Amazon Coin

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Amazon has officiallly launched its own micropayment currency, called Amazon Coin.  Currently, one ‘coin’ is worth a penny, which makes it somewhat simple for calculating the exchange rate. It is designed for buying digital content for the Kindle, from books to apps, and customers buy or earn Amazon Coin in order to load their account.

With a name like “Amazon Coin”, there’s sure to be comparison to the BitCoin phenomenon, but they’re nothing alike.   Getting an Amazon Coin will be akin to sticking a $10 into the arcade token machine and getting forty brass tokens to stick into the pinball machine.  A Coin is worth one hundredth of a dollar; when the dollar fluctuates, so will the Amazon Coin.  Calling it a ‘coin’ is a bit of a misnomer; in the business world, internet currencies are “tokens” or “coupons”; only governments make coins.  But, whatever symantics Amazon thinks having online coins will avoid scrutiny from governmental entities is their own problem.

So why even call a “Coin” something different?  Why not just call them Amazon Gift Cards – which are already a thing, a way to get your money into Amazon in bulk to use for smaller transactions.  One thing about it being a “Coin” is that it becomes a purchase transaction, rather than a gift card which is increasingly regulated as persistent storage for money.  I’ll bet that there will come a day when app developers and participation in the Mechanical Turk will have the option of being paid in Amazon Coins.  This makes Amazon a barter-world: you do work that earns Amazon real money, and in payment you get tokens to spend at the Amazon store.  Sounds a bit like company scrip, don’t it?  Scrip isn’t horrible, as long as it isn’t misused.  Amazon isn’t dumb enough to require all transactions to be made with the same virtual money system, but if they did they wouldn’t be the first to try and restrict payment options.

Buying Amazon Coins diverges from the gift card model when you try and buy them: the more Amazon Coin you buy, the deeper the discount you get.  Spend $90, get 10,000 tokens (equivalent of $100).  Let’s see a gift card do that – even though there’s no real reason a gift card couldn’t have bonus dollars loaded during the transaction.  You can buy a gift card and then sell it to somebody; there’s a transferability in it.  Amazon Coins, not so much: according to the terms of use, you can’t transfer them or redeem them for cash.  You’re stuck buying products from Amazon – but you can bet that somebody will figure out how to capitailze on the 10% bonus and come out ahead.  But, since this is a retail transaction, Amazon can decide to stop selling coins to somebody if they don’t want to.   All this puts more control in Amazon’s hands, which doesn’t always sit well with people — which is why eBay relaxed their PayPal requirements for sellers.

The other benefit for Amazon, aside from giving free Coins when buying the tokens, they can just hand them out willy-nilly without using coupon codes or other odd redemption processes.  If you own a Kindle Fire, you’re getting $5 in Amazon Coin just for free, to encourage the use of the system.  Go ahead and spend them, but be careful when converting your dollars into Amazon Coin: be aware of what you’re getting for your money, like any other product you might buy.

eBay Gold Prices

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So, the price of gold dropped precipitously a few weeks ago.  One of the selling points that nearly every gold seller makes is that “gold coins tend to retain their value when the price of gold drops.”  So, I decided to test it.   When I was researching my “rooster” post a couple months ago, I took down some average prices of gold coins on eBay.  It’s not particularly scientific, but eBay can show you closed auctions and what they sold for, so you can put together a sample of 50 or a hundred retail sale prices and get a picture of actual money paid for a coin.

Since then the price of gold dropped, so now I had a good use for the data:   if I look today, a few weeks after the fall, will I see coins still priced about the same as they were pre-fall, or a softer fall, or no fall at all? Here’s the numbers:

Coin on eBay Feb Avg Apr Avg % Chg
20 Franc Rooster $345 $320 -7%
10 Franc Rooster $221 $204 -8%
$5 Eagle $460 $438 -5%
$10 Eagle $954 $809 -15%
Average per oz $1993 $1819 -9%

I sampled coins from a space of about three weeks, from just after the big drop, and I got the “average per ounce” based on the actual gold content of each coin.

