Getting started in numismatics

Young or old, affluent or not, all sorts of people find coin collecting an accessible hobby. Many famous collectors started as children or young adults, and this is also the kind of hobby and vocation that gets passed to generations within families and shared with friends. Because studying numismatics also involves learning about history, politics, art and much more, this hobby has educational value. Of course, coin collectors also find this hobby exciting and sometimes, profitable. The first step for novice coin collectors usually includes learning the language of coin collecting. Special terms describe a coin's condition, type and appearance. Mastery of basic terms opens the door to gaining more knowledge.


 

collectionStart Your Collection

Learning coin terminology and acquiring basic collecting knowledge are important first steps for those entering the numismatic hobby.

 

 


 

historyCoin History

From the U.S. Mint’s first facilities, to the discovery of the Saddle Ridge Hoard, read about the historical places, people and events that have shaped numismatics.

 

 


 

metalsPrecious Metals

Bullion investing and coin collecting go hand in hand. Learn all about the basics of investing and the many different bullion coins available.

 

 


 

coinsKnow Your U.S. Coins

What’s so special about the Morgan dollar? How many different types of Lincoln cents have there been? Get familiar with all U.S. coins, past and present.

 

 

Making coins come alive

The very first American colonists had little need for coins in the wilderness. They bartered with trade goods, Native American wampumand tobacco. As civilization grew, the British did not always give the Americans permission to mint their own coins, but the colonists found alternative sources of coins and on occasion, struck coins without royal authority. For example, the Massachusetts Bay Colony set up its own mint in Boston in 1652 during a period when England lacked a king and continued striking 1652-dated silver coins for decades. Thus, early examples of U.S. Colonial coins were born. In April of 1792, the U.S. Mint was established in Philadelphia, the nation's capital at the time.

Numismatics, the studying of coins, and the collecting of coins both stand apart from investing in coins for their bullion value. Still, the bullion value of most collectible coins still needs to get considered. Even today, the U.S. Mint and mints of other nations’ produce bullion coins that are different from regular coins intended for currency. Through much of history, coins derived most of their value from their metal content. While people used coins as currency for thousands of years, the practice might have been closer to trading small bits of copper, silver, gold and other precious metals. However, as gold and silver rose in value, the intrinsic worth of the precious metals in the coins began to exceed their face value. In the U.S., for example, the replacement of 90 percent silver coins with base metal coins began in 1965.

Learning about U.S. coins means learning about the history of the country. Very often, decisions about a coin's content, value and design were made because of political, economic or social events of the time that they were minted. In some cases, political figures or mint executives even made decisions because of favoritism, nepotism or personal competitions — and learning these details makes old coins come alive.

Numismatic

IMF formed after gold standard abandoned: Precious metals basics

With the founding of the United Nations after World War II, representatives of 44 nations met in conference at Bretton Woods, N.H., in July 1944, to form the International Monetary Fund. The IMF is a specialized agency affiliated with the United Nations, designed to stabilize international monetary exchange rates instead of relying on the gold standard. It has no authority to dictate national monetary policies, however.

The members of the IMF, it was decided, would all deposit quotas in the fund, only one-quarter of which had to be in gold, and the rest in their own currencies. From this fund, members could purchase with their own national currencies the gold or foreign exchange they needed.

The IMF, then, became the world’s largest source of quickly available international credit. By June 1972, the 124-nation fund had provided $24.6 billion in short-term financial assistance.

MORE: CoinWorld.com's precious metals basics

Only the United States decided to keep its currency convertible at all times into gold. The United States pledged at Bretton Woods to convert foreign holdings of dollars into gold on demand at the fixed rate of $35 an ounce. The other countries could hold and count dollars as part of their reserves as if dollars were gold. Thus, the dollar became the center of the world’s monetary system.

Each member of the IMF was required to maintain the dollar or gold parity ($35 an ounce) of its currency by buying its currency when the price fell to 1 percent below parity or selling if the price rose 1 percent above parity.

