Coins, Bullion and Legal Tender

The US Mint produces several coins made of gold, silver, platinum and even palladium with face values that are wildly different than their intrinsic values.

As an example: A 1 ounce Gold Eagle coin shows a face value of $50 yet today’s spot price of 1 Troy Ounce of gold is approximately $1,950 and if you buy the coin from a bullion or coin dealer, you’ll have to pay about $2,050.

As another example: A 1 ounce Silver Eagle coin shows a face value of $1.00 yet today’s spot price of 1 Troy Ounce of silver is approximately $23 and if you buy the coin from a bullion or coin dealer, you’ll have to pay about $28.

Several states have legislation in different stages that make gold and silver legal tender and eliminates sales tax on gold and silver.

Once a state declares gold and silver to be legal tender, what kind of problems or benefits will be presented by coins with a legal face value that differs so widely from the intrinsic value?

The benefits will be a stable currency that is difficult for the Federal Reserve to control.

You’re certainly right it could be the best thing ever for the US, and perhaps the world economy.

Several states have already passed laws that eliminated the sales tax on the sale of gold and silver coins. So businesses in those states may now legally start to accept gold and silver coins as payment for goods and services.

Let’s say an auto body shop makes an estimate of $4,000 to repair a vehicle and then accepts payment in gold. The body shop should gladly accept 2 American Golden Eagle 1 ounce gold coins (intrinsic gold value of $2,000) and then legally report that the transaction was for $100. And according to the United States Government who minted, and backs each of the two coins as legal tender for $50, that’s all that the transaction is legally worth.

There’s certainly some interesting things there to consider.

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Originally Posted by ChipDog

You’re certainly right it could be the best thing ever for the US, and perhaps the world economy.

Several states have already passed laws that eliminated the sales tax on the sale of gold and silver coins. So businesses in those states may now legally start to accept gold and silver coins as payment for goods and services.

Let’s say an auto body shop makes an estimate of $4,000 to repair a vehicle and then accepts payment in gold. The body shop should gladly accept 2 American Golden Eagle 1 ounce gold coins (intrinsic gold value of $2,000) and then legally report that the transaction was for $100. And according to the United States Government who minted, and backs each of the two coins as legal tender for $50, that’s all that the transaction is legally worth.

There’s certainly some interesting things there to consider.

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A friend of mine has personal experience that even if there are no laws forbidding the use of metal as legal tender, in practice the feds treat that as a step above anthrax. At small scales its obviously impossible to control but once you start hitting high numbers you get on to a very serious radar.

Your example hits the nail on the head though - how can they possibly know a transaction occurred at all (besides thousands of jannissary tattletales)?

For it to become a viable possibility, some things would have to happen I will not mention on a public forum. They're not going to change their behavior just because some state decides to try a stable currency and writes something down on a worthless piece of paper.

I’m contemplating taking a $50 (face value) Gold Eagle to a casino and finding out how many dollars in chips they would give me for it to play with.

Also, if one turned up in the offering plate at church, how might that be handled.

What other situations would be interesting to toss around?

I know of a few churches that maintain metal as part of their assets. I assume one in the offering plate would be handled according to the melt value (unless, as you said above, it happened to be rare with a value well above melt).

If it became widespread again, I imagine people would quickly readjust their pricing to match melt value until prices more accurately reflected the value of the metal. For instance, it's not that I can pay an ounce of silver for $25 of goods, it's that the goods REALLY cost about a dollar (of real money) and they cost 25 Globohomo Petrodollars (fake).

I think it’s interesting that the face values are so widely varied from the intrinsic values of the silver and gold in these coins and I can’t help but believe that in the future it’s going to be an issue.

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Originally Posted by ChipDog

I think it’s interesting that the face values are so widely varied from the intrinsic values of the silver and gold in these coins and I can’t help but believe that in the future it’s going to be an issue.

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I'm pretty sure it doesn't match for pennies or nickels either.

Part of the argument for dropping pennies altogether is that they cost more to make than one cent.

Seeing the mismatch reminds me of back in early 2000s when the government wanted to get $1 coins into circulation so they let everyone order them and pay dollar-for-dollar with a credit card? Who all ordered bunches of the coins to get points and cash back credit on your credit cards?

Anyone with a credit card that paid a cash-back bonus or had any kind of miles or point system could order the dollar coins (we had a 3% cash back on one and I think a 2% on another). Folks would order as much as their card limits would allow and were getting $1.03 (or whatever reward) for every $1.00 they charged. People were just taking the coins straight to the bank and depositing them as soon as they arrived, paying off the credit card, and repeating the process over and over. It was one of the craziest things our government ever did. And anyone with a credit card was able to get free money.