Gold coin

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File:Krugerrand.jpeg
A gold Krugerrand, minted by the government of South Africa, is an example of modern gold bullion.

A gold coin is a coin made mostly or entirely of gold. Gold has been used for coins practically since the invention of coinage, originally because of gold's intrinsic value. In modern times, most gold coins are intended either to be sold to collectors, or to be used as bullion coins—coins whose nominal value is irrelevant and which serve primarily as a method of investing in gold.

Gold has been used as money for many reasons. It is fungible, meaning that it can be traded easily, with a low spread between the prices to buy and sell. Gold is also easily transportable, as it has a high value to weight ratio, compared to other commodities, such as silver. Gold can be divided into smaller units, without destroying its value; it can also be melted into ingots, and re-coined. The density of gold is higher than most other metals, making it difficult to pass counterfeits. Gold is extremely unreactive. The scarcity of gold stabilizes its value.

History

Egyptian Pharaohs began to commission gold tokens around 2,700 BC. These gold tokens, of variable purity, were used primarily as gifts, not for commerce.

Many centuries later, King Croesus, ruler of Lydia (560–546 BC), began issuing the first true gold coins, in about 643 to 630 with a standardised purity, for general circulation. They were quite crude, and were made of electrum, a naturally occurring pale yellow mixture of gold and silver. The composition of these first coins was similar to alluvial deposits found in the silt of the Pactolus river, which ran through the Lydian capital, Sardis. King Croesus' gold coins follow the first silver coins that had been minted by King Pheidon of Argos around 700 BC. Shortly afterwards, in 546 B.C., Croeseus was captured by the Persians, who adopted gold as the main metal for their coins.[1][2]

The Ying yuan was another gold coin minted during this time by the Chinese in the 6th or 5th century BC. Larger units of monetary value and exchange such as the talent were the ancient equivalents of the modern 400-troy-ounce "good delivery" gold bullion bar.

Gold coins then had a very long period as a primary form of money, only falling into disuse in the early 20th century. Most of the world stopped making gold coins as currency by 1933, as countries switched from the gold standard due to hoarding during the worldwide economic crisis of the Great Depression. In the United States, 1933's Executive Order 6102 forbade the hoarding of gold and was followed by a devaluation of the dollar relative to gold, although the United States did not completely uncouple the dollar from the value of gold until 1971[citation needed].

Gold-colored coins have made a comeback in many currencies. However, "gold coin" (in numismatic terminology) always refers to a coin that is (more or less) made of (real) gold, and does not include coins made of manganese brass or other alloys. Furthermore, many countries continue to make legal tender gold coins, but these are primarily meant for collectors and investment purposes and are not meant for circulation.

Collector coins

Further information: Collector coins

Many factors determine the value of a gold coin, such as its rarity, age, condition and the number originally minted. Gold coins coveted by collectors include the Aureus, Solidus and Spur Ryal.

In July 2002, a very rare $20 1933 Double Eagle gold coin sold for a record $7,590,020 at Sotheby's, making it by far the most valuable coin ever sold to date. In early 1933, more than 445,000 Double Eagle coins had been struck by the U.S. Mint, but most of these were surrendered and melted down following Executive Order 6102. Only a few coins managed to survive.

In 2007 the Royal Canadian Mint produced a 100 kilograms (220 lb) gold coin with a face value of $1,000,000, though the gold content was worth over $2 million at the time. It measures 50 centimetres (20 in) in diameter and is 3 centimetres (1.2 in) thick. It was intended as a one-off to promote a new line of Canadian Gold Maple Leaf coins, but after several interested buyers came forward the mint announced it would manufacture them as ordered and sell them for between $2.5 million and $3 million. As of May 3, 2007, there were five orders.[3]
Austria had previously produced a 37 centimetres (15 in) diameter 31 kg Philharmonic gold coin with a face value of €100,000.

In October 4, 2007, David Albanese (president of Albanese Rare Coins) stated that a $10, 1804-dated eagle coin (made for President Andrew Jackson as a diplomatic gift) was sold to an anonymous private collector for $5 million.

