Should I Buy Legal Tender (Face Value) Gold and Silver Coins?

Should I Buy Legal Tender (Face Value) Gold and Silver Coins?

In this post you’ll learn all about legal tender gold coins and silver coins including:

  • What is a legal tender silver or gold coin?
  • Why are they given the specific face value they have?
  • What use would these legal tender coins be in a currency collapse situation?
  • Should I buy legal tender gold and silver coins?

 

The questions are coming thick and fast! Hope we can keep up with them! This is the latest question we received as a result of our 1 oz Silver Coin award. (See How to Win A Silver Coin Every Month for more details on this).

Ross asks:

Here’s a question for you that I cannot seem to find a definitive answer to…

What do we make of the face values of coins?

Say a silver coin weighing an ounce has 5 dollars stamped on it. How do they come up with that number?

If a gold coin weighing an ounce has 50 dollars stamped on it, again, how did they arrive at that number, and does this necessarily mean that if there was a currency failure, an ounce of gold is only then worth 10 ounces of silver, thus setting the gold:silver ratio?

What is a “Face Value” Coin?

The Royal Canadian Mint 1oz Silver Maple coin has a face value of $5

First up we should explain what a face value coin is.

These are simply coins usually (but not always) issued by government mints. They have a face value on them such as $5 for a silver coin or maybe $50 for a gold coin.

They are also known as legal tender coins. Although more correctly they should be called non-circulating legal tender coins.

 

What is a Non-Circulating Legal Tender Coin?

A non-circulating legal tender coin means that in their country of issue they are able to be used to buy goods and service like a standard government issue banknote or coin. But they are designed more to be collected (or hoarded!).

However while businesses can accept the coins at face value, they’re also free to reject payment via them.

“There’s nothing forcing a bank or a business to accept (the coin),” Reeves says. “If someone offers me a gold Maple Leaf (coin) for $50 face value I’d be crazy not to take it, but it’s still a coin that’s not destined for circulation.”
Source.

However holders of these coins would have to be horribly uninformed to try and use one at its face value in a transaction. As you’ll see below the coins actual metal content value is much higher than the face value they are legal tender for.

 

Some Examples of Face Value Bullion Coins

The Royal Canadian Mint (RCM) produces the 1 oz silver maple leaf coin which has a $5 face value even though it contains over CA$20 worth of silver at today’s prices. (See this post for more on the silver maple: Silver Maple Monster Box – The Complete Guide)

1oz_gold_maple_2017_obverse_reverse
While the RCM Gold Maple Leaf coin has a face value of $50.

The RCM also produces a 1 oz gold maple leaf coin with a face value of $50. While it’s gold content currently is just under CA$1600

The US Mint also produces 1 ounce face value gold and silver coins.

The 1oz Gold American Eagle has a $50 face value and the 1oz silver American Eagle also has a $1 face value. While the actual metal content of them is over $1200 and $16 respectively.

 

How Do the Mints Arrive at These Coin Face Values?

There doesn’t seem to be many convincing arguments on the Mints websites as to the rationale for the low face value.

Formula for determining Face value of Coins
How do the mints determine what face value to give the coins?

In the case of the US Mint coins these values are set by acts of Congress as explained here.

But that doesn’t explain why the face values are so much lower than the metal value.

This FAQ on the Perth Mint Website ask the question: Why Is A Bullion Coin’s Face Value Far Less Than Its Intrinsic Value? But then doesn’t even answer the question it poses!

However this post from former Mint employee Bron Suchecki gives a better explanation:

“With the early bullion coins there was a change in face value because it was realised that the face value was too high and if metal prices declined, then the Federal Govt would have to pay out $5 face value when the metal in the coin was less and they would lose money. Face value is basically a floor price which the Govt guarantees to pay you in fiat.

Normal coins have a face value a lot higher than the metal content, multiples higher. The difference between metal content and face value is profit to the issuing Govt. Circulating coins are usually only small value so not much risk to the Govt if metal content value decreases.

Example, lets say the Perth Mint decided to issue a 1oz bullion coin with a face value of $2500 when metal prices were $1500. That $1000 difference would go to Govt as seigniorage profit. Now if the gold price dropped to $1000, then the Govt has to pay you $2500 in fiat but can only sell the metal in the coin for $1000, so they lose $1500. But then they made $1000 on initial issue, so overall would lose $500.

