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Gold passes money test

I bet that if you asked people if the coins and paper currency they have and the account balances in their bank and credit union accounts were money, almost all of them would say “yes.”


And, technically, they would be wrong.

The government-created currencies in use today are all temporary substitutes for money. They can be used as a medium of exchange. But none of them fulfill all of the functions of a store of value and as a medium of exchange to qualify as being money.

Physical gold and silver, especially in coin form, are money. Many other things have been used as a medium of exchange over the centuries, such as cattle, large stones, salt, playing cards, sea shells and cigarettes, but these forms did not persist because they did not meet all the requirements to be considered money.

In the 4th century B.C., Aristotle listed five reasons why gold is money, perhaps the first ever recorded definition of the term. His definition was true then and it still is today.

Before reading further can you name the five functions that Aristotle identified as required for anything to be considered money? If you cannot name all of them, do you really understand the concept?

Here goes:

1. Durability. Something that qualifies as money does not fall apart or rot in everyday usage. Any long-term wear must be inconsequential.

2. Divisibility. Money needs to be able to scale up and down to accommodate transactions of various sizes without losing any of its value in the process. A partial portion of cattle, a sea shell, or a playing card just doesn’t have the same proportionate value.

3. Standardization. You need to have money that has the same value for the same denomination over long periods of time no matter which piece you might have. They must be easy to recognize for what they are. For example, there are places in the Middle East where British sovereign gold coins from the late 1800s can still be spent for the same value as later issues. In contrast, today’s circulating dimes and quarters to not have the same metal content as they did in the late 1800s. Even diamonds, which may be of the same carat weight, clarity, color and cut can have huge differences in value depending on other features. Different works of the same size in the same media by the same artist likewise trade at different prices.

4. Convenience. To be serviceable as money, it needs to incorporate significant value in a small form that is easily transportable and transferable.

5. Store of value. To serve as money, the pieces need to be valuable in their own right. They need to be tangible and something that people desire to own. They do not depend on the continued existence of the issuer to sustain their value. This is where government-created currencies today fail to qualify as money, even if they serve all the other functions. Imagine, if you can, what Federal Reserve Notes would be worth if the U.S. government collapsed.

A piece of metal or a piece of paper or plastic may become a temporary medium of exchange just because some government says so by a legal declaration. So, governments cannot make anything money simply by enacting a law or issuing a proclamation.

When you look at the five functions that money serves as a medium of exchange and as a store of value, you can readily understand why gold has been used for payments going back for 6,000 years and silver for around 4,000 years, both without failure. Could things change in the future? While it is always possible, I just don’t foresee any possible alternatives looming.

Premiums fall for precious metals

One tendency I have noted is that when enough of a bullion-priced product has been placed on the market, the amount being liquidated on the secondary market will eventually be sufficient to meet continuing new retail demand. This condition occurred, for instance, with the South Africa Krugerrand after combined annual mintages reached about 25 million pieces.

When back-date issues start piling up, the premiums that wholesalers charge to coin dealers will tend to decline, eventually to lower prices than they charge dealers to acquire current-year coins.

Once these coins and ingots have seen their premium decline, the mints see demand for new product evaporate. Often, production ceases. This has happened with the Austria 100 coronas and the Mexico 50 pesos restrike gold coins.

Retail premiums also tend to decline and stay down. You have been able to get more gold for your money by purchasing the Austria 100 coronas or Mexico 50 pesos than just about any currently struck bullion-priced gold coins such as the U.S. gold American Eagles, Canada Maple Leaf, Austria Philharmonic, or Australia Kangaroo. Some of these earlier issues have a disadvantage of perhaps not being even weights of precious metal content in either grams or troy ounces, which leaves some buyers to pay higher premiums for the exact weight issues.

Keep in mind that it is always possible that in the future the bullion-priced coins and bars that cost a higher premium may eventually see these premiums dissipate. As a result, my orientation has been to recommend the lowest premium precious metals issues, where the risk of a lower future premium is less than the corresponding risk with current issues.

Recent relatively modest retail demand for bullion-priced gold and silver in the United States has led to recent declines in premiums on various coins and bars. The lower coin premiums have affected coins dated before 2017.

For instance, multiple wholesalers are offering coin dealers bulk quantities of back-date one-ounce gold American Eagles at a price lower than these same wholesalers would be charged by the U.S. Mint to acquire 2017-dated coins. Coin dealers can sometimes even find the back-date half-ounce gold American Eagles at a price lower than the Mint charges Authorized Purchasers to acquire the 2017-dated version.

I have previously noted that premiums on U.S. 90 percent silver coins had been coming down. There has now been a significant decline in the premiums on 1, 10, and 100-ounce silver bars and rounds.

Some, but not all, retailers have been dropping their retail price formulas as their costs have declined. If you are looking to add some bullion-priced precious metals to your holdings right now, it is more important to do some price comparisons than perhaps at other times.

Patrick A. Heller was the American Numismatic Association 2012 Harry Forman Numismatic Dealer of the Year Award winner. He was also honored by the Numismatic Literary Guild in 2016 for the Best Dealer-Published Magazine/Newspaper and for Best Radio Report. He is the communications officer of Liberty Coin Service in Lansing, Mich., and writes “Liberty’s Outlook,” a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at Some of his radio commentaries titled “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 a.m. Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at

This article was originally printed in Numismatic News. >> Subscribe today.

More Collecting Resources

• The Standard Catalog of World Coins, 1601-1700 is your guide to images, prices and information on coins from so long ago.

• Download The Metal Mania Seminar with David Harper to learn more about the metals market.