Circulation Values for Precious Metal coins

Ok - silly question - Why does the government issue coins made out of precious metals with very low circulation values? Why not issue them with some amount closer the lowest modern day bullion value (minus a small percentage for wear and tear loss)?

My reason for the question is this - If these coins get any kind of damage on them now, it's almost better to turn them into something else. I would think by increasing the value of the coin if circulated, it would increase the overall value of the coin through the different grades.?.

Right now it seems like the government is keeping with an old tradition that does not fit the current economy. I am sure there are many other reasons.

What do you think and I would love to hear what ND thinks as everyone should and does value his insight into mint topics.

Darryl

 

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I guess the first issue might be that counterfeiting might increase if they could be circulated at higher values.?.

 

These "coins" (and I use that term loosely) are made to be keepers, not to circulate. As such, they're medals or tokens (albeit with denominations on them), but not coins. At least, that's how I conceive of them. You buy them for the bullion value, and a little premium on top of that to compensate the metal workers for the great job they did...

 

I know one issue is that these coins are minted for investment purposes specifically and are not meant for circulation... the low face value should normally prevent this, and should account for bullion fluctutations...
And with investment coins, damage is not an issue... a circulated ASE is the same as an MS-70.

 

The mint does not establish the face values of the coins, congress did, in their infinite wisdom.
So, I guess that you have to ask them.

 

In your last statement I guess you are saying that if you buy a MS 65 and do no further damage to it then the value is not affected? I ask because a circulated ASE or AGE would not be worth as much (to a collector or investor) as a MS-69 and at some point the value of the coin to either is the bullion value and any sentimental.

So - for the investors, it is about the stability of the bullion value.

For the collectors/investors its about the beauty of the workmanship and bullion value.

For the collector, it's about the perfect coin.

And for the guy who wants a beer, its about the face value.

Sorry - I do know this and is why I put government after mint. I should have never listed the mint in the question because they do-as-asked by the government. Keep pounding it into my head though because sometimes that is the only way I remember anything. BTW: Infinite Wisdom - that's a good one.

 

Yup! There are a lot of commodities investors out there, who could buy a mint sealed 500 coin green box at bullion value (say $13) - open it, wash his coins in vinegar with some seasoning, play frisbee with them, pelt a few at the annonying neighbors dog and then store them in his freezer in between his steak. If bullion goes up to $14 then he could sell them at $500 profit and be quite happy!
Of course as of last year, silver can now be traded like a stock (an ETF), and physical possession of silver is not required anymore (except by the fund issuer), so more and more bullion coins show up in the hands of collectors/coin investors...
I speculate that there is a face value on coins in the first place because it represents a govenment gaurantee about the product (that this can actually be used as our currency)... but the I'm not an economist and could be wrong!

 

I wrote to ScotiaBank a few years ago about the $5 face value of the Canadian Maple Leaf silver bullion coin, and whether or not it could be redeemed for $5 in the event silver went below that value. They replied that the government puts a face value on the coin because it permits the coins to cross international borders duty free in the case of many nations because it technically qualifies as money and not as a commodity. But the existence of a face value doesn't make it redeemable at that price at any Canadian bank because it is not a circulation coin.

I presume, but have not checked, that this might be the reason for putting a face value on US bullion as well.

 

Side note from a non-US perspective: In the EU there is a difference between what is called "investment gold coins" - those are VAT exempt - and other gold coins (sold for "numismatic interest" and subject to VAT). In that sense, investment gold coins are pieces "of a purity equal to or greater than 900 thousandths and minted after 1800, which are or have been legal tender in the country of origin, and are normally sold at a price which does not exceed the open market value of the gold contained in the coins by more than 80 %".

Similarly, when "importing" silver coins to Germany, the VAT rate depends on the metal value of the coin, not on its face value. So in that regard it does not matter whether the nominal value of a silver or gold coin is unusually high or low ...

Christian

 

You are correct that I find that hard to believe. I will take your word for it though.

I feel a little disappointed that the coins condition does not affect its value. That just feels like the coin has no importance, it's only the gold that matters. As someone that loves beautiful pieces of work in almost any form, it just doesn't make me feel good no to appreciate the coin.

I guess that's why I started the thread to try to understand why the government makes them with the values they do. Investors want to be able to buy bullion stamped by our government.

When that investment gets handed down to the next generation I guess you should leave clear instructions about the value and how to handle and/or sell if necessary.

