In the late 19th century, American traders encountered a frustrating obstacle in their efforts to do business with Chinese merchants. Mexican Silver Dollars were the standard of the day. They contained slightly more silver than American Silver Dollars and the savvy Chinese merchants demanded payment in Mexican coinage. The American traders and American banks found themselves in a costly cycle of exchange between United States and Mexican coinage to provide the cash needed to conduct business in China. The response was a brief experiment in currency – the Trade Dollar – a limited legal tender United States coin with a higher silver content intended for overseas trade. Trade Dollars had a face value of $5, pictured Lady Liberty and an eagle, and proudly proclaimed their silver content of “420 grains .900 fine.” For a variety of reasons the Trade Dollar was ultimately unsuccessful, but it left as its legacy a fantastic collectible and great reminder of the historical connection between precious metals and currency.
Throughout much of history, gold and silver wealth formed the basis of economies large and small. In a world that ran on precious metals, coins did not simply represent wealth, they were wealth. Paper money was seen with great skepticism, and any hint that the issuing authority wasn’t sitting atop a pile of gold to back up the currency could lead to a financial crisis. Bronze, copper and other metal coins have an obviously long history, but with a few notable exceptions were restricted to minimal denominations until very recently. In the United States, for example, dimes, quarters, and half-dollars were struck from silver until 1964 when escalating silver values forced the change to a nickel alloy.
With this heritage, it’s not surprising that the majority of the world’s most popular and valuable collectible coins are struck from gold and silver. The 1794 United States silver “Flowing Hair Dollar” sold for $7.85 million in 2005 setting a world record. Perhaps the most famous and sought after coin series is the United States Saint-Gaudens Double Eagle. Double Eagles have a face value of $20 and contain .9675 ounces of gold. In 2002 a 1933 Saint-Gaudens Double Eagle sold for 7.59 million. Of course, not all of the world’s most expensive coins hail from the United States. In 2006 one of three surviving British Edward III Double Flourins fetched L460,000 (approx. $6.8 million) at auction. Also known as the Double Leopard, the gold Double Flourin has a face value of six shillings and was in circulation from 1343 to 1344.
You don’t need to be a millionaire to enjoy collecting precious metal coins. A great place to start is with pre-1965 20th century United States dimes. The Winged Liberty Head, or Mercury, Dime circulated from 1916 to 1945 when it was replaced by the Roosevelt dime. These dimes contain about .07 ounces (2.25 grams) of silver. You could expect to pay in the neighborhood of $5.00 for a common date Mercury dime in the Very Fine to About Uncirculated grades; a common date Roosevelt would be priced closer to $3.00. Higher grades will cost you more.
It is important to be aware of the distinction between older circulating gold and silver coins, and modern precious metal coins produced by governments and commonly known as bullion coins. Bullion coins are produced around the world primarily for the purpose of providing a convenient vehicle for individual investors to hold precious metals. Official bullion coins have the advantage of a certified weight and purity. Some popular bullion issues include American Eagles and Buffalos, Australian Koalas and Kangaroos, Chinese Pandas, Canadian Maple Leafs, and South African Krugerrands.
The distinction between bullion and circulating coinage is significant for those who consider coin collecting as an investment. Although collectors buy bullion coins and there are some coins that fetch a slight premium based on scarcity, bullion coins are generally not considered in the same light as older circulating coinage. The market for bullion coins is largely driven by the precious metals market and not by their collectability. On the other hand, the market for older circulating precious metal coins is driven primarily by the collectability of the coin. Factors such as scarcity and grade can lead to a coin having a market value hundreds or thousands of times the value of the underlying precious metal.
Melt value is a term used to define the value of the precious metal in a coin irrespective of that coin’s value in the collectables market. It is derived by a relatively simple calculation of the metal content of the coin and the published price of the metal. There are a couple of complications. First, gold and silver prices are typically quoted in Troy ounces, a system of measure that varies slightly from the avoirdupois system more typically used for dry weights. A Troy ounce is about 31.1 grams which is equivalent to about 1.1 avoirdupois ounces. If you want to convert a measure that is provided in grams to Troy ounces, multiply it by 0.03215. For example, a Mercury dime weighs 2.5 grams. Multiplied by .03210, that 2.5 grams converts to 0.080375 Troy ounces. The second complication is the fact that coins are not 100% pure. The Mercury dime in our example is 90% silver and 10% copper. Therefore the Troy weight of the silver in the dime is not 0.080375 but 0.07234 ounces. Now all that’s left is to multiply the current price of silver, called the spot price, by the silver content of 0.07234. A recent spot price was $34.61 which translates to $2.50 – the value of the silver in a Mercury dime.
Fortunately you typically don’t have to perform all those underlying calculations! The precious metal content of popular worldwide coins is well known and published. When the metal content in Troy ounces is already known you can skip the intermediate steps and simply multiply by the spot price.