This article is written with regards to American Coins but the same theory applies to the UK.
The U.S. Mint has been stamping out gold and silver Eagle coins since 1986. The Mint is required by law to produce Eagles in sufficient quantity to meet demand. In addition, there are many other gold and silver coins that are readily available including Maple Leafs from Canada, and Krugerrands from South Africa. There is no shortage of coins today.
Gold and silver coins do not circulate. This is a serious mystery that requires some thought to solve.
One problem is that these coins are stamped with a face value far below the value of the metal content. The one-ounce silver Eagle has a legal tender value of $1 (silver is currently over $23/ounce) and the gold Eagle is a $50 coin (the gold price is almost $1,400). Obviously, no one would use $23 worth of silver to buy a can of Diet Coke from a vending machine.
Still, this doesn’t really solve the mystery. The legal tender value is just a nominal value arbitrarily set by law. When precious metal coins are bought and sold, everyone understands that the price is based on the current market value of the metal. So the question is not why people don’t use a silver coin to buy a soda. We must explain why they don’t use one to buy a steak dinner.
A growing number of people recognize that the Fed, under Chairmen Greenspan and Bernanke, has been abusing the dollar beyond all precedent, if not all reason. While there are many opinions about the specific consequences, there is a growing realization that it won’t end well. This is why people buy gold and silver coins. However, they don’t circulate, even within the gold and silver community.
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