When I sampled coin prices in February, the price of gold was $1591 an ounce, and had been pretty close to that through the sample period.   The price of gold has changed significantly in the past couple weeks, but we can see how close eBay stayed to the price of gold by using our average loss per ounce from eBay and see how close to the actual numbers we are.

7% $1479
8% $1463
5% $1511
15% $1352
9% avg. $1447

Well, now, that looks like a pretty even cross-section of prices that an ounce of gold went for over the past few weeks, doesn’t it?

At first glance, my reaction was, “woah, gotta buy some cheap $10 gold coins”, but like I said, I was rather unscientific: it’s likely that when gold hit the bottom, people went for the big coins first, and the average for $10 is a bit skewed versus the smaller 10 Franc coins which saw less of a drop.   What this sampling should show is that gold prices on eBay, and prices of gold coins in general, don’t necessarily keep their value when the market price of gold drops.   Coins are an easy way to be certain of how much gold you’re getting with a degree of protection against fakery, but it isn’t safer than a gold fund or buying bars of bullion from somebody.

(Footnote on the price per ounce on eBay: eBay coins on average carry a 20% to 25% premium, according to my sampling. Keep this in mind when buying – you pay more on eBay than at your corner coin shop)

 

Found Silver In House

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You never know where you might find a bunch of silver.  This Redditor’s friend bought a house in 2011 that had a big save in the basement.   Sounds like the ideal spot to find some hidden precious metals, right?  Nope — the safe was empty.

Fast forward two years and one plumbing project later, and the homeowner found over $2,000 worth of silver coins stashed in between the joists.  It just goes to show that you never know where somebody might have stopped to stash some of their valuables.  Like a squirrel, plenty of people have buried their treasures and forgot where they left it.  Who knows what that might grow into?

Gold Prices Dropping

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You may have noticed that the price of gold and silver has taken a fall in recent months, with gold plummeting significantly just in the last few days.   One big factor in this loss of value is that ETFs and other market investors in gold and gold futures are selling off and –

Hm?   Oh, you thought gold was immune from the ebb and flow of “imaginary money” of the stock markets and federal reserve?   You might want to look back and remember that in 2003, when gold Exchange Traded Funds started being traded, the price of gold has gone up five-fold.  For the most part, investing in gold is a commodity market, with a limited supply and varying demand.   Not much different than grain futures and the like; when the dollar gets weaker or demand goes up, the price increases.   That’s nothing inherent in the object; that’s the benefit of investment.    When gold ETFs came on the market, suddenly demand went up; coincidentally, over those same years the value of the dollar dropped, causing the price of gold to inch higher.

Gold’s perceived immunity from market fluctuations is that, because it isn’t consumed or renewed, there’s a level of stability to it.  Up until 2003, if you bought gold in the seventies and sold it at a 2003 price, your return would have been pretty close to inflation.   The past ten years have resulted in growth beyond inflation, so that’s where everyone got so interested, driving up demand and prices.

So, what goes up comes down:   if the selloff of ETFs is any indicator, demand for gold is dropping, and so do prices.  The world economy seems to be recovering, which will reduce inflation.  I highly doubt that the price of gold will suddenly return to 2003 prices (or lower), but there’s likely to be a correction back down below $1,000 sometime soon.

So, should you sell now?  Well, if you bought recently, no; you’ll take an unnecessary loss.  Wait another ten years, you’ll do OK (although not as inflationarily well).   If you bought five years ago:  maybe (and I’m not your financial advisor, so do your own research) and take your 100% profit out, invest it somewhere safe, and in a couple years buy when things look at about the bottom of the curve.   If you bought gold more than ten years ago:  you’ve waited this long, you must have a reason; this is a blip in the long-term increase in the price of  gold, a boon for those who were watching closely, but every investment sees sudden, huge gains and quick loss of value, and that’s exactly what long-term investing is supposed to ignore.

But, now, when should you buy?  If you want to use recent evidence as an indicator for the future, wait until the price has dropped significantly, then start watching ETFs and futures and look for expectations of a rise in demand.  Look at the U.S., China, and European economies, watching for excessive borrowing and printing of that “imaginary money” gold investors so fear.   The increase in demand combined with economic slumping and coated in a creamy shell of inflation is the ripe time for gold prices to rise; when you can check those off your list, that’s a time to buy.

