Thursday, June 20, 2024

How to Value Your Old Coins

 
Do you have old coins at home? A silver coin collection that gramps left you? Learn to value your old coin collection.

 

Monday, June 17, 2024

Retiring Old Coins

Coins can last around 30 years in circulation before they’re too worn to use. When coins reach the end of their life, the Federal Reserve removes them from circulation. Old coins are melted down and used for other things.

Why Would You Want To Melt Coins?

The only time it ever makes sense to melt down coins is when the face value or collector's intrinsic value of that coin is less than the value of the metal used to make the coin. For instance, in 1979 and 1980, silver prices rose to just shy of $50 an ounce ” an all-time high. [1] As a result, an untold number of coins with silver content were melted down because their metal was more valuable than the coin's value.

This rarely happens. Generally, coins are worth more in numismatic value than they are when melted down. This is especially true when it comes to the costs of the melting process itself. However, it all depends on the current price of the metal and whether it is high enough to warrant the melting.

What Rules Are in Place for Melting Coins?

It's illegal to melt down coins in some countries. Canada, for instance, forbids the melting down of any Canadian legal tender in the country. Be sure to check in with your country's laws on melting or defacing official coinage before sending your coins off to the furnace.

In the United States, melting non-circulating silver or gold coins is legal. As long as the coin is not in circulation, you can melt it down regardless of its composition. Source

Friday, June 14, 2024

Life of a Coin

A circulating coin begins its life as an idea. Once the U.S. Mint designs and makes the coin, it gets passed around to people and businesses before it retires. Follow the life of a coin in the steps below.

Before the Mint designs a coin, Congress tells us to make new coins by passing a law. Sometimes the law includes certain designs that must be put onto the coins, like people or places.

Once Congress passes a law, the Mint’s work starts and the coin is born.

Source

Tuesday, June 11, 2024

How to Clean a Coin Correctly

 

 
Alvin L. Stern is a coin dealer and  numismatic appraiser. In this lecture presentation at the Texas Numismatic Association in 2016 he addresses the great taboo about cleaning coins. Alan contends that it is necessary part of the coin collecting hobby. Learn his perspective about this controversial subject and how to do so responsibly.

Saturday, June 8, 2024

What Is Commodity Money and Is It Still Used? – with Examples

Commodity money is a form of money that has inherent, intrinsic value because it is made from a commodity that has value by itself for production or consumption. Commodity money is a physical asset - you can see it, hold it, touch it.

In simpler terms, gold coins were commodity money because the gold from which the coins were made had intrinsic value and if the coins were melted down, the gold would still retain its value. The gold could also be used for production, i.e., making jewelry, giving it its intrinsic value.

But we should backtrack a bit here – what is money? Money can be defined as an asset that is accepted as a medium of exchange for goods or services. The value of that asset can and was determined by many different factors but it often boiled down to a commonly recognized value by the people that use it.

In that context, there are three primary categories or types of money (the latter 2 will be discussed in more detail later):

  • Commodity money
  • Representative money
  • Fiat money

Popular examples of commodity money throughout history were gold, silver, and copper, cocoa beans, shells, tea, barley, furs, and even cigarettes. Clearly, people exchanged all types of commodities for goods or services. Then, how is commodity money different from bartering?

Commodity Money vs. Bartering

Bartering is an exchange system where goods are exchanged for other goods or services. The value of the items that are being exchanged is determined by the people participating in the trade. So, if an ancient cattle farmer was to give a calf to a carpenter in exchange for a table, that would be bartering.

But the system of bartering has several limitations. For one, it is difficult to transport different types of goods across large distances, making it impractical. Second, there is no set ‘exchange rate’ or how the value of one asset converts to all other assets.

Third, many goods cannot be divided into smaller parts, making smaller trades or more accurate exchanges difficult. Finally, many goods are also perishable, which disallows them to be a store of value. So, bartering faced 4 challenges:

  • portability;
  • convertibility;
  • divisibility;
  • perishability.

