Looking at the $1 million dollar coin as a an investment bundle

This undated photo shows the world's largest gold coin, the 2007 $1-million Canadian Maple Leaf coin featuring an image of Britain's Queen Elizabeth II. Having dumped the lowly penny, the Royal Canadian Mint is planning to create two high-value coins that won't appear in any change handed out at the local Tim Hortons. A recent cabinet order authorizes the mint to produce two coins with face values of $1,000 and $1,250, destined for collectors rather than pockets or purses. THE CANADIAN PRESS/AP Photo/Dorotheum Vienna, handout) ** EDITORIAL USE ONLY - NO SALES - NO ARCHIVES **

The Royal Canadian Mint makes a $1 million dollar coin. It weighs 100kg and is 99.999% pure gold. Is there any way this massive novelty coin could possibly end up being a viable investment? Maybe!…

(Canadian dollars noted as CA$. All other dollars US. All ounces are troy.)

The Premium

The difference between the cost of a coin and the value of the gold it contains is the premium.

Crappy coins: $10/oz

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Cheap gold coins sometimes sell for as little as $10 over spot.  You are paying for the gold plus a little extra to have a pretty coin minted by a trustworthy country.  They are typically .9999 fine, which means 99.99% pure gold.

Fancy coins: $50-$100/oz

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Top notch gold coins like the above Gold Buffalo can sell for $50-$100 over spot. These are also .9999 fine. US Mint coins typically have a higher premium than other countries, maybe because people trust the US Mint more or the US has some cachet?

High Purity Coins: $50/oz

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You can also get .99999 (10x more pure than standard .9999) for about the same premium as standard fancy coins, so apparently purity is not a particularly valuable attribute compared to fanciness.

Million Dollar Coin: $466/oz

This undated photo shows the world's largest gold coin, the 2007 $1-million Canadian Maple Leaf coin featuring an image of Britain's Queen Elizabeth II. Having dumped the lowly penny, the Royal Canadian Mint is planning to create two high-value coins that won't appear in any change handed out at the local Tim Hortons. A recent cabinet order authorizes the mint to produce two coins with face values of $1,000 and $1,250, destined for collectors rather than pockets or purses. THE CANADIAN PRESS/AP Photo/Dorotheum Vienna, handout) ** EDITORIAL USE ONLY - NO SALES - NO ARCHIVES **

The coin is currently listed at $1.5 million over spot. This means you can buy it for the price of the gold it contains, plus an extra $1.5 million.

That works out to a premium of about $466/oz. This is a very high premium compared to other gold coins, and even high purity coins.

The Real Premium: $15/oz?

My guess is that you could buy the coin for significantly less than the listed price, especially if you were patient. The last one changed hands at auction for about $4 million in 2010 representing a real premium of only about $15/oz.

But even at premium similar to normal coins, could it ever make sense to buy one huge coin rather than lots of little ones?

Some Downsides of Owning a Big Coin

  1. You can’t divide it. You either sell the whole thing at once or not at all.
  2. Security. The coins are notorious, so you’d have to guard yours well.
  3. Transportation. The damn thing weighs 220lbs so it is hard to move and can not be mailed via USPS.

Possible Upsides?

The Coin as Tender

The coin is issued by the Royal Canadian Mint and is legal tender. It is not considered a “circulating coin”, so merchants are not required to accept it in normal commerce, however it can be redeemed for face value at the Mint by way of a bank.

As long as Canada stays solvent and does not radically change their currency laws, your $1 million coin should always be worth at least C$1 million.

The Coin as a Gold Sell Option

Let’s say you like gold as an investment, but you are (rightly!) scared of a black swan events. What if some 12-year kid figures out a way to refine gold from seawater for $1/oz for his science fair project? What you’d really like is a way to hedge against a massive drop in gold prices while still being exposed to the upside.

Since the Million Dollar Coin has a fixed minimum price, it actually acts like a non-expiring gold sell option with a strike price of about $245/oz.  Considering that gold is currently trading at about $1,200/oz and was $250/oz as recently as 1999,  this is a valuable option. (Keep in mind that you do have foreign exchange exposure to USD/CAD fluctuation, but this is easy to hedge).

The Coin as a Canadian Dollar Buy Option

The Canadian Dollar has taken a beating recently, likely due to the negative impact of oil prices on tar sands operations. Maybe you think now is a good time to long-up on our friendly northern currency?

Since the Million Dollar Coin is always worth at least CA$1 million, when the value of the Canadian dollar goes up so does the value of the coin.

The price of the coin today is about CA$7 million.

The Coin as a Bundled Net Value

So, when you buy the coin you are actually getting at least 3 independent assets…

  1. Physical gold at a spot price of at most $1,705/oz.
  2. A non-expiring option to sell your gold at CA$283/oz (currently $245/oz).
  3. Canadian dollars at $5.48/CAD. (Wow, Wolfram didn’t like units of US dollars per Canadian dollar!)

Taken as a bundle this might actually be a valuable vehicle, depending on what bets you are trying to track and hedge.

Keep in in mind that there is also an income component since you can charge people to come see your treasure!

(and you could even likely deduct the formidable security costs from the site-seeing income!)

Conclusion: Buy a Million Dollar Coin!

Sidenote: US Gold Coins as Tender

Currently, the US Mint issues several gold coins that are legal tender under Gold Coin Act of 1985. Unfortunately, none are as anywhere as attractive as the Million Dollar Coin as gold price floor. Remember, the strike price is the minimum price of gold that the government effectively guarantees.

$50, 1 oz American Eagle: $50/oz Strike

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$5, 0.10 oz American Eagle: $50/oz Strike

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$10, 0.5 oz Betty Ford Proof: $20/oz Strike

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Wow, the US really sucks in terms of value tender per value of gold. What does this mean?

Well, it could be an indication that the US is more bearish on the spot price of gold, or that the US is more bullish on the value of the greenback.

Or, the US government might have an interest in making sure that the face value of gold coins is always so ridiculously unrelated to the actual value that no one ever tries to spend them.

 

 

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