Bullion coins

Further information: Bullion coin

Precious metals in bulk form are known as bullion, and are traded on commodity markets. Bullion metals may be cast into ingots, or minted into coins. The defining attribute of bullion is that it is valued by its mass and purity rather than by a face value as money. While obsolete gold coins are primarily collected for their numismatic value, gold bullion coins today derive their value from the metal (gold) content — and as such are viewed by some investors as a "hedge" against inflation or a store of value. Many nations mint bullion coins. Investment coins are generally coins that have been minted after 1800, have a purity of not less than 900 thousands and is or has been a legal tender in its country of origin.[4] Although nominally issued as legal tender, these coins' face value as currency is far below that of their value as bullion.[5]

The European Commission publishes annually a list of gold coins which must be treated as investment gold coins in all EU Member States. The list has legal force and supplements the law. In the United Kingdom, HM Revenue and Customs have added an additional list of gold coins alongside the European Commission list. These are gold coins that HM Revenue & Customs recognise as falling within the exemption for investment gold coins. This second list does not have legal force.[4]

South Africa introduced the Krugerrand in 1967 to cater to this market; this was the reason for its convenient and memorable gold content — exactly one troy ounce. It was the first modern, low-premium (i.e. priced only slightly above the bullion value of the gold) gold bullion coin. Bullion coins are also produced in fractions of an ounce – typically half ounce, quarter ounce, and one-tenth ounce. Bullion coins sometimes carry a face value as legal tender, The face value is minted on the coin, and it is done so in order to bestow legal tender status on a coin, which generally makes it easier to import or export across national borders, as well as subject to counterfeiting. However, their real value is measured as dictated by their troy weight, the current market price of the precious metal contained, and the prevailing premium that market wishes to pay for those particular bullion coins. The face value is always significantly less than the bullion value of the coin. Legal tender bullion coins are a separate entity to bullion gold. One enjoys legal tender status, the latter is merely a raw commodity. Gold has an international currency code of XAU under ISO 4217. ISO 4217 includes codes not only for currencies, but also for precious metals (gold, silver, palladium and platinum; by definition expressed per one troy ounce, as compared to "1 USD") and certain other entities used in international finance, e.g. Special Drawing Rights.

Gold bullion coins usually come in 1 oz, 1/2 oz, 1/4 oz, 1/10 and 1/20 oz. sizes. Most countries have one design that remains constant each year; others (such as the Chinese Panda coins) have variations each year, and in most cases each coin is dated. A 1/10th oz bullion coin is about the same size as a U.S. dime. A 1 oz. gold bullion coin is about the size of a U.S. half dollar.

Other gold bullion coins, many named after their design features, include:

Fineness of gold coins

Further information: Carat (purity) and Millesimal fineness

Coins are usually made of an alloys as other metals are mixed into the coin to make it more durable. Fineness is the actual gold content in a coin or bar and expressed in grams or troy ounces.

Karat weight is a unit of fineness for gold equal to 1/24 part of pure gold in an alloy. For example, pure gold which is 1000 fine. Below is a karat weight to fineness conversion chart.

Correlation between karats and fineness

  • 24 karats = 1000 fine
  • 23 karats = 958.3 fine
  • 22 karats = 916.6 fine
  • 21 karats = 875.0 fine
  • 20 karats = 833.3 fine
  • 18 karats = 750.0 fine
  • 16 karats = 666.7 fine
  • 14 karats = 583.3 fine
  • 10 karats = 416.6 fine

The fineness is often converted to a percent, as well. If a gold coin has a fineness of .900, the decimal point is moved two places to the right and that number is expressed as a percent - that is 90.0% pure gold. If a gold coin has a fineness of .850, then the gold coin is 85.0% pure, etc.. But fineness is not the only way to value a coin.[6]

Grading coins

Main article: Coin grading

A coin's "grade" is a visual evaluation of the amount of wear on a coin. Coins with little wear are graded higher and therefore assigned higher prices than those with a lot of wear. However, low-grade, extremely rare coins can easily be more valuable than more widely available, higher grade coins of common dates.

