Investing in gold has long been considered a somewhat “classic” financial choice. This is because it is a precious metal that is also viewed as a form of real money. This means that someone who owns a large gold bar or brick could use it to acquire goods and services in almost any place in the world, regardless of the mintmark or currency rate imprinted on the surface.
Gold can have a currency rate? This is one of the more interesting factors of gold investment, and that is that some countries make coins from nearly pure gold (usually around 99%) and also mark them with a face value which is backed by the mint or the government.
For instance, in the United States, the coins known as the gold American Eagles come in several different weights and several corresponding face values. For instance, the coin that weighs a tenth of an ounce is “valued” at $5. The coin, however, is going to be worth a great deal more than the five dollars imprinted on the surface because a tenth of an ounce of gold is worth many times that amount.
So, why do the different governments make gold coins that have secondary values assigned to them? Generally, coins of such purity are not intended to be used in general circulation and are simply a way of helping investors to obtain reasonable and accurate amounts of gold. The backing of the government also becomes something known as the investment’s extrinsic value. This translates to a value that is created upon assignment by a group or agency. Thus, the five-dollar face value on the smallest gold American Eagle is an extrinsic value.
This is not just for show, however, because it also serves as a tiny insurance policy on the initial investment. Just consider that precious metals can sometimes fluctuate wildly in value (though gold has historically climbed in value) and this creates a measure of risk for the owner. If that asset has some sort of guaranteed value, such as a currency or face value, then the owner can rest assured that their holdings are not at risk for complete and total loss. So, should the proverbial bottom drop out of the gold market, those with the American Eagles would still be able to get a bit of their initial capital back at any legally operating bank or financial institution. They could also use such coins as currency, but the chances of that ever occurring border on the impossible.