To make trade more effective, the concept of commodity money evolved. A single type of asset that was portable, divisible, and non-perishable would be chosen and used to trade for other goods and services at an agreed-upon exchange rate.

Thus, the key difference between barter and commodity money is that commodity money uses a single recognized unit of exchange to purchase goods or services.

Two Other Primary Types of Money – Representative and Fiat Money

To reiterate, commodity money is money that has intrinsic value due to the commodity of which it is made. But there are also two other primary categories of money:

  • Representative money – representative money is when the value of the money is backed by an underlying commodity that has intrinsic value and where the unit of money can be exchanged for the underlying commodity via a formal process, but where the unit of money has no intrinsic value itself. In other words, paper money that is backed by gold and can be exchanged for that gold at a fixed rate is representative money. So a paper bill represents (and can be exchanged for) the equivalent value of the gold that backs it. While the US was under the gold standard, the USD was a form of representative money.
  • Fiat money – Fiat money is a form of money that has no intrinsic value and is not backed by a commodity, i.e., it does not represent the equivalent value of an underlying commodity. The value of fiat money is backed by the government that issues it and is accepted as a form of payment because there is an agreement on how much a specific currency is worth. Almost all modern currencies, from the Chinese yuan to the Brazilian real, are considered fiat money.

To simplify, commodity money is made from a physical commodity and has intrinsic value, representative money has no intrinsic value but represents a commodity that has intrinsic value and can be redeemed for it, while fiat currency has no intrinsic value and does not represent a commodity but is given value as a unit of exchange by the institution that issues it.

Examples of Use of Commodity Money

The most common example of commodity money throughout history is the use of metal coins, like gold, silver, or copper. Silver coins based on the Spanish dollar are likely the best example of commodity money in the Americas.

But that is far from the only example of the use of commodity money. For instance, beaver pelts were the main unit of exchange in the area around Hudson’s Bay in Canada for fur traders in the 18th century.

This system came about because the First Nations were not interested in exchanging goods for precious-metal coins, so they needed to find another medium of exchange – the beaver pelts. They even had an exchange rate set up, e.g., 5 pounds of sugar were worth 1 beaver pelt while 1 gun cost 12 beaver pelts.

Eventually, even that commodity money system evolved. For convenience, Hudson Bay post managers started issuing stamped copper or brass tokens in different sizes – these were called made beaver coins. The largest token represented the pelt of one adult male beaver in good condition. The smaller tokens represented smaller pelts. Thus, the commodity money system of the fur traders evolved into a combined commodity and representative money system over time.

In modern times, it may seem like commodity money is a historical occurrence, given that almost all countries use representative or, more commonly, fiat money. But that is not the case – commodity money can exist alongside other money categories.

Cigarettes are a common form of commodity money when other types of currency are prohibited. For example, they were often used in prisons in the US as a unit of exchange before smoking was banned in prison in the early 2000s.

While the line where a commodity becomes a currency can be debated, generally speaking, whenever a single commodity is recognized by a population as a unit of exchange for goods or services, it can be considered commodity money. Source


Wednesday, June 5, 2024

Die Making at the U.S. Mint

 

This B-Roll begins with the process of making "hubs," which is done by CNC (computer numerically controlled) machines using cutting tools. Once a master hub is machined, the Mint uses it to create dies, which have negative images of the coin's front or back, and will be used to strike the coin. Coin presses use 35-100 tons of pressure (depending on denomination of the coin) to leave the final impression on the coin.
Once the Secretary of the Treasury approves a design, U.S. Mint medallic artists turn the line drawing into a sculpted piece of art using clay, plaster, or digital software. A machine engraves the design onto a steel hub, which shows the positive image the way the artist created it. The Mint transfers the image between several generations of hubs and dies in order to create the working dies that actually strike the coins. Dies are like a photo negative, displaying the design in reverse. When the dies stamp the coins or medals, the positive image transfers onto the blank. 

Sunday, June 2, 2024

Do Bond Yields Affect the Gold Market?

