Economists won't admit it, but we are now in recession, and with the inflationary pressures on the horizon...can you say food and gas prices? The question on the minds of many is, how can I preserve my investments against the declining dollar? Enter gold and American Eagle Gold Coins.
One very simple way to hedge against inflation is gold, and a smart way to get into the gold market is through diversifecation in US minted American Eagle Gold Coins.
With it's introduction in 1985, Congress authorized the creation of the American Eagle as a way for investors to easily and conveniently gain access to small stakes of gold for thier investment portfolios. The first actual minting and release came a year later in 1986, with 4 sizes, which are the same that are available today. The sizes, starting from smallest to largest are: 1/10 oz, 1/4 oz, 1/2 oz, and 1 oz. Interestly, law states that the gold used in the American Eagle can only be from mines in the United States, and this practice is still in use today.
Per the U.S. Mint, the American Eagle gold coins are the only offically investment grade gold bullion coin whose weight, purity, and content are guaranteed by the government. Each coin is 22 karats. The other 2 karats that make up the total metal of the coin come from silver. The silver is necessary as gold is a soft metal, and a pure coin would not hold up without significant defacing.
The American Eagle Gold Coins are very liquid and can be quickly sold for cash at many dealers and auctions, and technically can also be used as legal tender. The 1 oz coin, for example has a face value of $50, how ever, the metal value in the coin is easily worth twenty time that at this time of writing.
As the US dollar continues to weaken, the value of the gold coin continues to rise, and no ceiling is in sight.
Liquidity
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 almost ten times that amount based upon the market price of its gold composition at the time this article went to print, 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.
* 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.
* Gold Bullion: 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.
Fitting American Eagle Gold Bullion Coins into a Portfolio
Gold is traditionally purchased as a hedge against inflation. During the 1970’s, 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 product 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.