Economy-Building, One Taco At A Time

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Personally, I think this looks gross.  I like Doritos, I like tacos, but I can’t bring myself to actually buy one of those Taco Bell Doritos tacos.   I’m in the minority, though: three hundred and fifty million of the MSG-laden quasi-meat products have been sold and consumed by red-blooded Americans, and that means something.   It actually means 15,000 new jobs at Taco Bells across the US just to keep up with demand. That may be only one tenth of one percent of the total unemployed, but who complains about one-tenth of one percent improvement in today’s economy?

This goes to show that big numbers aren’t necessarily what is going to magically save things.  Sure, the housing market and banking interest rates are a big deal, but they are a macro-level of the economy.  Creating a product, even at a couple dollars each, that consumers want is going to have a positive impact on the economy.  “Trickle-down” may not have been as beneficial as predicted, but this is a “trickle-up” economic effect.  If each of those 15,000 new jobs were filled with unemployed workers (most of which undoubtedly were), at over a hundred dollars a week, that’s a million dollars saved in government benefits.  Those workers are making more money, hopefully, which allows them to spend more when they go shopping, which probably results in a mix of higher profits and more hiring in their area, which also results in more sales tax paid, more income tax collected, and more deficit reduction.   Just from one tiny taco.  I might have to go grab one for lunch next time I’m in Fergus, so I can continue to do my part for the economy.

Coin Roll Hunting

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The “free silver loophole”, as we learned, revolves around getting rolls of coins from your bank and looking through them for silver coins still in circulation.  This “loophole” isn’t that big of a secret, though – hobbyists have been calling this Coin Roll Hunting, and coin collectors and bullion enthusiasts have been doing it for years.

A good place to start if you want to learn the right way to do things is to check out TreasureNet’s beginner’s guide.   If you think that having to go back to your bank every couple days to get another two or three rolls of coins, you should know that banks ship coins around by the boxload, $500 at a time.   If you ask your bank, they might have one in their vault, or they can ‘order’ one for you.   Digging through a thousand half-dollars at once might be more efficient than a few rolls at a time.

One thing I hadn’t even thought about is the possibility of running across a proof coin in the rolls of circulated cents. Maybe they were spent accidentally, maybe the Mint sent it to banks in error, or maybe some coin collector fell on hard times and bought lunch with it, but a proof coin can be just as valuable as one made from precious metals, depending on quality.

Since this isn’t a new discovery, all the coins you review might already have been picked over for the gems.  This does take time, which is why it’s a ‘hobby’ for most people.  Compared to the time to walk around your neighborhood with a metal detector, or to watch eBay for deals, sitting on your couch, watching TV and drinking a beer, spending a lazy weekend looking through a big pile of coins doesn’t sound so bad.

Free Gold From APMEX

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Yeah, it’s a contest, but there’s free gold in it for somebody, and you can’t beat that.  Aside from the 1oz gold coin, they’re also giving away silver, so you have better chances at free bullion than sitting around your living room.

If you were wondering what an APMEX Bullion Center is, it was launched last fall as a collaboration between APMEX and eBay, and the goal seems to be simplicity and trust. As opposed to buying from APMEX’s own website, I guess, so it seems to be more about opening a new market — eBay shoppers who might have thought about investing in gold but only know that eBay is the place to buy things — than to be any new source for bullion.

 

Pay To The Bear On Demand

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I was looking through my server logs, and I can see what people search for on Google to find their way here to this blog.   A while back I made a post talking about what the phrase “will pay to the bearer on demand” means on older money.   Quite a few people come in looking for the exact phrase “will pay to the bear on demand.”

Will pay to the bear on demand.

Will pay to THE BEAR on demand.

 

The Penny Has No Value

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Well…not really, but titles are supposed to be attention-getting, right?  Canada is discontinuing their penny because it’s more of a pain to keep them in circulation than to continue minting them.  The nickel, then, becomes the smallest unit of currency.   This shouldn’t blow your mind, but a lot of people are confused that the basic unit of money will be gone altogether, and although the dollar is one hundred pennies, you’ll can’t actually count out a dollar in pennies anymore.  People forget that it wasn’t too long ago that pennies were more valuable, and fractional currency had more options.

