Why Buy Gold Eagle Coins In, or Outside, Your IRA as a Hedge Investment?

Gold Eagle CoinsCan you imagine exchanging a cow or a bushel of corn for a set of clothing or a meal? For more than 3,000 years, humans bartered for the things they needed, negotiating a value for the goods exchanged on each side of a transaction. To eliminate the burden of transporting and storing physical commodities, some communities turned to more convenient forms of exchange – cowrie shells and beads.

Despite the advantage of convenience, the newer forms of “money” suffered from the same economic flaw – mismatches between supply and demand – as the older modes:

  • Volatility. The value of the goods relative to each unit of money continuously changed as supply and demand ebbed and flowed, e.g., the more cattle on hand, the less the value per cow. Conversely, when supply dropped due to a drought or other disaster, each cow or bushel’s value would rapidly increase in exchange value.
  • Inflation. Even when demand remained stable, supply would invariably increase through increased human efforts to find shells or manufacture beads, producing an over-supply and a loss of value per unit. Inevitably, anyone holding the money will invariably sustain a loss of purchasing power before exchanging it in a later transaction.

Gold Coins in History

Precious metals – gold and silver with stable value due to their scarcity – appeared as currency about 2,500 years ago in the form of electrum coins with hammered designs issued by the Ionian Greek rulers. Gold and silver coins appeared during the Achaemenid Persian Empire in the 3rd century BC. Smiths manufactured metal currency by hammering or pressing to create different denominations of value based on the percentage of the base metals and weight of each coin. Traders accepted the coins for their ability to hold their value. For example, a Roman citizen in the fourth century AD could buy supplies in Britain as in Rome.

Gold slowly became the money of choice around the world due to its appearance, rarity, and difficulty of finding and mining. National governments were able to issue the more convenient paper money by guaranteeing that an exchange of physical gold for the paper. That option for Americans ended during the Administration of President Franklin D. Roosevelt.

Four Reasons to Buy Gold Eagle Coins

American Gold Eagle Coin“Gold is money, and nothing else,” claimed famed financier J.P. Morgan testifying before Congress in 1912.

Adam Strauss recognized its success as a store of value in a 2019 Forbes magazine article, “Gold has emerged as the clear winner store of value after thousands of years of competition against other commodity currencies.” In December 2019, the investment banking firm of Goldman Sachs reported that they saw evidence of vaulted gold increasing, as high net worth individuals were storing gold outside the financial system.

“Outside the financial system” means physical gold, not stocks in gold companies, shares of a gold ETF, or purchases of gold futures that rely on the financial system for transactions and valuation.

Investors purchasing physical gold can buy bulk gold in the form of bars, ingots, and “rounds” of different weights and purities of gold coins minted by national governments including the US (American Eagles), Canada (Maple Leafs), South Africa (Krugerrands), China (Pandas), and Australia (Kangaroos). Private mints sometimes stamp rounds that appear similar to coins but cannot be used as legal tender nor have a guarantee of weight or purity.

Those wanting to acquire gold coins should limit their purchases to government-issued coins like gold eagles due to their:

  • Authenticity. The issuing government guarantees weight and purity, including a Certificate of Authenticity for uncirculated and proof types, come with aversions. Counterfeiting is a Federal crime. Privately minted coins do not have similar protections.
  • Convenience. Gold coins are available in different weights and sizes, so they are easy to transport and store without exceptional cost.
  • Liquidity. Due to the lack of worries about fakes and the abundance of gold dealers worldwide, government-issued gold coins are easily bought and sold at the gold spot price at the time of the transactions.
  • Aesthetics. Gold eagles are considered some of the most beautiful coins in the world. Composed of 22-karat gold alloy, one side resembles the design of Augustus Saint-Gaudens that appeared on the last double eagle printed in 1933. The other side has a protective male eagle soaring above his mate and their hatchlings. While proof versions are especially dramatic, different versions (uncirculated and bullion) are nearly as striking.

