Many first-time gold and silver investors are surprised to find that there are several different forms that precious metals are sold in. The uninitiated are usually only familiar with the brick-shaped bars that are stored in bank vaults, or various forms of jewelry. There are, however, a wide variety of shapes, sizes, and types that precious metal bullion takes, each with their own defining characteristics. Chief among these are coins and rounds made of gold and silver; ironically enough, these are the two types of bullion which are most frequently confused with one another. Yet, there are important differences between the two forms that could have serious implications when you’re making a decision about which type to buy.
One of the most common mistakes for investors when they first enter the precious metals market is paying too much for a coin when all they really wanted was a round, or, conversely, ending up with rounds that they had wrongly assumed were the same as coins. In the former scenario, you’ve spent too much money for what you intended to buy; in the latter, you will be disappointed that your investments won’t sell for any premium on the secondary market. Principles for avoiding these mistakes, among many others, will be covered hereinbelow.
This article should help clear up the main differences between the two bullion products, and will explain the advantages and disadvantages of each form.
Coins Are Legal Tender
The overarching difference that ultimately separates coins from rounds -- and basically all other forms of bullion -- is the monetary value ascribed to coins. All coins, even those that are expressly minted for investment or as commemorative collectibles, are given a legal tender value. This is what makes coins currency: the government decrees that the given coin can be used to settle all debts, public or private, and must be accepted as a form of payment by a merchant.
This means that all coins must be government-issued. Only a governing authority can ascribe an actual monetary value to a coin, not a private individual or company. Moreover, if a form of legal tender does not originate with a bona fide government, then there is no way to enforce its value as currency after the first transaction. Why would someone in another part of the country accept such a thing as payment when they can’t be sure that another bank or business will redeem it for full value? This illuminates how trust is one of the basic underlying principles behind successful forms of money, and this certainly applies to coins.
Coins Have a Face Value
In nearly all cases with today’s cupronickel coins made from copper-nickel alloys, the legal tender face value (or denomination) is important because the contents of the coin are worth less than its ascribed face value. Stated differently, the value of melting the metals of the coin are less than its value as currency -- in most cases, significantly so. (Just a reminder: Don’t try to your melt your coins, anyway. It is only legal to deface, alter, or destroy circulating coins so long as your intent is personal or artistic. Once you attempt to profit from altering coins, it becomes fraud.)
There are, however, some coins that have a melt value (sometimes called the intrinsic value of the coin) that actually far exceeds their designated face value. This includes virtually all gold and silver bullion coins issued by government mints around the world. Their legal tender value is only symbolic, affirming that their precious metal content is guaranteed by the government that issued the coin.
There are a few exceptions to this rule, and they would probably all fall under the umbrella of “trade coinage.” Over the years, special coins have been made that are intended to be used, traded, or circulated across international boundary lines. This idea gained a considerable amount of steam at the end of the 19th century, when several different countries attempted to create trade coins that, due to their metal content, would have a more-or-less fixed value across the world. The United States briefly experimented with a Silver Trade Dollar and a gold trade coin known as the “Stella” for the five-pointed star on its reverse. These coins bore no face value, but listed their precious metal weight and grams and grains in order for its value to be convertible across different monetary standards.
In more recent times, the gold international trade coin known as the Krugerrand is designated as legal tender in spite of its lack of a face value. Minted in South Africa since the late 1960s, the Krugerrand is intended to be bought, sold, and traded based on the intrinsic value of its 1 troy ounce of gold content. While the South African government makes no prescriptions for the coin’s redeemable face value, it carries the same relative value (based on the price of gold) no matter where in the world it is used.
Coins Have Dates
There are a number of reasons why the year of issue is present on all coins. First and foremost is for purposes of accounting: the issuing authority (the Mint, usually under the umbrella of the Treasury) must keep track of how many coins it is releasing into circulation, as coins are distributed to banks as they are demanded by local businesses to make change for their customers. People often overlook the fact that, except in the case of limited-edition or collector’s coins, the number of coins minted directly reflects the amount of demand by merchants for making change. Keeping a gauge on how many new coins were minted in each year of issue is important not only for bookkeeping, but also for judging and comparing one year’s economic conditions to another’s.
Another subtle reason for including the date on each coin is a matter of credibility. Dateless coins could be endlessly minted without any way to knowing when they were made, making it far easier for counterfeiters. Dates lend a certain atmosphere of continuity to coins, which makes them easier to trust--and trust is the lynchpin that holds together any currency standard. If people lose trust in a specific currency, they will turn to others; this was the case during the Colonial Period, when American colonists relied heavily upon the Spanish 8 Reales (pieces of eight) coins due to the lack of available British coins and the flimsy trustworthiness of American coins.
