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, 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.
Contents |
Gold was used in commerce (besides other precious metals) in the Ancient Near East since the Bronze Age, but coins proper originated much later, during the 6th century BC, in Anatolia. The name of king Croesus of Lydia remains associated with the invention (although the Parian Chronicle mentions Pheidon of Argos as a contender). In 546 BC, Croesus was captured by the Persians, who adopted gold as the main metal for their coins.[1][2]
The Ying yuan is an early gold coin minted in ancient China.
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.
The German gold mark was introduced in 1873 in the German Empire, replacing the various local Gulden coins of the Holy Roman Empire.
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.
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 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.
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 were struck by the U.S. Mint, but most of these were surrendered and melted down following Executive Order 6102. Only a few coins survived.
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.
On 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.
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 1/10 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:
Coins are usually made of an alloy 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 as a "per mil," or thousandths. For example, a gold ingot identified as being .999 fine will be 999/1000 pure gold, with the other 1/1000 being an alloy.
Karat weight (K or kt) is a traditional fraction-based system used to denote the fineness of gold, with one karat being equal to 1/24 part of pure gold in an alloy. With the precision of modern assaying techniques, however, the fineness of gold ingots and bullion is more likely to appear as a decimal measurement. In this system, pure gold would be denoted as 1.000 fine. However, since absolutely pure gold is very soft and therefore not suitable for coinage or ingots, it is generally accepted worldwide that anything above .999 fine qualifies as 24K. Below is a karat weight to fineness conversion chart.
Correlation between karats and fineness
The fineness is often converted to a percent, as well. If a gold coin has a fineness of .900, that is 90.0% pure gold. If a gold coin has a fineness of .850, then the gold coin is 85.0% pure.
Coins have varied greatly in fineness through history. Notable historical standards that were closely adhered-to include the crown gold (22 karat) used in all English gold coins intended for circulation from 1526 onward, and 0.900 fine (21.6 kt), the standard for all American circulation-coins from 1837 onward.
Fineness is not the only way to value a gold coin; a great deal of value in collector coins comes from condition and rarity.[6] To a far lesser extent, even the value of gold bullion coins is influenced by their physical condition.
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:
As the collector market for coins grew rapidly in the late 19th century and early 20th century, 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 tell that it was once a coin while 70 means that it is perfect. 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 in the same way.[7][8]
Below are the general characteristics that define different coin grades in the United States system. When grading coins, any defect should be noted, such as bent, scratched, etc.. Cleaning or mutilations of any kind should be mentioned.[9]
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.
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". http://www.medjh.com/coins/halfcentsrarity.htm. "Rarity System". http://varietynickels.com/pages/other-numismatic-information/rarity-system.php. Retrieved June 3, 2010.
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. 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. Another explanation of this practice is that historic gold coins were usually alloyed with silver and copper which make them harder than pure gold and less prone to wear. Counterfeits could be made of lead to approximate the weight of gold and covered with a thin layer of real gold. Biting the coin would mark the softer lead or scratch through the veneer revealing the base metal underneath.
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. [15] [16][17][18] [19]
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. 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]