American Eagle Coin
The Gold American Eagle is one of the workhorses of the fractional gold coin industry. First minted in 1986, it has been one of the most popular coins the US Mint has commissioned.
The US government releases a limited number each year and they can be purchased as proofs, uncirculated coins and proof sets in one tenth ounce, quarter-ounce, half-ounce and ounce denominations. Each Eagle coin is 91.67% gold (22 karats). The rest of the coin is 5.33% copper and 3% silver.
The weight, content and purity are backed by the US government. This is partly why this coin has been so popular for so long. Each coin also has a legal tender value as well. The one tenth ounce coin is worth $5, and the one ounce coin is worth $50 in legal tender.
Lady Liberty is featured on the face, holding her torch high in her right hand and an olive branch in her left hand. Stars grace the outer edge of the coin, and the date is stamped by her left knee. On the reverse is a family of eagles with the male furling his wings in preparation to land in the nest of his mate and their hatchlings.
This coin is scheduled for a redesign in 2021. One of the new features will make it harder to counterfeit, which makes it a more secure investment.
2. South African Gold Krugerrand
The Krugerrand was introduced in 1967 and commemorates Paul Kruger, the first President of South Africa, who served from 1883 through 1900, and the Rand Refinery (Kruger + Rand = Krugerrand,) which mints the coin. It is available in one tenth ounce, quarter-ounce, half-ounce and one-ounce coins.
In terms of content, the Krugerrand is 91.67% gold and 8.33% copper. It is also available in a silver edition.
What’s On The Coin?
Krugerrands are copper tinted,and the face has President Kruger in profile, facing left. His signature beard is prominent. The reverse has a springbok, South Africa’s national animal, in mid leap, and the date the coin was minted.
While these coins are common, because of South African apartheid laws, US collectors were not allowed to import them into the USA in the 70s and 80s. Before the embargo, the Krugerrand was popular in the US because while US citizens were prohibited from owning gold in bullion, they were permitted to own foreign coins and bullion.
At its height, pre-embargo, the Krugerrand made up 90% of the global gold coin business. Its popularity remains high, even today.
3. Austrian Philharmonic Gold Coin
This coin was minted in part to fill the hole left in the global coin market by the sanctions placed on South Africa’s apartheid. Each coin is 99.99% gold and they are available in one tenth ounce, quarter-ounce, half-ounce and one ounce weights.
Recently, a one twenty fifth ounce coin was minted and there are two other massive weights – the 20-ounce gold coin and a 1,000-ounce gold coin named “Big Phil.”
Big Phill was designed and producedto memorialize the 15th anniversary of the Vienna Philharmonic coin. The coin contained about 69 pounds of pure gold and possessed an estimated value of over $110,000. Only 15 of these coins were minted.
The coin itself is breathtaking. It features Vienna’s Musikverein’s Golden Hall’s world famous pipe organ. Vienna’s Mozart Orchestra plays on the Musikverein stage, and the Golden Hall is the permanent seat of the amazing Vienna Philharmonic. On the reverse side, a selection of instruments is featured, including the bassoon, Vienna horn, harp, and four violins surrounding a cello.
The Gold Philharmonic is one of the only coins that shows a face value in euros and across Europe it is not subject to VAT. The coin also comes in platinum and silver, and although the silver is subject to a tax discount, it is still taxed.
4. Chinese Panda Gold Coin
The Panda Gold Coin came after the American Eagle and Canadian Maple Leaf. It is China’s first gold coin. The face features the Giant Panda, which is China’s national animal. That design changes annually.
On the reverse side, the Temple of Heaven, a national cultural and religious landmark, is featured. Emperors visited the Temple annually to pray for blessings, national health, and a good harvest.
The Panda comes in five different weights and as a set. The weights are one gram, three grams, eight grams, fifteen grams and thirty grams. It made the switch from ounces to grams in 2016. The coin is .999 pure gold.
5. Australian Gold Kangaroo Coin
The original design of this coin had a gold nugget on its reverse face and was known as such. It was originally minted in 1987. In 1989, the Perth Mint altered the reverse face, ditching the gold nugget and adding a kangaroo. This prompted the name change to the Australian Gold Kangaroo coin.
The front face has a profile of Queen Elizabeth II. She is looking to the right of the coin and is wearing a crown. The profile is that of the Queen as a young lady.
You can purchase the Gold Kangaroo Coin in five different sizes: One kilo (about 2.2 lbs), one troy ounce, half troy ounce and a quarter troy ounce. Additionally, the coin can be purchased in the high relief version as well as a proof.
Advantages Of Buying Fractional Gold Coins
There are several reasons buying fractional gold coins can make more sense than buying larger amounts of gold in higher denominations or in bullion.
The simplest reason is that many people cannot afford a huge capital outlay to sink into one coin. Others don’t want to do so because they want more diversity in their coin collections. For most, though, it is a combination of both. They want to save money but also want more coins to round out their collection.
As we’re writing this, a standard one-ounce US Gold Eagle $50 gold coin is selling for between $1,800 and $2,200. Conversely, a standard quarter-ounce US Gold Eagle gold coin is selling at a range of $250 up to about $550.
For someone looking to add more coins to their collection or looking to diversify, 4 coins for roughly the price of one large coin is an easy choice.
At the same time, if someone is on a budget, a major outlay of a couple of thousand dollars might not be feasible. A purchase of two or three coins, however, might be more affordable. They get to add some pretty cool coins to their collection, increase their gold ownership and avoid breaking the bank too.
