What Are Bullion Coins?
Many countries have their own official bullion coins, such as the American Eagle series produced by the United States Mint or the Canadian Maple Leaf series offered by the Royal Canadian Mint.
- Bullion coins are physical coins made of precious metals.
- The most common types are made of gold and silver, although platinum and palladium are also sometimes used.
- While some investors purchase bullion coins as gifts or collectible items, others invest in them for their perceived value as a hedge against inflation.
Understanding Bullion Coins
Bullion coins have existed in various forms for literally thousands of years. Bullion coins served as a primary form of currency throughout most of history; however, since the advent of the international fiat currency system, their role has been relegated to that of a collectible item and investment asset.
For collectors, bullion coins can be prized for their rarity and aesthetic beauty, which can often cause their value to increase relative to the base value of their precious metals content. This subjective value is known as the "numismatic value" of bullion coins, whereas the value solely attributed to their precious metals content is known as their "melt value."
Investors, on the other hand, will often purchase bullion coins as a hedge against inflation. These investors often share a concern that the fiat currency system fails to adequately prevent fiscally irresponsible government practices, such as engaging in excessively expansionary monetary policy or relying on unsustainable levels of government borrowing. From this perspective, bullion coins may be an attractive investment in that their value should rise if the purchasing power of fiat currencies, such as the U.S. dollar (USD), declines.
However, it is worth noting that even for investors who share this point of view, bullion coins may not be the most efficient vehicle for pursuing this investment strategy. After all, physically owning bullion coins entails holding costs, such as increased home insurance premiums or the rental cost of a safety deposit box. Alternative investments—such as exchange-traded funds (ETFs) that invest in bullion, futures, or mining companies—may offer more attractive risk-reward characteristics.
Real World Example of Bullion Coins
American Eagle gold bullion coins are among the most widely traded bullion coins in the world. These coins are minted from 22 karat gold (91.67% purity) and are available in four weights—one-tenth, one-fourth, one-half, and one troy ounce.
Other popular gold bullion coins include the Canadian Maple Leaf, South African Krugerrands, and Chinese Gold Pandas.