Is splashing out £400 on a Sovereign REALLY a worthwhile investment? Or just…FOOL’S GOLD

A gold-embossed envelope with an elaborate ‘Harrington & Byrne’ coat of arms proudly stamped on the cover drops through my letterbox.

Is it an invitation to a lavish party from an eccentric aristocrat – or a grand legal firm explaining I have inherited a small fortune from a long-lost relative?

Sadly neither. As soon as I rip open the envelope, I am crest-fallen. It is another piece of junk mail, although a bit fancier than the usual fodder. There is a card inside with a picture of a gold coin and a letter stating: ‘With gold at a record high secure the brand new UK Sovereign today.’

That fancy coat of arms is a gimmick and designed to convince me that I am a discerning investor and that this is a deal too good to miss. The letter encourages me to hurry by explaining if I order the coin in seven days, I pay a £299 guaranteed price – so there is no time to lose.

But even a quick search on the internet shows not all gold Sovereigns are priced the same. Depending on where you buy, a seemingly identical coin would cost me from £280 to more than £400.

Adrian Ash, director of research at gold trader BullionVault, explains: ‘In the vast majority of cases you are buying gold bullion – which is the value of the metal within the coin and not just the currency itself.

‘This means that you should shop around for best price, as the Sovereign is usually the same value wherever you get it. Marketing is a key part of the process and must be paid for – so is added to the price. But do not feel pressured into buying due to a special offer as such coins are always available.’

A gold Sovereign might have been purchased a decade ago for about £150 – though of course you could have paid more depending on who you bought it from. This same coin might be worth about £290 today. With the coin value almost doubling in a decade it is no surprise the Sovereign should hold an allure for investors. But just because the precious coin has risen in price does not mean it will continue to offer sparkling returns in the future – it might even fall in value.

The modern gold Sovereign was first minted in 1817 and has a face value of £1. But because it is 22-carat gold, its value melted down is a lot more than £1. The 22-carat value means it is 22 parts gold and two parts copper. The alloy is used to toughen the metal. Dealers might pay about £40 for a gram of gold, so scrap value can be about £290.

But another key appeal of a Sovereign is that it is deemed to be legal tender, which exempts investors from capital gains tax on any rise in value. As with all investment-grade gold, there is also no VAT to pay.

Big players in the market such as the Royal Mint are able to charge higher prices because they have a trustworthy name. Royal Mint also sells a ‘brilliant uncirculated’ Sovereign for £450 – about £150 more than it is worth in gold. A slice of that extra money is spent on slick marketing and clever packaging but, more importantly, it is the finest quality coin, known as a ‘proof’. 

These more expensive Sovereign proofs have been struck with a highly polished die (a type of metal press). The coins have a sharply defined mirror-like surface and have never been in circulation. Although this may excite collectors, it does not add any value in terms of gold content.

The Sovereign is the most popular gold coin, but Ash says investors should also consider alternatives such as gold bars, where trading costs can be more competitive.

‘There are plenty of bullion traders that can sell you coins. If you are unsure about the reputation of a dealer, simply do an internet search. If anyone has had problems, you can expect to find adverse comments – an indication to steer clear of the firm. You can visit dealers in person or have the coins posted fully insured using Royal Mail Special Delivery so the transaction is perfectly safe.’ Traders such as The Gold Bullion Company, ATS Bullion, BullionVault, BullionByPost, Baird & Co, Harrington & Byrne and Royal Mint are among those selling such coins. You normally pay at least 0.5 per cent commission – and a further 0.5 per cent of its value when selling.

Ash says: ‘One of the great benefits of gold Sovereigns is there are plenty of them about – so they are easy to trade. They are also a handy size and can make a lovely gift.

‘But if you want to make some money then you should think carefully about other gold investment options. If you store more than £3,000 of coins you may have to pay higher home insurance premiums of perhaps £50 a year and install a safe, costing at least £500.’

There are some Sovereigns that trade for more – because they have historic value. The first modern Sovereigns from 1817 with King George III on the head sell for £2,000 in top condition – £500 if used. Others worth more than intrinsic value include an unusual proof from 2017 – with a special George and the Dragon design to commemorate the 200th anniversary of the modern Sovereign coin. This can sell for more than £800.

There are also older historic Sovereigns that have appeal among numismatists – and not bullion traders. A Queen Mary Sovereign that was minted in 1553 is a highly sought- after coin that might sell for £70,000.

The earliest sovereigns were bigger and heavier than the present coin – and use a more pure 23-carat gold. This type stopped being minted in 1604. But because of their historic value, they are not beholden to the gold price and can sell for £10,000.

Anyone who is interested in buying Sovereigns or is unsure about a trader can contact the British Numismatic Trade Association at bnta.net. The London Bullion Market Association has a list of local gold merchants that adhere to a strict code of conduct. Visit lbma.org.uk.