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Why is a u.s. gold currency worth more than the stated amount?

My friend recently began to invest in commodities. He bought a $50 USD gold coin (http://en.wikipedia.org/wiki/American_Buffalo_%28coin%29) for somewhere around a thousand dollars. My question is why has society determined that this $50 gold piece is worth more than 50 dollars. I’m confused because gold is valuable because of its material properties (doesn’t rust etc.) but once the U.S. government mints the coin or prints the money it doesn’t matter what it is or what it is made of it has the value that is printed on it. A $100 bill is worth 100 even though it is printed on the same paper as a $1 bill and it seems to me that a $50 coin should be worth $50.

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This entry was posted on Monday, June 7th, 2010 at 3:23 am and is filed under Currency Trading. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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4 Responses to “Why is a u.s. gold currency worth more than the stated amount?”

  1. Dusty Says:
    June 7th, 2010 at 3:23 am

    Gold is priced by ounces.When this coin was minted the price per ounce was probably very low.Gold these days is around $1000 an ounce so the coin went up with the price of gold.

  2. likepepsi Says:
    June 7th, 2010 at 3:23 am

    That coin was never worth only $50. The value is based on the fact it contains one ounce of pure gold, and when those coins were first made they were sold for the gold value plus some extra. The government puts a "face value" of $50 on it because that makes it an actual coin, and not just a hunk of gold. That’s what buyers want, even though they never intend to use it for the face value of $50.

    Look at it this way - the value will always be the greater of the value of one ounce of gold, or $50. It won’t ever be less than $50 since that’s the face value. But it’s nearly impossible to imagine gold ever being worth only $50 an ounce.

  3. I. B. Zoxx Says:
    June 7th, 2010 at 3:23 am

    As of today, gold spot price is $1183 per troy ounce. The coins you are describing are not intended to circulate, and only an utter fool would spend one for $50. The denomination is what makes it a coin and not merely a gold medallion. It is a marketing gimmick, if you will. The US Mint sells these coins at around 10% over the value of the gold, not face value.
    The $1 American Eagle one troy ounce silver coins have a face value of $1, but you will never see one spent for a dollar (unless it is a stupid child that stole it out of Dad’s coin collection, which I have seen before). The one ounce of silver is worth around $17.80.
    Yet another example is pre-1965 US 90% silver coins, which actually were in general circulation at one time, but no more. It would be foolish to spend them when your friendly local coin dealer pays a minimum of 10 times face value for them.

  4. Computer Guy Says:
    June 7th, 2010 at 3:23 am

    When governments make money, they make it from cheaper materials than the coin (or bill) represents. With paper money this is easy, but the value of metal in a coin can change. When they made the original $50 gold pieces, there was less than $50 worth of gold in them. IN 1933, gold traded for $20/ounce. Now it’s near $1200 an ounce. For what it’s worth, the copper in old pennies is worth more than a penny. The nickel in old nickels is worth more than a nickel. And of course, you never see silver dimes or quarters anymore, they have been snapped up by investors.

    Of course, if you have any $50 gold coins for sale I will gladly pay you $50 for them.

    Grandpa

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