Polymer encapsulation is an important pathway to stabilize inorganic nanoparticles, allow their phase transfer to different media, and access inter-particle distance control in particle assembly. In the past, hydrogels were shown to be a versatile encapsulation material offering rather thick polymeric shells through free radical precipitation polymerization. In this work, we systematically investigate the influence of nanoparticle surface functionalization and concentration on the formation of core-shell microgels. Spherical gold nanoparticles are used as seeds in the radical polymerization of N-isopropylacrylamide and N,N′-methylenebisacrylamide. We find that the encapsulation occurs via precipitation of oligomers/polymers onto the seed particle surface, independent of the presence of polymerizable groups. Furthermore, we identify the seed concentration regime where almost exclusively core-shell particles are formed. In this concentration range, the hydrogel thickness is precisely controllable by the amount of seeds. Monitoring the polymerizations in situ by dynamic light scattering and absorbance spectroscopy provides first insights into the encapsulation mechanism and its time dependence.