The above example applies to circulating coins, but since we are talking about 10c and the like, and there isnt a lot of dollar value of those small coins out there, the risk to the Govt of a loss if they ever decided to call them in is small. In the case of precious metals, the likelihood of people “redeeming” them for $2500 face value if gold prices fall is high. So that’s why the face value on bullion is less than metal value.

But with a lower face value the Govt still has a risk the metal price could fall lower than face value, so they minimise that risk by putting a really low face value relative to metal prices. Either way the Govt has a risk by putting a face value “guarantee” on a coin, they just prefer to go with the lower face value.”

Source.

Here’s another possible reason why the face value is set so low. To not draw attention to the “canary in the coal mine” that is the price of gold and silver:

“In both Canada and the U.S.; (1-oz) legal tender minted silver coins came into existence in the mid-1980’s, and that was also the time the U.S. began minting its 1-oz gold coins. Canada’s 1-oz Gold Maples came into existence at the end of the 1970’s, but this anomaly was a response to the boycott of South Africa’s (then-apartheid) regime – which (at that time) was producing the only legal tender gold coins in the world.

What is the significance of the start-up date for minting our silver coins? It was shortly after the One Bank had managed to push gold and silver prices all the way from their 1980 peak (when the “canary” was shrieking the loudest) down to the ultra-extreme troughs we saw from the early 1980’s all the way through to today.

The rationality of the seemingly “arbitrary” $1 and $5 face-value on our silver coins is now apparent. It is one part of the strategy by the One Bank for pretending that its (worthless) paper currencies have not lost any value since the assassination of the gold standard. Indeed, it now becomes apparent that it was the fanaticism of these psychopaths with keeping the “market price” for silver equal to the phony face-value on our legal tender coins which has been the banksters’ own undoing.”
Source.

In a Currency Failure, Would an Ounce of Gold Therefore be Worth Only 10 ounces of Silver?

Now onto Ross’s final part to his question. That being, in a currency failure/collapse situation, does this mean an ounce of gold is only worth 10 ounces of silver? ($50 face value gold coin divided by $5 face value silver coin). Or as he said it, would these face values therefore set the gold/silver ratio?

We’d say no, almost certainly not.

The gold/silver ratio is not set by government decree. Well not since the 1800’s when there was a monetary system based upon a gold/silver standard.

To see how the Gold Silver Ratio is calculated, how it can be used, and where it might head to next see: What is the Gold/Silver Ratio?

So a gold or silver coin will each be worth what people think they are worth.  Not what ever seemingly arbitrary amount has been stamped on them.

In fact in a currency failure/collapse situation, the face value would likely be even more “out of whack” with the actual purchasing power of the coin. That is the amount of goods you could buy would likely be larger than it is currently.

Why?

Because in a currency failure or collapse gold and silver are likely to be valued much higher than they are currently.

 

Should I Buy Legal Tender Gold and Silver Coins?

So overall we’d say don’t pay too much attention to the face value or legal tender value of a coin.

Rather as we concluded in this article, consider instead how tradable or exchangeable a coin may be in the future. Also importantly take into account the premium (or mark up) above the spot price of gold or silver you’ll pay.

We’ve got various coins available for sale. Check out our order page for prices and let us know if a coin you like isn’t on there.

 

The gold/silver ratio is not set by government decree. Well not since the 1800’s when there was a monetary system based upon a gold/silver standard.

To see how the Gold Silver Ratio is calculated, how it can be used, and where it might head to next see: What is the Gold/Silver Ratio? 

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6 thoughts on “Should I Buy Legal Tender (Face Value) Gold and Silver Coins?

  1. atom says:

    What I want to know… Let’s say I’m traveling internationally. For the sake of example, let’s say I’m traveling between NZ and US, with more than $10k cash; I’d be required to declare it. Same thing if I’m traveling with more than $10k in gold bullion, I’d have to declare it.

    But what if I’m traveling with ten “legal tender” gold coins, with a face value of $50. Am I traveling with “only” $500 “cash” (legal tender!) which does not have to be declared? Or am I traveling with $12k(US)/$16k(NZ) worth of gold, which does have to be declared?

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