In the early years of coin collecting, three general terms were used to describe a coin's grade:

  • Good - Where details were visible but circulation had worn the surface
  • Fine - Features were less worn from circulation and a bit of the mint luster showed on the surfaces
  • Uncirculated - Details were sharp and there was a luster approaching the state of the coin at the mint, prior to general circulation

As the collector market for coins grew rapidly in the late 1800s and early 1900s, it became apparent that a more precise grading standard was needed. Some coins were simply more fine than others, and some uncirculated coins showed more luster and far fewer marks than others. Terms like "gem uncirculated" and "very fine" began to see use, as more precise grading descriptions allowed for more precise pricing for the booming collector market. In 1948, a well-known numismatist by the name of Dr. William Sheldon attempted to standardized coin grading by proposing what is now known as the Sheldon Scale.

Sheldon's scale, included in his famous work "Penny Whimsy", was originally devised specifically for United States large cents, but it is now applied to all series. The scale runs from 0 to 70, where 0 means that you can pretty much tell that it was once a coin while 70 means that it is perfect. Note that 60 is uncirculated, what the general public would consider perfect, with no wear whatsoever. There is a direct mapping from this scale to the older descriptive terms, but they are not always used the same.[7][8]

Below are the general characteristics that define different coin grades. When grading coins, any defect should be noted, such as bent, scratched, etc.. Cleaning or mutilations of any kind should be mentioned.[9]

  • Basal - (Mint State 1) A piece of metal that can be identified as a coin, but that's about all.
  • Fair - (Mint state 2) The type of coin can be identified, the date may or may not be visible.
  • Almost Good (AG) - (Mint State 3) The date can be read, but parts of the coin and legend are worn smooth.
  • Good (G) - (Mint state 4 and 6) Legends, designs and dates are visible but heavily worn.
  • Very Good (VG) - (Mint State 8 and 10) Designs and date are clear but lacking details. The "full rim" (the line around the edge of the coin where it was raised up) must be visible.
  • Fine (F) - (Mint state 12 and 15) All major details will be visible with the major details virtually complete. In this case, "Fine" describes concerning the condition of the coin - not the purity as described above.
  • Very Fine (VF) - (Mint state 20, 25, 30, and 35). More details are visible with major details virtually complete.
  • Extremely Fine (XF or EF) - (Mint state 40 and 45) Light wear on the high points with some mint luster present.
  • Almost Uncirculated (AU) - (Mint state 50, 53, 55, and 58) Small trace of wear visible on the highest points with at least half of the mint luster still present.
  • Uncirculated (UNC) - (Mint state 60 to 70) No trace of wear with some small nicks or marks present.
  • Proof (PF) - Coins specially struck for collectors. Usually mirror-like surface. Sand blast and matte proof in some series.

Mint State (MS) - (Mint state 60 - 70) "Uncirculated" and "Mint State" are terms that are many times used interchangeably. MS 70 is considered a perfect coin. Extremely few regular issue coins are considered MS-70 although it is common for new, modern bullion coins to be given a grade of MS-70.[6] [10][11]

The grading standards are different in different countries. The main standards applied outside the United States are presented in the following table.[12] Coin grading is not an exact science. It is a subjective exercise and depends on the qualification and the experience of the appraiser. Industry leaders were extremely concerned that without a standardized grading system, the rare coin industry could face enormous problems. Therefore on February 3, 1986 the Professional Coin Grading Service (PCGS) was formed and in 1987 the Numismatic Guaranty Corporation. Both associations have the same goal of grading coins. Other prominent grading organizations are the American Numismatic Association Certification Service (ANACS) and the Independent Coin Graders. The grading is usually done by three independent appraisers. A grading finalizer assigns the final grade of the coin and thereafter the coin is sonically sealed in a protective, inert plastic holder known as "slab".[6] Other associations followed and are at present active.[13][14]

This third-party appraisal of a coin's physical condition, backed by a guarantee, and a national network of reputable coin dealers provided an extremely reliable form of protection for rare coin consumers who could then participate in the coin market with greater confidence.

Rarity factor

Further information: Coin grading § Rarity factor

The value of coins depends on their rarity. There are several scales which have been developed for the definition of the rarity of a particular coin. The most common are the "Sheldon rarity scale" and the "Universal rarity scale" "Rarity Scales". "Rarity System". Retrieved June 3, 2010.

