Investors have long understood the concept of diversification. In fact, it's the #1 reason people give for accruing precious metals in the first place. But most investors don't realize that it's not enough to just diversify INTO precious metals. To be truly diversified, you must also diversify WITHIN precious metals, by combining allocations of both bullion and Investment Grade Coins.
Bullion is refined gold, generally in the form of minted coins and various sizes of bars. The value is primarily based on weight, the same as other commodities like crude oil, pork bellies, natural gas and wheat. This market index price is called the "spot price."
Privately made bullion includes coinage that does not have a face value recognized by any countries government but can bear a likeness to official mint coinage.
Minted bullion coins are made by official government mints and are made in accordance with federally mandated guidelines. They do carry a face value that is recognized within that country as official coinage, although most often their pure metallic makeup would prohibit a person from spending in a grocery store because oftentimes that metal value far exceeds the face value.
Understanding Investment Grade
Investment grade gold coins are valued for their rarity, rather than their weight. They have been certified by a third-party to guarantee their condition and help track their rarity over time. These coins do not trade on an index and therefore have a value that is much less volatile than gold bullion. Since more people want these coins than have them, the value has been going up.
Why Create a Diversified Precious Metals Portfolio?
This is the only way to create a portfolio that grows as the "spot price" rises, but is also protected from volatility and positioned for superior long-term growth. This simple strategy creates a metals portfolio that is diversified, more balanced and more secure.
Your specific mix of the two asset classes (bullion and Investment Grade Coins), should be determined by 3 main factors:
Tolerance for risk
Time Horizon/Liquidity Requirements
Portfolios that are heavily exposed to the bullion market are more aggressive and therefore more risky. They are generally recommended for short-term investors that are placing a bet on imminent market moves and are capable of stomaching a high-degree of risk, since prices can rise (or fall!) in a short period of time.
Portfolios that are more weighted in Investment Grade Coins are considered to be more secure and conservative, since the historical data indicated much less volatility than bullion, along with steady price appreciation. A minimum hold time of a least 5 years is recommended, to give the investment sufficient time to mature.
A balanced portfolio, with both bullion and Investment Grade Coins, is perfect of investors looking to limit their exposure to the ups and downs of the gold market price and shelter their investments from the geopolitical forces that are out of all of our control.