America’s First Gold Eagle Coins

From the arrival of the first colonists until the Coinage Act of 1792, Americans relied on English guineas, Dutch ducats, French Louis d’ ors, and Spanish doubloons to conduct business between citizens and governments. American gold coins were initially authorized by the Coinage Act of 1792, allowing the minting of the Eagle and Half-Eagle in 1795 and the Quarter Eagle in 1796. Foreign gold coins and the Eagles were in circulation until the former was denied their use as legal tender by the Coinage Act of 1857, leaving the Eagles as the single gold coins for use in American business transactions.

Pre-1933 Gold Eagle Coins Today

The first gold coins issued by the Treasury were the $10 Gold Eagle and the $5 Half Gold Eagle in 1795 minted in Philadelphia, PA. Both coins were 22 karats (91.7% gold and weighed 17.5 grams and 8.75 grams.

During the next one-and-a-half centuries (1795-1833), the Treasury issued gold coins in multiple denominations, weight, and gold content from six US Mints.

On April 20, 1933, President Franklin D Roosevelt suspended the gold standard in the United States. His Executive Order 6102 prohibited the Treasury from minting and issuing gold coins.

Numismatic Coins

The early gold coins are considered numismatic coins today, primarily bought and sold by coin collectors. They are sought for their rarity, not for their face value nor value of their composition. For example, the 1849 $20 Liberty Head Gold Double Eagle is considered the rarest and most valuable US coin ever minted. Now on display in the National Numismatic Collection at the Smithsonian Institute, the coin’s estimated value is approximately ten times the current spot price of gold.

A tiny percentage of those who buy Gold Eagles are numismatists, a hobby that requires deep, deep pocketbooks, extensive knowledge, and technical, analytical skills. Well-known collectors include businessmen (Josiah Lilley, Harry W. Bass), Presidents (Thomas Jefferson, Franklin D. Roosevelt), and sports stars (Kareem Abdul-Jabbar, Wayne Gretzky).

The provenance (origin) of collectible coins is crucial as Joan Langbord and her family learned in a historic case over the ownership of ten 1933 Saint-Gaudens gold double eagles. The family ultimately lost their ownership claim when the US Supreme Court declined to review an appeal that found in favor of the government.

American Gold Eagle Coins for Legal Purchase

In 1985, Congress passed the Gold Bullion Coin Act authorizing the Treasury to begin minting gold coins from its stored supply of gold bullion with the proceeds used to pay down the national debt. Since 1986, the Mint has coined three versions of the coins in various denominations and proof sets each year:

  • Produced for sale only to approved dealers throughout the United States, the weight and purity of the coin determine its value. The coins are considered “legal tender” under the law, but their use at face value rather than market value is likely to considered money laundering by the IRS (Robert Kahre case).
  • Stamped on a hand-loaded press from burnished blanks to create a soft, matte-like, though brilliant finish, the coins have an accompanying Certificate of Authenticity. This category of coins is the lowest volume produced due to a lack of investor interest.
  • Proof. Double striking a coin blank produces a frosted, sculpted foreground for a glamorous shine; defined, intricate design; and mirror-like background. Each coin is encased in a protective capsule and includes an official Certificate of Authenticity. Proof gold eagle coins sell at a premium to the more common bullion coins for the beauty and extra cost of mining.

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Other US Precious Metal Coins

The US Mint also produces the Gold Buffalo (99.99%) as well as other Eagle-designated coins of various materials and denominations for sale in addition to the gold eagle coins.

Gold Buffalos

The US Mint at West Point struck the first American Buffaloes in 2006. The one-ounce coin is the first American-issued coin of pure gold (99.99%) mined in the United States within one year of mining. It has a face value of $50.

The design resembles the 1913 5-cent coin (the “Nickel”), one of America’s most popular circulating coins. One side of the coin (obverse) has a right-facing portrait of a native American with the word “Liberty” and date of minting. The reverse side has a left-facing American buffalo (bison) standing atop a rock with the inscriptions: United States of America; E Pluribus Unum; In God We Trust; $50; and 1 oz..9999 Fine Gold.

