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Stacking precious metals like silver and gold is fun and, in some cases, can even prove quite valuable. Before placing your first order, you should be sure you understand how precious metal coins, bars, and rounds differ. Regardless of the metal they are struck from, the distinction can make all the difference in current value and future salability.
In today’s terms, a coin is a round piece of currency with a denomination or “face value.” Sovereign governments have the sole authority to produce or "strike" coins and determine their face value. Many countries around the world will strike coins with high precious metal, or bullion content for those looking to stack it. This began in 1967 with the South African Krugerrand, starting a trend that grew worldwide. 50 years later, Mints all over the world strike annual releases as part of their own silver and gold bullion coin series.
A bullion coin's face value is almost always lower than its intrinsic value, which is based on its metal composition. For example, the U.S. Mint’s American Silver Eagle contains 1 Troy oz. of .999 fine silver and has a face value of $1. As of 4:43PM ET 2/1/2017, its silver content was valued at a current “spot” price of $17.54, according to KITCO.
However, not all factors that determine a coin’s true value are intrinsic. Many bullion coins like the Silver Eagle have substantial premiums that begin at their sale from the U.S. Mint to authorized distributors. After factoring in production costs, the Mint’s premium, and additional premiums required by retailers, you will be lucky to purchase a Silver Eagle close to spot. Many back-dated bullion coins also demand additional premiums due to limited quantities and the fact that they are more desirable to someone looking to build a full set of dated coins.
You might wonder why a government would put such a low face value on a coin that is worth so much more. The answer lies in Gresham’s Law, which many world governments follow. In a nutshell, because governments want to keep their precious metal coins inside their borders, they create currency that doesn’t have inherent value. This includes bills made from paper and coins made from base metals. People use the low-quality, intrinsically worthless currency in everyday transactions, while stockpiling the high-quality, valuable currency.
Though there are a few exceptions, primarily only private Mints strike precious metal bars or bullion. The Royal Canadian Mint is a rare example of a government Mint that strikes bullion. Mints usually stamp bullion bars with their names, the metal content, and may also impose designs or the Mint’s logo on bullion to differentiate it from bullion struck by competitors. A silver bar might feature the Mint name, its logo, and “.999” on the face. In the age of online marketing, some Mints have become highly sought-after brands.
Unlike U.S. coins, bars such as gold bullion and silver bullion cannot be used as legal tender because they do not have a face value. To convert precious metal bullion into cash, a seller must find a buyer willing to pay his or her price for it. Pricing starts with the spot price per Troy ounce, which is the metal’s commodity market price at the moment of sale, and then sellers add their premium on top of that. Gold and silver spots change throughout the day.
Even though precious metal or bullion rounds look like coins, they actually have more in common with precious metal bars. Precious metal rounds may feature interesting designs, some of which make them attractive to collectors; however, like bars, their value lies primarily in their intrinsic metal content.
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