If you’re an old fart like me, you remember when gas prices were 0.99 and 9/10ths, so the gas signs said something like 0.999.   When I was a kid it seemed like teasing: just make it a round number, already, who actually has a tenth of a cent?   Well, Missouri did.  A Mill is one tenth of a penny, and mill tokens were quite common through most of the 20th century to give a quantity smaller than a penny for percentage calculations on taxes and other incremental amounts.   The average person on the street got things rounded to the nearest penny by the retailer, but when the retailer paid the state, they could use these tokens to get an exact amount and save a little bit of money in the process.

Missouri made so many of these that you can still buy them on eBay by the bagful.  This gives some perspective about the concern that pennies cost more to mint than their metal is worth, which is one of Canada’s main excuses.   There was a time when precious metals were used to make a coin worth its weight in gold, so to speak, but even back in the 19th century low-value coins have always been made out of something different than their value.   The whole “silver plug” thing was a poor attempt at adhering to a currency of precious metals, because even back then precious metals were…well…precious, and worth money, it was difficult to get a few cents’ worth in a coin.  So, there was paper fractional currency, there were postage stamps used as money, they made pennies out of bronze and steel, and Missouri made their tax tokens out of cardboard and plastic and zinc.  The problem with the penny isn’t that they cost more to make than use; the U.S. Mint has no problem making coins out of cheaper materials to save money.  What’s stopping the mint from making a bunch of tiny pennies out of zinc for a tenth of the cost of the current penny and putting those into circulation?

Aside from the legal hula-hooping to change the existing laws about the coin’s content and appearance, nothing at all.  The problem is that, regardless of what the coin is made out of, the current penny of today is worth about a mill in 1950 dollars, depending on your calculator.   Who wants to deal with such small increments, other than beancounters and tax collectors?  Other than to buy unspeakable power, there’s not a lot of use for coins that have a fractional value.  Uncontrolled inflation causes all sorts of devalued small-currency coins around the world, and compared to other nations, a change in value to 1/10th its original value over a half-century isn’t too bad.

We live in a world today where, economically, the difference between $3.74 a gallon and $3.75 a gallon is  the same as that 9/10 on the old gas signs when gas was 50¢ a gallon.   Is that tiny amount worth the counting, the banks shipping bagfuls from building to building, the national banks weighing and replacing and distributing, the untold jarfuls in dresser drawers? The problem is that a mill isn’t worth the time to stop and pick it up off the street these days. It’s not going to eliminate penny transactions where it counts, like electronic transactions and in calculating those final totals, just like when the mill was an impactful portion of sales tax calculations in Missouri, but for the rest of us this is about simplicity and convenience.   The penny is expensive, but not purely in minting and seigniorage — it’s about the length of time to transact the exchange, wasting time over amounts that are soo small as to be insignificant.   Let the penny go; it’s not worth what it used to be.

Invest In Gold Coins

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I’ve had my bouts with insomnia and I’ve seen the infomercials.  Invest in gold! they holler, the interviewee proclaims the dollar is experiencing its death-rattle and gold is the only sure thing, and the interviewer reacts with shock and disbelief. In the end, all are convinced that buying gold is the only way to avoid financial ruin.

If you want to invest in gold, though, you don’t just buy nuggets:  the places selling you gold are selling it in the form of gold coins.  And not even just gold tokens or gold medals, these are coins from national mints, with a face value printed right on them.

Why are coins the medium for gold investment?  Why not order up a fifty pound gold bar to bury in the back yard?  Or why not as gold rings or necklaces?

A Responsible Gold Investor

One major reason is because a stack of coins are much more easily divisible into smaller units than a gold brick is.  People with the money to buy entire gold bricks, all at once, have the money to do much more practical investing than buying gold.   The guys advertising on TV and in the back of Smithsonian magazine are counting on small-time beginner investors, people with only a few thousand dollars to get started.  They can more easily send out a couple gold Buffalos than break down raw gold into the correct unit.

