Is the Limited Issue Cook Islands Gold Note a Good Investment?

Is the Limited Issue Cook Islands Gold Note a Good Investment_

The Bank of the Cook Islands has issued a five dollar gold note. The unique gold note is legal tender for $5 and contains 1/100 ounce gold. Produced by Valaurum who say,

“The Prince Harry-Meghan Markle notes put gold in small amounts, a-hundredth of an ounce, into general circulation in a sovereign nation.”
Source.

1/100 of an ounce of gold is worth around NZ$18 at current prices (note: the Cook Islands use New Zealand currency).

Cook Islands Gold Note $5
The just released Five Dollar Cook Islands Gold Note.

Chris Powell of GATA commented:

“Gold is back in circulation in small denominations as official government currency issued by the small South Pacific country of the Cook Islands, whose gold-containing bills are manufactured by the Valaurum company in Portland, Oregon.”

The bills were publicized today by Thom Calandra of The Calandra Report as a reminder that there are entirely practical ways of putting gold into circulation in amounts usable for ordinary daily transactions.

Of course since the Cook Islands are too remote for a shopping trip for anyone who doesn’t live there already, the bills most likely will find use as curiosities and collector’s items. But they demonstrate that technology easily will remonetize gold as soon as governments get out of the way of free markets, which may be another reason why governments fear and undermine gold so.”
Source.

As Chris says officially gold is back in circulation in small denominations. However there are already legal tender gold and silver coins available from many other nations. Read more: Should I Buy Legal Tender (Face Value) Gold and Silver Coins?

The difference in this case is the much smaller denomination. Along with the fact it is a gold note rather than a coin containing gold.

Related: Societal Breakdown: Are Gold and Silver Coins Better Than Tradable Items Like Tools, Water and Wine?

 

Bad Money Chases Good – Gresham’s Law in Operation

Just like this $5 Cook Islands gold note, these other legal tender coins also have a face value that is less than the value of the metal content. Why does this matter? Because Gresham’s law says bad money chases out good.

From Wikipedia:

“In economics, Gresham’s law is a monetary principle stating that “bad money drives out good”. For example, if there are two forms of commodity money in circulation, which are accepted by law as having similar face value, the more valuable commodity will gradually disappear from circulation.”

If you’re on holiday in the Cook Islands would you use a note worth $18 (the gold content current value) to buy a $5 glass of mango juice? Of course not.

Therefore these Cook Island gold notes will not circulate. As the value of the gold contained in them is greater than the face value of $5. Just like every other legal tender gold and silver coin available.

Granted, the intrinsic value of the gold note is not as far above the face value as any of the existing legal tender gold coins (i.e. A 1/10th oz Canadian gold maple coin also has a face value of CAD$5 but a current content value of CAD$161. Versus NZ$5 and NZ$18 for the Cook Islands Gold Note).

Instead the $5 Gold Notes will most likely be a collectible item. Particularly because the issue is to be limited to 5000 pieces.

 

Premium Above Spot is High

Cook Islands Gold Note $5 - wedding
The reverse of the Cook Islands Gold Note featuring Prince Harry and Meghan Markle.

Another reason why the gold notes almost certainly won’t circulate is because they appear to be priced at $40 each.

“The Five Dollar Gold Note commemorates the marriage of Prince Harry and Meghan Markle on 19 May, 2018. A collector’s edition is priced tentatively at $40.”

So that is a premium above the spot price of over 100% (gold content is $18 versus the price to buy $40).

If you spend $40 on a gold note, again you won’t use it to buy a $5 glass of mango juice!

 

Does the Limited Issue Make the Gold Note a Good Investment?

Who knows whether these notes may be worth more in the future due to their collectability? It’s certainly possible for such a unique item.

But don’t confuse gold and silver as financial insurance, with collectors items. For more on this see: Bullion Coins or Numismatic (Collectible) Coins? Which Should I Buy?

Our view is that limited mintage coins are only worth buying if they are priced close to a normal bullion coin price.

Otherwise just stick to well known and widely accepted bullion coins like the Canadian Silver Maple coin.

So for sure this gold note is a unique idea. Inserting a small amount of gold into a bank note is quite an achievement. But while fiat currency exists it’s unlikely these legal tender gold notes will circulate alongside fiat currency due to Gresham’s Law.

This technology shows that the means already exists for gold to be used in everyday transactions. But as Chris Powell noted that would only happen if governments “got out of the way of free markets”. Including a free market for money. For more on this concept of free market money see: The Gold Standard: What Do We Think About it?

To learn about how to invest in gold or silver see: How to Buy and Invest in Gold and Silver >>

Need help deciding which coins to buy? See: NZ Gold Coins (and Silver Coins) or NZ Gold Bars (and Silver Bars): Which Should I Buy?

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