For collectors, offloading one large coin worth thousands is a lot harder than offloading two or three lower denominations. The reality is that collectors that want higher denomination coins tend to fall into certain categories:
- Money is not an issue no matter the value of the coin in question
- The focus off their collection is more valuable coins
- Their collection is oriented towards presentation, where one awesome coin is more aesthetically gripping than several minor coins
- All of the above
For the average collector, however, lower denominations are in their budget because they are affordable and they can expand a collection easily.
They Sell Well
Fractional gold coins also make sense as it is easier to sell them on multiple markets. Gold coins are an uncomplicated way to maximize the liquidity of an investment portfolio, expand a coin collection, or hedge investments against economic troubles or a devalued dollar.
Large gold coins can play that role, but they are harder to liquidate if that becomes necessary. Fractional gold coins are in smaller denominations, so easier to liquidate because of simple economics.
There are simply more people who can afford smaller denomination coins than there are people who can shell out thousands for one item. That means if a person owns fractional gold coins of multiple denominations, their chances of selling something are much increased over trying to sell one very expensive item.
Building A Collection
The same principle holds true with coin collectors. Your average numismatist wants to maximize their investment in terms of pieces in a collection. Having one or two really expensive coins is great, but having 8 or 9 less expensive – but still valuable – items is better. A coin collector can build their collection in parts with smaller denominations.
This all means that if you are trying to sell fractional gold coins you have a better chance of selling them versus someone who only is offering one or two very expensive coins.
Disadvantages Of Buying Fractional Gold Coins
Total Price Per Unit
The price per unit of smaller denomination gold coins is almost always more than the cost per unit of a larger coin. For example, a one-quarter ounce American Gold Eagle gold coin costs on an average of about $500. A one-ounce American Gold Eagle gold coin on the other hand costs about $1,800.
If saving money versus spending a lot for one investment is the goal, you would spend about $200 more for 4 quarter-ounce coins, versus one purchase of a one-ounce gold coin.
There are federal taxes that apply to selling and buying gold coins. There are federal tax implications regarding capital gains and net income, based on how long you owned the coins. The IRS considers collectible coins to be an “asset,” which is taxable based on a specific formula.
It is advisable that you familiarize yourself on how US taxes could affect your purchase, sale and holding of gold coins. That is all pretty straight-forward. Where it gets tricky is with state taxes.
Some states have imposed an additional state tax on bullion purchases under $1,000. Most amateur coin collectors get caught out here because they are not dropping $1,000 on coins, but rather buying one or two fractional coins that together cost less than $1,000.
You can avoid that by purchasing multiple coins to get your total to more than $1,000. That, however, defeats the purpose of avoiding spending as much fiat currency as possible on a gold coin! So, consider whether it is more cost-effective for you to spend less or more than $1,000, only (of course) if you can afford it.
Every dealer puts a premium cost on their gold coin prices. This is in addition to the market price of gold and is factored in as part of the demand and availability portion of the total costs of a coin. Premiums are typically higher on smaller denominations than on purchases of one-ounce gold coins.
Why? The set answer is that it costs more to manage many than it does to manage a few. Additionally, presentation space is used up by smaller, less expensive coins that could be used for more expensive one-ounce coins. Dealers also need to make a profit. All that leads to a slightly higher premium charge for fractional gold coins versus full one-ounce gold coins.
Who Should Buy Fractional Gold Coins?
Everyone Should Buy What They Can Afford
Not everyone can shell out thousands of dollars on gold coins. Because of that, though, purchases of fractional gold coins can allow someone to build a coin collection, diversify their investments, or purchase a form of liquidity to prepare for economic troubles etc.
Some coin buyers can afford to pay thousands, but that doesn’t mean buying smaller denominations is a bad idea. Mixing it up by buying some large and some small denominations of gold coins ensures that the buyer will have a gold coin for whatever reason they need or want it.
No one, however, should spend more than they can afford to buy gold coins, no matter the denomination. Even if you are thinking about purchasing gold coins as a hedge against tough times, you should only invest what you can afford.
For smaller collectors and those who only collect as a side hobby, smaller denominations make sense, even if money is not an issue. Buying fractional gold coins lets the amateur collector get their hands on many different coins, which makes a collection more interesting.
They can also sell those coins more easily if they want to upgrade or even buy other gold coins. Also, if they ever have to part with a portion of their collection, they can do so without losing the entire collection.
For investors, fractional gold coins provide an easy way to build liquidity without tying one’s hands financially. If the need arises, smaller denomination coins are easier to sell and can usually be priced proportionately higher than larger one-ounce coins.
Additionally, if you are just starting out building a precious metals portfolio, fractional coins are a way to do so without having to lay down thousands of dollars. You can make smaller purchases and build your assets over time as opposed to over-spending or having to save for months before you can invest at all.
Some people buy gold as a hedge against bad economic times. Their thinking is that when things go south, they will at least have some purchasing power in the form of a precious metal. If that is your motivation, smaller denomination coins make the most sense.
When Money Is Not The Issue
For some, the money, investment and hedge arguments do not matter because money is not really a problem. Buying in smaller denominations for them, though, still makes sense.
Smaller denomination gold coins are never a detriment to any investment, collection or doomsday preparation strategy. Apart from costing slightly more money, which in this case is not an issue, it doesn’t hurt to have a few if for no other reason than they are as cool as the one-ounce coins, but you can get more of them!
The 5 best fractional gold coins on the market are the American Eagle, Canadian Maple Leaf, South African Krugerrand, Austrian Philharmonic, Chinese Gold Panda and the Australian Gold Kangaroo Coin. All of these are good investments and buying them won’t break the bank. These coins also bring significant value to any coin collection.