Silver Eagles

Though the gold coins minting by the US Mint ceased in 1934, the Treasury continued to produce dimes, quarters, half-dollars, and dollar coins with a 90% silver composition until 1964. After that, lower-denomination coins were coins of copper with a silver cladding equal to 40% of their weight.

The first bullion American Silver Eagle was minted in 1986 and is one ounce of 99.9% pure silver. It is considered legal tender with a melt value (based on the price of silver) of about $17.00. The Mint began producing and selling a Silver Proof set with coins of 90% silver.

Platinum Eagles

Eagles of 99.95% Platinum initially appeared in 1997 in four denominations from 1/10 to 1 ounce. In 2008, the government discontinued the less than 1-ounce versions. Like the other Eagles, the Platinum coin is available in bullion, proof, and uncirculated versions. Bullion versions, coined without a mint mark, have the same design each year: the bust of Lady Liberty on the obverse side and an eagle in flight on the reverse.

Designs of the proof versions of the Platinum eagle are altered each year and include a “W” mintmark signifying the West Point mint. The uncirculated version is a replica of the proof version.

Palladium Eagles

Coins of 99.95% palladium with a face value of $25 initially were available to the public in 2017. The only design used thus far resembles the Mercury dime (Lady Liberty wearing a winged hat on the obverse side and a standing eagle on the reverse. The number of Palladium Eagles minted each year is low (15,000-30,000 annually), so the coins may have numismatic value above the palladium value.

IRA Gold Investment

Gold and Silver in the 2007+ CrisisThe Taxpayer Relief Act of 1997 permitted the ownership of physical gold and other precious metal – silver, platinum, and palladium – bars and coins in Investor Retirement Accounts. The type of acceptable coins for a Precious Metals IRA is restrictive, but include American Eagles of all denominations and composition. Numismatic coins or “collectibles” are prohibited in IRA accounts.

Precious metal assets in an IRA must be kept by an independent trustee or custodian (a bank, a federally insured credit union, a savings and loan association, or an entity approved by the IRS to act as trustee or custodian) and kept in a secure depository. Individuals cannot act as their own trustees nor maintain possession of the assets in a home safe or safety deposit box.

IRA contributions are generally tax-deductible in the year they are made $6,000-$7,000 depending on age. Increases in the value of assets in an IRA are tax-deferred until the owner begins receiving dividends at age 59 ½ or later. All distributions are taxed as regular income to the recipient. Owners of a Precious Metal IRA can elect to…

  • take the physical coins as distributions at a value equal to the coin’s market value on the date of the delivery, or
  • have the custodian sell the coins and distribute the cash proceeds.

The advantages of buying Gold Eagles in an IRA are the deductibility of their purchase costs while providing a hedge for future market chaos. Nevertheless, establishing a Precious Metals IRA should be done after careful analysis of one’s personal financial and tax situation and with the advice of a trusted adviser.

Gold and Silver American Eagle Coins

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Final Thoughts

Gold, especially gold coins, have always attracted men by rarity and beauty. Estimates of the total gold in the world – mined and still to be discovered – range from 155,244 to 2.5 million metric tons. In other words, the gold in the world would fit in a space the width and depth of Wimbledon Center Court with a height from 166 feet to 470 feet (about 17 to 50 stories).

Are gold eagle coins the perfect investment?

For some, maybe, but there are other investments – stocks, bonds, real estate – that offer features that coins do not have. No investment is perfect in all markets or personal situations. However, for diversification sake or what Clem Chambers, noted financial author and CEO of ADVFN.com, calls “portfolio insurance,” gold eagles and other precious metals should play a key role in maintaining healthy portfolio diversity.

Chambers notes that “putting all of your money in gold is crazy, but that can be said about anything: Apple [stock], bonds, property…your capital should be carefully and diligently placed in various pots to protect you from unpredictable events. Gold should be part of that strategy.”

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Gold as a Hedge Investment for a Secure Retirement

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Gold as a Hedge Investment