To clarify, having a date is not a delimiting characteristic of coins. In other words, just because a piece of precious metal is inscribed with a date doesn’t make it legal tender. There are, in fact, an array of non-monetary tokens, medals, and other types of exonumia that indeed bear a year-date, but are not considered money. I cannot think of any legal tender, in the U.S. or anywhere else, that does not have the date it was issued marked on the coin. The reverse, however, is not true.
How Are Rounds Different From Coins?
After outlining some of the key tenets that make a coin such, you may still be wondering, But how do I tell the difference? This is especially the case with so-called “classic design” silver rounds, which bear images or designs that are nearly identical to historic coins from the past. Many novices can confuse these similar-appearing rounds for the actual coins they are based off of, and can be taken advantage of by unscrupulous dealers.
This is why the Hobby Protection Act, passed in 1973, requires these replica rounds -- and any other numismatic imitations -- to be clearly marked as such. In the past, a simple “R” incused into the design sufficed to label it as a “replica.” In more recent years, however, the law has been more strictly interpreted to require such items to be marked with the word “COPY.” This is intended to clearly distinguish a modern replica from the original. While this is an obvious visual difference between coins and rounds, it also has a significant impact on the price difference between the two products.
It may be convenient to think of rounds as circular-shaped silver bars. They share their properties with bullion bars more so than coins, but are similar in appearance to coins -- hence the potential confusion. Silver rounds are essentially medallions -- small, non-monetary, coin-like pieces of precious metal. This places them in the category of exonumia, which includes any kinds of tokens or coin-like objects that do not have a legal tender value. The most well-known form of exonumia is probably medals, because they are produced in limited quantities and generally celebrate some event or group. They are typically made of gold, silver, copper, or brass. Although rounds and other types of exonumia do not have a monetary value, they are still often popular collectors items.
Rounds May Have Any Design
Unlike coin designs, which must be approved by a legislative body and advisory committee in most countries, the range of different designs that could appear on rounds is limitless. Typically, coin designs in some way relate to the culture or character of the issuing country, whether it’s a special commemorative issue or simply a circulating coin that bears the profile of a famous leader, or the personification of some national ideal.
To be fair, there are many rounds that follow the same pattern, commemorating some historical event or anniversary thereof. Yet, the designs don’t stop there. Popular themes such as birthdays, graduations, newborn children, and weddings are featured on silver rounds, as many people enjoy giving these items as gifts on the appropriate occasions. Another theme that is well-received all over the world is the Chinese Zodiac, or Lunar Calendar. Entire series of rounds have been struck with Lunar Calendar designs, highlighting the various animals of the Chinese Zodiac. (For instance, 2015 is the Year of the Goat.)
Beyond the most popular topics, rounds are also made for far more niche interests. There are sports-related rounds that celebrate star athletes or championship teams; there are rounds that depict the various wildlife from specific regions of the world; some rounds honor famous cartoon or comic book characters, or other elements of pop culture; many rounds even seize upon certain ideologies or concepts, like Independence or Free Markets, in order to ascribe a deeper meaning to these bullion items. In some cases, private companies that have little to do with the precious metals business will have silver rounds made with their corporate logo as a way to market their brand. There are, in fact, an almost infinite number of different designs that have made their way onto silver rounds -- it is only a matter of finding one that matches your predilections.
Rounds Come In Many Sizes
While coins come in different denominations, which are generally represented by different sized pieces, rounds come with far more variety in sizes to meet consumers’ preferences. These are known as “fractional rounds,” as they are frequently broken into fractions of a base unit, the troy ounce. For instance, there are half-ounce (½ oz), quarter-ounce (¼ oz), and even tenth-ounce (1/10 oz) rounds for those who prefer to add just small amounts of precious metals to their holdings.
Rounds are produced by private mints (as opposed to a government mint). This gives the manufacturer ultimate freedom to strike their rounds in any sizes they like. There is, however, one large restriction: no privately-minted round can be made with the same exact size and weight specifications as an actual government-issued coin. Even if everything else about the round is different, including its composition and design, it cannot have the same diameter, thickness, and mass as a legal tender coin produced elsewhere in the world. This is an anti-counterfeiting measure against those intent on committing fraud by producing “fake coins” that are actually rounds. Beyond fooling actual people, if a round were to have the same technical specifications as an actual coin -- say, a U.S. quarter -- then it could be used to defraud vending machines or other automated coin-operated technologies.