When facing the possibility of inflation risk and the corresponding reduced purchasing power, many investors develop a natural interest in holding gold in their portfolio as a hedge, especially American Eagle gold bullion coins. By purchasing the "metal of kings" through these uniquely minted coins, you can add the precious metal to your balance sheet a few thousand dollars at a time.
An Introduction to American Eagle Gold Bullion Coins
In 1985, Congress authorized the creation of the American Eagle gold bullion coins as a way for investors to conveniently acquire small stakes of gold for their portfolio. The first minting came a year later, in 1986, with the same four sizes that are available today: 1 oz., 1/2 oz., 1/4 oz., and 1/10 oz. The law contained a provision that only gold bullion mined in the United States can be used in the American Eagle gold bullion coins; a practice still followed today.
Gold Bullion Purity
According to the U.S. Mint, American Eagle coins are the nation’s only official investment-grade gold bullion whose weight, purity, and content are guaranteed by the United States Government. Each American Eagle Gold Bullion coin is 22 karats (gold is measured in units of 24). In other words, the coin contains 22 parts pure gold and 2 parts silver/copper. As gold is a soft, easily scarred metal, this mixture strengthens the coins and keeps them looking new.
Liquidity of Coins
Almost all American Eagle gold bullion coins can be quickly sold for cash at coin and precious metal dealers throughout the world. Technically, these coins are legal tender in the United States; the 1 oz. gold bullion coin, for example, has a face value of $50 yet, given the fact the coin is worth roughly 40 times that amount based upon the market price of its gold composition (as of March 2021), this is largely symbolic.
Gold Proofs vs. Gold Bullion
Many new investors are confused by the difference between American Eagle Gold Proofs and American Eagle gold bullion coins.
American Eagle gold proof coins: According to the U.S. Mint, these are collector edition coins minted through a process that “begins by manually feeding burnished coin blanks into presses fitted with special dies. Each coin is struck multiple times so the softly frosted, yet detailed images seem to float above a mirror-like field”. Gold proof coins come packaged with a certificate of authenticity in a protective case and mounted in a satin-lined blue velvet case. They are available for sale directly from the Mint.
Regular American Eagle gold bullion coins: These coins are not purchased for their rarity or age; instead, they are meant solely as a way to acquire a position in gold as a precious metal. Their value is determined by the given market price for gold at the time of sale or purchase. American Eagle Gold Bullion coins are not available for sale directly from the mint. Instead, they must be acquired through an authorized dealer, who will sell the coins at a markup above the spot price of gold.
American Eagle Gold Bullion Coins in a Portfolio
Gold is traditionally purchased as a hedge against inflation. During the 1970s, for example, an investor would have been much better off in true economic terms had he owned a portfolio consisting largely of gold. Throughout the 1990’s bull market, however, gold bullion was an underperformer and would have resulted in sub-par returns on a compounded basis for the decade.
Legally, gold bullion can be purchased through an IRA account. From a financial standpoint, this doesn’t make much sense unless you plan on trading, rather than holding, the asset. The reason? Taxes. The amount of cash you can invest each year into your IRA is spelled out in the Congressionally-mandated contribution limits. Gold doesn’t have utility in the sense that is going to produce taxable cash, whereas if you own corporate bonds, dividend-paying stocks, or real estate investment trusts (REITs), you are going to receive distributions each year in the form of interest or dividends.
Most investors interested in this particular venue of capital allocation will probably be better off buying American Eagle gold bullion coins and place them in a safety deposit box at their local bank.