My Blog List

Sunday, August 28, 2011

All That Glitters...

With the big-time renewed interest in gold, a comment/question from commenter "LJ" -
Hey Chief,

Have heard this comment before, and always in passing : depending on the country of origin.

If gold is gold, and coins, bullion etc. is minted at 99.999.........% purity, what does the country of origin have to do with the price?


Great question.

All one ounce gold coins are not minted to .99999 purity, yet all contain an ounce of pure gold.  Huh?

The American Gold Eagle and the South African Krugerrand are each minted in 22 karat, or .9166 pure.  BUT, the coins weigh 1.09 troy ounces, and thus contain a full ounce of pure gold (do the math).  The American Gold Buffalo, Canadian Gold Maple Leaf, Austrian Philharmonic, Australian Nugget or Kangeroo and Chinese Panda are all .9999 coins, and weigh 1 troy ounce.

You then have private mints that produce gold ingots.  The two best know producers are Credit Suisse and Pamp Suisse.  Both produce .9999 gold ingots/bars in varying weights, including one ounce.

So, they all contain an ounce of pure gold, yet prices per coin/ingot can vary wildly?  Why dat?

Confidence and prejudice.

Generally speaking, a coin produced by a sovereign nation will carry a premium over a private mint.  People believe that government controlled production standards are higher than private production standards.  When it comes to minting coins/bullion, they're generally correct.

What's this prejudice stuff?  Home turf wins.  Americans will pay more for an American coin.  IN GENERAL, the pecking order after that goes to our neighbors.  Canada in this instance.  Then it goes to English speaking countries (Great Britain and Australia).

The gold Chinese Panda and SA Krugerrand are generally an exception to this rule.  The Panda is usually just behind the Canadian Maple Leaf, and the Krugerrand is almost always at the bottom of the price bucket.  Honestly, I think it is a bit of a "hang over" from the apartheid days, and some people are just not comfortable owning them.

Our other neighbor  - Mexico - is also near the bottom of the price barrel, but I think that is more due to the size of the coin.  Their most popular gold coin - the 50 peso - weighs 1.205 troy ounces.  When buying the coins, people have to do some math to figure out if it's a good deal, and they will usually just say, "forget it" and focus on the coins that contain one ounce.

Interestingly, Mexico does make 1 ounce gold coins (the gold Onza and the gold Libertad) but I have only seen a few come into the shop.

ROUGHLY, here is the pricing - (this is with spot gold at $1828 per ounce)

American Eagle - $1930
American Buffalo - $1935
Canadian Maple Leaf - $1910
Chinese Panda - $1900
SA Krugerrand - $1890
Pamp Suisse or Credit Suisse bar - $1890

I want to talk a bit about US "old gold" and some deals you can get on some of these coins.  I"ll also discuss the best and worst times to buy and sell.  I'll do that in my next post - tomorrow, as I have an appointment to teach one of my sons and his buddy how to brew beer.

I'm getting all teary..... ;-)

Copyright 2011 Bison Risk Management Associates. All rights reserved. Please note that in addition to owning Bison Risk Management, Chief Instructor is also a partner in a precious metals business. You are encouraged to repost this information so long as it is credited to Bison Risk Management Associates.


Joseph said...

Firearms, PMs and home brewing classes. Are you looking to adopt adult children? Better yet you can come on over here to TX and work with us out in the country. We can even do some target practice right from my porch :)

Anonymous said...

Thanks for the answer


Chief Instructor said...

Joseph, LOL. Sorry, my youngest recently moved out, so we're not taking any more in ;-)

TX is my first choice for our final homestead, but it's a bit too far away for my wife. NV or ID are about as far as she's willing to go. How she could pass up sighting in a rifle from the porch is beyond me...

LJ, thanks for the question. I get it a lot at the store, so it was a great chance to share the information.