Counterfeits

Balance for checking the weight of gold coins.

For most of history, coins were valued based on the precious metal they contain. Whether or not a coin was actually made by the party as claimed was of secondary importance compared to whether or not it contains the correct amount of metal - that is, correct weight and fineness (purity). Genuine appearance was simply a convenient shortcut to avoid time-consuming tests in everyday transactions.

Unlike silver, gold is denser than almost all other metals, hence whether something is made of gold is extremely hard to fake. Simple determination of weight and volume should be sufficient. A coin that is the right size but is not gold, or has too much base metal, will be "light"; alternately, a coin that weighs right will be somewhat larger. (Platinum was unknown in ancient times; platinum is denser than gold, but since the price of platinum is usually higher than that of gold, making a fake coin out of platinum would make no sense. In theory, fake coins could be made of uranium, but this does not appear to be a practical solution.[citation needed] One element that has just about the same density as gold is tungsten. Alloying gold with tungsten would not work for several reasons but a coin with a tungsten center and gold all around it could not be detected as counterfeit by density measurement alone.

An old practice to test whether a gold coin was counterfeit was to bite down on it. Since pure gold is relatively soft any base metals mixed with the gold to lessen its value will also harden the coin, and so make it harder to bite on.

The majority of bullion counterfeits (of all types) are rare, and fairly easy to detect when comparing their weights, colors and sizes to authentic pieces. This is because the cost of reproducing any given coin precisely can easily exceed the market value of the originals.[citation needed] [15] [16][17][18] [19]

Numismatic fake samples

There are well made counterfeit gold coins in circulation. For example, the St. Gaudens Double Eagle omega counterfeit is infamous for its complexity[20] and has fooled many numismatics experts. It is a high relief business strike, and due to the extensive wear on the die, these coins were not made for many years.

Another example is the US $20 gold coin ("double eagle"), which has raised lettering around its rim. If the coin is uncirculated, the letters will be flat on top. If slightly rounded, and the coin is uncirculated, it is a counterfeit. However, some counterfeits do not have this defect. There are other counterfeit double eagles in which the gold and copper alloy was not thoroughly mixed. These counterfeits will have a slightly mottled appearance.[21]

See also

References

  1. ^ "Gold coins - A Brief History".
  2. ^ "Monetary Episodes from History".
  3. ^ "Finally! A 100 kg Canadian gold coin". CBC News. May 3, 2007.
  4. ^ a b "Investment Gold Coins".
  5. ^ "Gold bullion facts from freegoldtips.com".
  6. ^ a b c "Information on Coin Specifications". {{cite web}}: Missing or empty |url= (help); Unknown parameter |urp= ignored (help)
  7. ^ "Coin Grading Standards".
  8. ^ Sheldon, William H. (1990). Penny Whimsy. Sanford S. Durst. ISBN 0942666623.
  9. ^ Yeoman, R. S. (2009). A Guide Book of United States Coins (63 ed.). Whitman Publishing. ISBN 0794827663. {{cite book}}: Check |isbn= value: checksum (help)
  10. ^ "Grading Coins".
  11. ^ "Coing Grades".
  12. ^ "Grading Standards". Retrieved 2010-10-01.
  13. ^ "Coin Grading Services".
  14. ^ "Certification Companies".
  15. ^ "Counterfeit Coin Detection".
  16. ^ "Write a guideCounterfeit Coins, Forgeries, Fakes, Copies, Restrikes".
  17. ^ "Counterfeit gold coins and bars".
  18. ^ Sargent, Mike. "Indian Head Quarter Eagles: King of the Counterfeit Gold Coin Series" (PDF).
  19. ^ Lafleur, Merlin. "Fake gold bars out of tungsten a counterfeit story".
  20. ^ Anacs: "The 1907 High Relief Saint-Gaudens Double Eagle"
  21. ^ "History and Value of Gold Coins" (PDF).

Further reading

  • Robert Friedberg, Gold Coins of the World: From Ancient Times to the Present - An Illustrated Standard Catalogue with Valuations (Coin and Currency Institute, 2003) ISBN 978-0871843074

External links

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