With the oil price once again lingering near all-time highs, the idea of investing in gold is gaining momentum. Of late I have been receiving many enquiries about the merits of investing in gold coins as a possible hedge... but is this a good idea? Here’s what the experts say.

In uncertain economic times, the first type of investment to take a knock is the equity market. A drop in the value in share prices ultimately affects all long term retirement savings. Moreover, when interest rates are on the rise, as they currently are, it’s not unusual for property to sometimes get a beating.

The bottom line is that every investment has its day and they do not all perform in tandem. So it makes sense to diversify your investments, and gold should not be overlooked. Many investors are jittery about investing in gold because they know very little about it, so the first place to start is to learn about the commodity as an investment.

Gold coin advantages

Gold provides a "hedge" against the devaluation of your portfolio because its value actually tends to increase while other markets decrease. One of the easiest methods of doing this is buying gold coins. Advantages include:

• They are readily available from a wide variety of sources;
  
• They can usually be bought at a bargain when other investments are doing well;
  
• The worse the economy gets the more valuable your gold coins will be;
  
• Gold coins (bullion coins) can be quickly and easily sold for cash when the need arises ;
  
• They are easy to store.

A rare coin however is subject to market forces, or supply and demand and it could take up to a year to sell it. The returns on rare coins tend to be higher but they also come with an element of risk. Like art, rare coins do not consistently move in an upwards direction, so you need to be knowledgeable about the type of coin that you are buying and its desirability in the market. Stuy says you should take a long term view when buying rare coins and not expect to turn a quick profit in the short term.

Scams abound

When buying rare coins, it is vital that you deal with a reputable supplier and that the coins are properly graded. Stuy says that there are two internationally recognised grading companies that provide this service and they are based in the US. The coins are graded according to condition, then sealed in a tamperproof sleeve with a serial number. The three grades are: proof, mint and very fine.

When conducting some research on the internet it became clear that the business of buying and selling coins is not only lucrative for the investors but scam artists clean up too.

Stuy says the most common scam in South Africa is for the dealer to offer a high guaranteed buy back of your rare coin one year after you have purchased it (as much as 35 percent).However, when you try to resell it, the company has closed its doors and chances are you overpaid in the first place.

What to look out for

In the US high pressure salespeople are very adept at selling their victims coins and then persuading them not to take delivery but to put them in safekeeping with them. I don’t need to tell you what happens next.

So what must you do if you’re in the market for gold coins?

• Shop around because prices can vary widely;
  
• Have a mix of bullion and rare coins in your collection;
  
• Do not invest more than 20 percent of your savings in coins;
  
• Look for bargains on the internet (but be wary of scams);
  
• Only deal with a reputable dealer;
  
• Watch out for telemarketers;
  
• Educate yourself by, for example, visiting websites like www.sagoldcoin.com.

The biggest trap investors fall into is buying a gold investment without taking into account what their objectives are. Most often the safe-haven investor simply wants to add gold coins to his or her portfolio mix, but instead they get caught up in the hype and end up with a handful of exotic rare coins stuffed away in a safe.

These have little to do with safe-haven investing, and most investors would be well advised to talk to an expert in the field who can aid them to develop a sensible strategy.