The London gold market reopened in 1954 after World War II had forced its close in 1939. From 1954 to 1957, the price of gold on the London market fell consistently below $35 an ounce. Private demand for gold was composed almost entirely of industrial-artistic use and hoarding in countries where savings are traditionally held in gold.

Despite the growth in industrial use of gold and that gold, at a fixed price, was cheap in comparison to other commodities, private demand generally did not absorb all newly mined gold and the gold purchased from Communist stocks during this time. Except when the monetary authorities purchased gold to maintain its price at $35 an ounce, most countries bought relatively little gold, and instead built up their dollar holdings.

The gold drain

The system ran into difficulty in 1958 when the United States saw its first significantly large balance of payments deficit. This is a name given to the excess in the amount of dollars going abroad for foreign aid, for investments, for tourist expenditures, for imports and for other payments, in comparison to the amount of dollars coming in for payments of U.S. exports to foreign countries. This meant a heavy drain on U.S. gold supply.

The balance of payments deficit persisted into 1960. Rumors began to spread in October that the United States might devalue the dollar (by raising the price of gold) to slow the gold drain. The first sharp gold panic swept the world’s monetary trading centers. Under pressure from a sudden and widespread demand for gold, the market price jumped in London from $35 to $42 an ounce.

The crisis was eased temporarily as the U.S. Treasury transferred $135 million in gold to the London market, and as the Bank of England intervened as a substantial seller. This flood of gold forced the price down to $35 by the spring of 1961.

Relief was short-lived. The supply of new gold coming into the London market began to fall in midsummer of 1961 as the two largest producers of gold, Canada and South Africa, began to add their newly mined gold to their monetary reserves. Demand for U.S. gold continued to rise, though, as the U.S. balance of payments deficit continued. The price of gold began to creep upward again.

In the autumn of 1961, the United States proposed that other nations join it to maintain the price of gold at a reasonable level. This was the birth of the London gold pool, a group formed to try to stabilize the gold market and avoid excessive swings in the price of gold that would lead to a loss of confidence in many foreign currencies.

The central banks of eight nations joined the gold pool — Belgium, France, Italy, Switzerland, the Netherlands, West Germany, the United Kingdom and the United States. Each contributed a quota to the pool, with the United States matching their combined payment. The Bank of England acted as agent for the group, given the right to draw on the pool and to sell gold if the price rose too high.

In November 1961, the first sales were made. The price of gold fell and the sales by the pool were recovered in later purchases. By February 1962, all the members of the gold pool had been repaid.

The price was temporarily under control, but the U.S. gold drain continued. To defend the dollar on foreign markets, President Lyndon Johnson signed legislation in early 1965 to drop the 25 percent requirement for gold backing of commercial banks’ deposits at Federal Reserve banks. This bill freed about $5 billion of the country’s remaining $15 billion gold stock for additional sale to dollar-holding foreign governments. The requirement that paper currency in circulation be backed 25 percent by gold remained.

Despite United States efforts, in 1966 and 1967 private demand began to exceed the supply of gold available at $35 an ounce. During this time, massive losses from official stocks occurred. The rate of expansion of gold production in South Africa, which had been increasing for 15 years, came to a halt in 1966. With rising production costs, the outlook for a greatly increased supply of gold did not look favorable, especially at a fixed price of $35 an ounce. Greatly aggravating this drop in free world gold production in 1966 was the Soviet Union’s decision to discontinue its by-then-customary gold sales.

As production of gold decreased, demand climbed, particularly from gold speculators who had entered the market in significant numbers with the gold crisis of 1960. These speculators tried to take advantage of the worsening U.S. balance of payments deficit by purchasing large amounts of gold, which they expected would  increase in price.

The above is an excerpt from the eighth edition of the Coin World Almanac, published by Amos Media Company in 2011.


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