 

The value is dependent on the purchaser. If I'm simply purchasing gold, then AG-3 or PF-70 doesn't matter. Now if I'm a coin collector the grade does matter.

 

I think that the coins have a face value for legal reasons, I know that you can get them as investment coins without paying sales tax if the purchase is over $1000 (that is, $1000 that you're paying, not face value). I'm not sure but I think it also gets around some regulations related to buying bullion. My coin dealer said that if I were to buy the same amount of gold in bars or european gold coins, there's a lot more paperwork involved, especially since the PATRIOT act.

These coins are intended as a bullion investment, similar to silver or gold bars. They do have some with numismatic value, such as the proof versions of the coins, those are intended for collectors. You can also buy older coins, such as St. Gaudens double eagles.

I don't think a bank or store would be obligated to take the coins at face value. Of course, they'd be stupid not to. The cashier could buy them from the register, or the store owner could take them to a coin shop and make a considerable profit.

I'm not sure what the case is in Canada, since the face value is high enough that it could end up being higher than the metal value. I think I've heard that a US bank would take the US ones at face value in such a case.

 

Thanks FlyingMoose,

Oh, how little I know.

Spent some time looking at the Royal Canadian Mint web site. Seems like the face values make more sense. I really like the "2007 $300 Gold Coin-The 1923 Shinplaster." A very pretty and big coin. The 2007 test maple leaf is nice too. If I was the one making decisions, I would follow the Canadian coin value system. On the surface, their system seems to make more sense. But then again, who really wants a public office position?

Not me, that's for sure - too many people second guessing your decisions.

 

"Ok - silly question - Why does the government issue coins made out of precious metals with very low circulation values? "

The reason I think they do it this way is to not put a dangerous floor on the value of the coin. This way the coin will trade at the bullion value of the coin down to the low circulation value.

If these were intended to circulate they would do just the opposite, but the government doesn't want all these coins to circulate so they stick an impossiblly low value on them. In the example the guy that bought the beer only received $100 for a coin valued at $1160 in bullion. He lost $1060 dollars by buying the beer with that coin.

That coin will trade at bullion all the way down from $1160 to $100 and stop at that price, so it is a floor. They don't want to set the floor higher because they don't want to take the chance of those coins becoming circulated.

 

I do not believe for one minute that even with the value higher, that the coins will ever circulate for any period of time. Even if the gold market drops like a rock, there are too many people that would gobble them up on the speculation that gold would rise again. I just don't buy it. Look at how many people search rolls looking for any kind of silver. Who here believes that the coins would ever make it beyond two sets of hands before they ended up in a collection or at a dealer.

CentDime, I really appreciate the explanation! Thank you for taking the time to try to explain it to me... I still have not heard a reason that makes sense to me besides my concern for counterfeiting. As it's no one persons job to educate me in such matters, I will just have to accept that there is a good reason for it that I just do not get.

 

There are only a few scenerios that I can think of where gold would become so cheap. If, for example, a huge meteorite crashed into the earth, and it was made of millions of tons of gold, that might do it. Or, if someone figures out a quick, easy, and cheap way to extract gold from seawater. Something like that. It's extremely unlikely though.

 

I think your reason is also correct , but the low face value is sort of a round-about way to get to your reason, and why the mint doesn't want these coins to circulate. Right now it doesn't make sense to counterfeit nearly all of the platinum coins since they trade close to bullion value. If the bullion value fell below the face value though, then it might be an incentive to do it for all of the coins.

So the mint doesn't want the coins to circulate for perhaps two reasons, your reason and it also defeats the purpose of them being a bullion coin. If the mint wants $100 coins to circulate then they would make them out of something less valuable than the bullion value of the coin because they also make money on selling coins as a business.

 

I'm surprised I haven't heard of someone counterfeiting the platinum coins anyway. It seems like it would be easy to make one out of some other silver metal (maybe silver or some alloy)?

 

The solution is to establish a face value higher than the bullion value, increase the face value if necessary to keep the legal tender value higher than bullion value, and never devalue the coins if the price of bullion drops. Then, the coins could contain a substantial amount of silver without being hoarded since silver bars and bullion would always be cheaper. For example, nobody in their right mind would hoard a $50 face value one ounce silver coin when a silver eagle is cheaper. Mexico has entertained a couple of proposals for reintroducing silver coinage along these lines, but I doubt it will go anywhere.