THE HISTORY OF COINS
A century ago many people walked around with gold coins in their pockets and used them to pay for goods and services. The British had the Sovereign, the French the Napoleon, the Americans the Eagle. But with the demise of the gold standard in the early part of this century, gold coins became essentially a collector’s item.

From 1970 that trend was reversed. Gold coins today may not be used to pay bills, but they have become part of the portfolio of many investors. The concept of the bullion coin, a legal tender coin made by government mints and sold at a low premium, as opposed to numismatic coins for collectors, was pioneered by South Africa’s Krugerrand. It enabled the small investor to buy an ounce of gold at very close to the spot price. Usually the markup was around 5 - 7%; nowadays it is often less.

The Krugerrand caught the imagination of investors, especially in West Germany and the United States during the inflationary days of the late 1970s and early ’80s, and became a significant factor in gold demand. In its best year, 1978, almost 200 tons of gold, or nearly 28% of South Africa’s output, went into Krugerrands.

Its success spawned other bullion coins: Australia’s Nugget, Austria’s Philharmoniker, Britain’s Britannia, Canada’s Maple Leaf, and the United States’ Eagle. China also joined in with the Panda. (These bullion coins rather deposed Mexico’s 50-pesos Centenario and Austria’s 100 Corona, both restrikes which had been investors’ favorites in the early 1970s.) Their appeal was widened with the introduction of 1/4 ounce, 1/2 ounce and 1/10 ounce versions. In the two decades since 1970, bullion coins accounted for over 14% of all newly-mined gold, with over 60 million in circulation.

Thus, the gold coin has secured a broad niche in the regular pattern of gold demand. This has been further developed by special issues such as the Hirohito coin in 1986, which commemorated the 60th anniversary of the accession of Emperor Hirohito of Japan. In all, almost 200 tons of gold were used in the coin, despite the fact that, unlike bullion coins, it commanded a premium of more than 150% on the gold content. The Japanese followed this in 1991 with the Akihito coin, using 56 ton's, and in 1993 with the Royal Wedding coin, using 36 tons.

The prime success of the bullion coins has been in Europe and the United States. But the coins’ fortunes are often tied up with local tax advantages. Initially, the Krugerrand was a great hit both in Britain and West Germany because, unlike bullion bars, it was not liable to value added tax. But once tax was introduced, local sales slumped, and purchases were diverted more through Luxembourg, Switzerland and the Channel Islands. However, Germany removed tax from gold at the close of 1992, leading to a revival of bullion coin and kilo bar sales there.

Bullion coins have also become popular in the Far East in the last few years. The Nugget and the Maple Leaf have now become well established with investors in Hong Kong. India has also become a new market for coins, locally made medallions and small bars since 1992, when restrictions on the import of gold and the holding of coins and bars were lifted.

The U.S. Eagle, launched in 1986, reverted to 916 gold but it was principally aimed at US investors to provide them with an American alternative to the foreign coins. It is made only with gold mined in the United States. The British Britannia, which also uses 916 gold, was first produced by the Royal Mint in 1987. It is in competition with the Sovereign (containing 0.2354 ounces of gold) which replaced the gold guinea in 1816. Previously sold at a high premium over the gold price, today's Sovereigns are marketed through the Bank of England at a premium close to that of bullion coins. China produced the first Panda coins, which are 999.9 fine, in 1982. They are half proof quality and the design changes each year, which has contributed to its popularity. Some of the classic coins, such as the Swiss Vreneli, which are in limited supply, have once again become popular.

As bullion coins created a new market for gold so the appeal of small bars grew. These were pioneered by Credit Suisse and proved successful in the Middle East, where bullion coins had never really caught on. The idea was expanded by the Pamp refinery in Switzerland whose most famous bar, the Fortuna, depicting the Roman goddess of fortune, sold nearly 30 tons of 1 gramme to 50 gramme bars in its best year. The success of the Fortuna bar prompted other refineries around the world to come up with variations on the same theme. Hong Kong’s tael (1 tael = 1.2 troy ounce = 38 grammes) bars, of which the smaller ones are shaped like an elegant slipper, are also popular.

Small bars are seen both as investment and jewelry items, and together with a low mark-up, this is much of the secret of their success. The smaller gold coins (especially the fractional ounce versions) are also used in jewelry, for example as cuff-links. Together, bullion coins and small bars have established a firm base in the gold market and regularly absorb 100 - 200 tons of gold annually. They have an important role in the continued prosperity of the gold mining industry.

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*Gold Information Sheet No. 7 has been reprinted without permission of The World Gold Council. Please be sure to visit their site. You can find a link to The World Gold Council and many other links about gold and bullion coins on our Links page.

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