And this is mostly because the people most trustworthy in breaking down gold into units are…national mints.  This is why other gold, like rings or tooth fillings,  aren’t hoarded and traded as much.  When the U.S. Mint or the Australian Mint or any trustworthy mint produces a gold coin, they are certifying its weight and purity, and they are much more accurate than a jeweler or the guy at the coin shop.

Silver is a bit of an exception here: silver is cheaper and more accessible, so a lot of private mints produce silver coins in specific weights and values.  Note that the “invest in precious metals” people still push national-mint silver dollars as much, if not more, than private-mint silver.  There’s still something to having a coin from a national mint which gives greater assurance of value.

These companies selling gold and silver aren’t selling at scrap value — of course not, they’ve got to make money, right?  Private mints build in seigniorage, a cost of minting, and coin dealers are working on a collectible value for the coins, and everyone adds a “premium” or a profit in the coin’s sticker price over and above the scrap value.

To figure out how much profit is built into the coin you’re buying, you need to do some research and math.  Let’s take a 20-Franc “Rooster” coin.    A Rooster weighs a little more than 1/5th ounce (0.2063 to be more exact) of 90% pure gold.   Multiply those together, and a Rooster has 0.1856 ounces of pure gold in it.

20 Francs was worth $4 USD at the time

Today, gold is $1,580 an ounce, so multiply this number by the ounces of pure gold and you get $293.25 worth of gold in a Rooster.   That’s a nice chunk of gold, affordable by the average gold investor.

Here’s the more subtle reason that the companies selling gold deal in coins:  when the price of gold drops, the price of a coin doesn’t have to.    You’re not buying elemental gold on a commodity market, you’re buying a coin on a collector’s market.  Regardless of the price of gold, a collector will pay around $330 to $350 for a Rooster on today’s market.  The price of a Rooster won’t drop because the price of gold goes down, it changes because the value of the dollar goes up.  The retail market is influenced by inflation and deflation of the dollar, just like other products.

So, let’s talk about the $293.25 of gold in the $330 Rooster.  In order to recover the $36.75 premium in the purchase price, the price of gold has to go up 12%, or get to $1,770 an ounce.   It’s no coincidence that’s about the highest price gold has gone for ever — in late 2011 an ounce of gold went over $1,800, but for the most part has been hovering between $1,500 and $1,700 for the past year.  You might think that buying directly from the U.S. Mint will be cheaper, but the Mint has a pretty specific pricing schedule that runs about 20% to 30% seigniorage and premium.

This doesn’t mean it’s a bad idea to start buying gold as an investment against currency devaluation.   What it means it that there is a very simple way to tell whether your investment will have the opportunity to recover;  controlled inflation is the way of the future for every central bank it seems, so over moderate timespans of five or ten years it’s entirely possible for gold to extend above $1,800 an ounce without wholescale financial collapse.  But investing isn’t about hoping someday to recoup your cost of investing — you want to make a profit, right?

The key isn’t only to just pay a small premium on your gold coins.  If the price suddenly jumps today to $1,800 an ounce and you go buy up all the $330 Roosters you can find, you still run the risk of the price of gold dropping back down to $1,500 and losing your value.   The key is to buying gold while the price is down, and making sure you are paying as small a premium as possible.  12% is pretty high for a gold coin; 2% to 5% is much more desirable, because that’s an inflationary percentage and the market will easily recover that amount for you if you buy when the market is low.  Watch when buying in bulk, too: the assumption is that the seller can take a smaller premium if they’re selling you ten or twenty coins at once, but often the opposite is true because they expect you to not to check the price very closely.

You can successfully invest in gold by using the math shown above.   If you want help doing your math, Coinflation runs the gold-value calculation for you.  The companies that are pushing the fear-based gold-investment market are banking on the fact that the investors will pay much higher premiums out of fear.   Use your math skills, and when you buy gold coins make sure you are paying the lowest possible premium on the value of the pure gold the coin contains.    If you’re in the market to buy gold, make sure you know what gold costs, and don’t pay more than you have to.