The relationship between bonds yields and the gold market is complex and shifts in response to economic, geopolitical, and market conditions. Over the years, this correlation has seen phases of both positive and negative alignment and, at times, almost negligible. 

When considering purchasing gold or bonds, there are factors to consider when choosing between the two. To break it down to a brief synopsis, many move money into gold as a relatively safe way to store value when bond yields are low. If bond yields are doing well, some may realize an increase. In this case, some choose bonds over gold. 

Bond yield refers to the return an investor realizes on a bond expressed as an annual percentage. Bond yields in the interest rate offered by bonds. The lower bond prices usually produce a higher yield.  

When bond prices rise, yields fall, and vice versa. This inverse relationship exists because when a bond’s price rises above its face value, its fixed interest payments represent a smaller percentage return on the investment, hence a lower yield. 

Understanding bond yields is crucial for investors, given the pivotal role bonds play in the worldwide financial landscape. Additionally, the dynamics of bond yields often offer a window into overarching economic and market patterns. 

Types of Bond Yields 

Nominal Yield (Coupon Yield) 

This is the annual interest payment divided by the bond’s current price. It is called the coupon yield because bonds used to have physical coupons that investors would redeem for interest payments. 

Current Yield 

The bond’s annual interest payment divided by its current market price. 

Yield to Maturity (YTM) 

YTM represents the total return you will receive by holding the bond until it matures, YTM considers the bond’s current market price, par value, coupon interest rate, and the remaining years to maturity.  

Yield to Call (YTC) 

For bonds that can be “called” or paid off before their maturity date, the YTC measures the yield, assuming the bond is called at the earliest possible date. 

What is the Difference Between a Treasury Yield and a Bond Yield 

“Treasury yield” and “bond yield” are often used interchangeably in general discourse, but they have distinct meanings within finance. When comparing gold to bonds, this distinction should be noted. 

Treasury yields specifically pertain to U.S. government-issued securities, while bond yields can encompass a spectrum of debt bond types. 

U.S. Treasuries are considered a safe haven investment like gold since they are backed by the “full faith and credit” of the U.S. government. As a result, their yields often serve as a benchmark for risk-free rates in financial markets. 

What Affects Bond Yields? 

There is a lot of speculation around this topic, and investment analysts may disagree on the influences affecting bond yields at any given time. This list of situations may affect bond yields alone or alongside other forces. 

Interest Rates 

Generally, bond prices fall when central bank interest rates increase and yields rise. 

Inflation 

Bonds tend to perform poorly in inflationary environments since fixed payments have less purchasing power. Thus, rising inflation can lead to rising bond yields. 

Credit Risk 

The riskier the bond, the higher the yield demanded by investors to compensate for the possibility of default. 

Economic Conditions 

In uncertain economic times, investors might flock to the relative safety of government bonds, driving up prices and pushing down yields. 

Is There an Inverse Correlation Between Bonds and Gold 

The correlation between bonds and gold is complex and can vary based on economic, geopolitical, and market environments. Historically, there have been periods where the correlation was negative, positive, or even close to zero. The correlation is not static and can change over time based on influencing factors. 

Contributors to Negative Correlation 

Inflation Hedge 

Gold is often seen as a hedge against inflation. In an environment where inflation is rising or expected to rise and the dollar is weaking, the real value (after adjusting for inflation) of fixed bond payments could decrease, making bonds less attractive.  

Safe Haven 

During times of economic uncertainty or geopolitical tensions, investors may seek safe-haven assets. Both gold and certain bonds (like U.S. Treasuries) are seen as safe-haven assets. In certain scenarios, if investors prefer gold over bonds, gold prices may rise while bond prices fall, and vice versa. 

Interest Rates 

Rising interest rates can decrease bond prices. At the same time, higher interest rates increase the opportunity cost of holding gold (which does not yield any income). 

The opportunity cost of holding gold: The potential returns or benefits an investor forgoes by owning gold instead of other potentially profitable investments.  

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