This is the easiest area to explain. Bullion coins are valued based on the
amount of gold, silver or platinum contained in the coin. The coins are usually
denominated in weights of 1/10 ounce, 1/4 ounce, 1/2 ounce and 1 ounce.
The price is based on the "spot" price of gold, silver or platinum
plus a premium for manufacturing by the issuing country and a commission for the
selling dealer. Commissions are small, usually 2% to 6% of the selling price
depending on the type of coin and the quantity purchased.
These coins are currently minted and are not used as currency although some
coins display a denomination. For example, the 1 one ounce American Eagle shows
a $50 denomination on the coin. Yet, the purchase price of this coin is
presently $1326.00 based on a "spot" price of gold at $1254.00 an
ounce. There is no wisdom to spend this coin for it's face value of $50.00.
Bullion coins of the same size but from different sources vary in price due
to the amount of precious metal in the coin. The purity of most coins are .999
with some coins at .9999 and other coins such as gold South African Kruggerands
and most American Eagle gold coins at .916 purity. The price movement of
bullion coins follows the price of the metals market.
The coin form is simply a more convenient method of physically holding the
asset. Coins are only one form of bullion, with ingots (from 1/4 ounce to 100
ounce) and bars (1 kilogram and up) as other common forms. In addition, many
bullion coins are privately minted since they are not a currency item. Examples
of private hallmarks are Johnson Matthey and Engelhard. All bullion coins are
sold in the metals market using a bid-ask system that is quoted daily.