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Posted 01/28/2016 6:02 pm
The simple answer: the denominations and weight for each US bullion coin were specified in the legislation approved by Congress and signed into law by the president.
The long (hopefully better) answer:
The legislation passed by Congress for the silver and gold American Eagle bullion programs was meant to give individuals a convenient way to own and invest in precious metals as long as it was done at no cost to the US Government. In fact, a profit from the sale of the coins was expected with the surplus proceeds going to help reduce the national debt.
To help ensure this "no cost" provision, the law authorizing the coins specifies that the Secretary of the Treasury shall sell the coins "to the public at a price equal to the market value of the bullion at the time of sale, plus the cost of minting, marketing, and distributing such coins (including labor, materials, dies, use of machinery, and promotional and overhead expenses). Note that the price formula does not include the addition of a coin's face value/denomination.
So, without the face value of each coin added to its selling price, Congress had to ensure that the denomination of each coin would never be higher than its intrinsic value (i.e., the value of the silver or gold it contained).
Why is this important?
Let's say the denomination for the one-ounce gold coin was to be set at $500 instead of $50. If the spot price of gold fell to $440 per ounce (like it was in late 2004 through mid-2005!) and the cost of production, marketing, distribution, etc. totaled $10 per coin, the Treasury, by law, would have to sell the one-ounce gold coins for $450. At a face value of $500, the Treasury would be forced into the business of selling $500 coins at a 10% discount - not a good business model for the US Government!
While gold at $440 an ounce is unlikely any time soon, it is within recent memory. The chances, however, for gold at $40 an ounce are infinitesimally low. So, by setting the denomination for the one-ounce gold coin at $50, Congress essentially ensured that the intrinsic value of the coin would never fall below its face value and trigger "discount" pricing. The same model is used for the silver American Eagle and the gold fractional bullion coins.
Hope that makes sense!
The long (hopefully better) answer:
The legislation passed by Congress for the silver and gold American Eagle bullion programs was meant to give individuals a convenient way to own and invest in precious metals as long as it was done at no cost to the US Government. In fact, a profit from the sale of the coins was expected with the surplus proceeds going to help reduce the national debt.
To help ensure this "no cost" provision, the law authorizing the coins specifies that the Secretary of the Treasury shall sell the coins "to the public at a price equal to the market value of the bullion at the time of sale, plus the cost of minting, marketing, and distributing such coins (including labor, materials, dies, use of machinery, and promotional and overhead expenses). Note that the price formula does not include the addition of a coin's face value/denomination.
So, without the face value of each coin added to its selling price, Congress had to ensure that the denomination of each coin would never be higher than its intrinsic value (i.e., the value of the silver or gold it contained).
Why is this important?
Let's say the denomination for the one-ounce gold coin was to be set at $500 instead of $50. If the spot price of gold fell to $440 per ounce (like it was in late 2004 through mid-2005!) and the cost of production, marketing, distribution, etc. totaled $10 per coin, the Treasury, by law, would have to sell the one-ounce gold coins for $450. At a face value of $500, the Treasury would be forced into the business of selling $500 coins at a 10% discount - not a good business model for the US Government!
While gold at $440 an ounce is unlikely any time soon, it is within recent memory. The chances, however, for gold at $40 an ounce are infinitesimally low. So, by setting the denomination for the one-ounce gold coin at $50, Congress essentially ensured that the intrinsic value of the coin would never fall below its face value and trigger "discount" pricing. The same model is used for the silver American Eagle and the gold fractional bullion coins.
Hope that makes sense!
Collecting history one coin or medal at a time! (c) commems. All rights reserved.
titan!
