Why does the US Mint put a rediculous face value on gold coins?

GFourDriver · October 10, 2007 2:02PM

I've often wondered why they put a $50. face value on an ounce of gold, why not $500.? Are they afraid that gold could crash and they would still have to pay $500 face value? Doesn't make much sense to me, but what do I know.

Griv · October 10, 2007 2:08PM

They aren't nice but they aren't dumb either.

mmiller40 · October 10, 2007 2:23PM

A friend of mine would say

"because when the government comes to repossess all gold they will only have to pay you face value for it"

I doubt it would ever happen but he is paranoid.

WTCG · October 10, 2007 2:33PM

According to the government it is a way of making sure that the gold coins are not placed in general circulation at face value.

zkcoins · October 10, 2007 2:35PM

<< According to the government it is a way of making sure that the gold coins are not placed in general circulation at face value. >>

Sounds way to logical for the government to come up with lol.

Coxe · October 10, 2007 3:36PM

It is mandated by Congress. The Mint just makes and sells them. Those folks who claim these are coins because they are technically legal tender don't seem disturbed in the least by that. The US Mint is just a franchise similar to the Franklin Mint in this endeavor.

Zoins · October 10, 2007 3:53PM

<< Are they afraid that gold could crash and they would still have to pay $500 face value? >>

Yes. The denomination is to make them attractive to coin collectors, primarily bullion investors that first moved to Kruggerands and then Maple Leaves. The idea is to make money, not lose money.

sumnom · October 10, 2007 4:40PM

The denomination is to make them attractive to coin collectors...

I feel dirty.

csw · October 10, 2007 5:02PM

Why bother putting any value on them? Why not simply list the bullion content by weight?

bluespaceant · October 10, 2007 5:23PM

GFourDriver · October 10, 2007 11:26PM

<<<If they had a face value of $500, you would have seen people spending them when gold dipped below $500 an ounce.>>>

.......And how many of those coins would have been snatched up by people before they ever got back to the local FRB?

I don't know, maybe it's just esoteric, but I would love to see a coin with a $500 face.

carl · October 10, 2007 11:31PM

It's really simple. They do it because they can.

Zoins · October 11, 2007 1:19AM

<< Why bother putting any value on them? Why not simply list the bullion content by weight? >>

They sell a lot better with a face value. The US was trying o compete with the demand for Canadian Maple Leafs when AGEs were introduced.

Coxe · October 11, 2007 1:23AM

<< Why bother putting any value on them? Why not simply list the bullion content by weight? >>

Isn't that indeed what coins were originally? A reliable entity, the state, would guarantee the amount of gold or silver in that chunk of metal used for trade. It was accepted as such because of the reliability as some might accept an MS65 coin if it is in one TPG's plastic as MS65. Putting $1 on an approximately 1oz silver round is ridiculous. Mark it 1oz with the fineness and the credibility of the US Mint with make that acceptable as such.

Bochiman · October 11, 2007 1:51AM

Let's look at something.....the GAEs were done in 1986, right?
What was gold then? I know gold was ~$250/oz in 2001 or so, right? So, what would you have them do? Reprice the coins' face values each time that gold changed?
You have to look at the big picture, not just a moment in time.

Zoins · October 11, 2007 1:56AM

<< Putting $1 on an approximately 1oz silver round is ridiculous. >>

It might be ridiculous to prefer buying silver rounds with a $1 face value. But given that buyer preference, it's quite logical for the producer to put a $1 face value on an ~ 1oz silver round.

notwilight · October 11, 2007 2:09AM

Remember what the conceptual purpose of these coins was. They were not intended to provide a medium for exchange like circulating legal tender is. They were and still are intended to provide a certified and standardized precious metal exchange medium. Without bullion coins it would be impossible to reliably buy and sell gold without an assay.

So why put a face value on them at all? Probably tradition and probably some law somewhere with no basis in need. Hey, coins have a denomination, right? But the face value has to be low or else the govt could conceivable be liable for the difference between face value and the bullion value if bullion devalued and that was never the intent nor is that a funded eventuality.

--Jerry

Zoins · October 11, 2007 2:18AM

I don't think the face value has anything to do with tradition except from a collector preference perspective which drives demand.

After the world went off the gold standard, there was no sovereign gold until the Kruggerands came out. They didn't have a face value but were accepted as having values. Once the demand for Kruggerands become apparent, Canada came out with the Maple Leafs, adding a face value to compete better. Once the demand for Maple Leafs became apparent, the AGEs were produced to compete with the Maple Leafs. Another area where the US was following Canada.

There's nothing wrong with the Kruggerand approach except that it generates lower collector interest.

tahoe98 · October 11, 2007 2:54AM

<< A friend of mine would say

"because when the government comes to repossess all gold they will only have to pay you face value for it"

I doubt it would ever happen but he is paranoid. >>

i think if they come to repossess they aren't going to pay ANYTHING for it!

Bullish · October 12, 2007 3:33PM

I think the face value play's a big role, in the bullion, coins! Back in the good old days, when you had a Peace, or morgan $1 in your pocket, you really had a dollar, in your pocket. I know that the face $ has changed, on the gold. When you buy a one ounce gold, maybe your really buying $50, of real money? If you make $13 hour, You really only make $1 hour, in real money. If anything were to happen, then maybe, the face of are bullion, could be a factor. Everytime metals go up, it takes more fiat paper money to buy, them! On average when gold goes up, the dollar, and most stocks, Go down.

Overdate · October 12, 2007 3:45PM

Today's bullion gold coins are generally an ounce, or a fraction of an ounce. Back when gold coins were circulating, the weight was a little less - a $20 gold coin was 0.9675 ounce. A British gold sovereign was 4/17 ounce instead of 1/4 ounce.

Does anyone know the reason that gold coins were struck using those odd fractions?

Bullish · October 12, 2007 3:58PM

<< Today's bullion gold coins are generally an ounce, or a fraction of an ounce. Back when gold coins were circulating, the weight was a little less - a $20 gold coin was 0.9675 ounce. A British gold sovereign was 4/17 ounce instead of 1/4 ounce.

Does anyone know the reason that gold coins were struck using those odd fractions? >>

Great point! I think that's the way the government opperates. Is that copper quarter in your pocket, a 1/4 ounce of copper? 90% silver, 22 k gold? Until recently the 1c and 5c peices, were worth less. I'm pretty sure, they will change that! There is alot of questoins left unanswered.

RedStorm · October 12, 2007 11:21PM

Here's my take on this question:

A face value makes them "coins" (albeit non-circulating legal tender) and not medals by definition. Here, the government actually learned its lesson (let's give credit where its due) -- when the US first attempted to enter to gold bullion market, it was with something called the "American Arts Medallions" in the early 80s. They were half ounce and one ounce bullion featuring Americans of the "arts" like Louis Armstrong and Frank Lloyd Wright. Designed to compete with the Krugerrand, THEY DID NOT HAVE A FACE VALUE and were an absolute disaster in the market place. So, lesson learned there when the gold bullion program was revamped in 1986 with the American Gold Eagle program.

One reason for keeping the face value low may be to keep it in line with the face value of the older gold pieces -- perhaps this was thought to make them more collectible? Seems a stretch there. There may also be a bookkeeping reason too...on the books, these coins are "worth" $50 to the government as currency so if the government sells it for $750, the Treasury can show a $700 return on paper.

Why does the US Mint put a rediculous face value on gold coins?

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