The Coinage Act of 1792 attempted to set the ratio of gold to silver.
The California Gold Rush flooded the market with gold changing the premium of gold to silver, creating a run on silver. So, in 1853, Congress reduced the size of small silver coins. The quarter shrunk from 6.68 grams to 6.22 grams. The dollar remained the same.
After 1853, the two-bit coin (the quarter) no longer had two bits of silver. In 1857 Congress forbade the use of foreign coinage in trades, effectively ending the use of pieces-of-eight as an international monetary supply.
The mint later raised the weight of the quarter back to 6.25 grams. 20th century coinage has the oddity that 4 quarters weigh 25 grams, while the dollar weighs 26.73 grams. 4/4 < 1.
I am working on a project which calculates the price of two bits. I've been in a quandary about whether I should use the weight of a quarter of dollar or the weight of the quarter (the two-bit coin) for my calculations.
I finally decided to use the weight of the quarter as written in the 1792 coinage act. It is closer to the weight the US Founders would have experienced in colonial days. The Coinage Act says a quarter will "contain ninety-two grains and thirteen sixteenth parts of a grain of pure [...] silver." There are 480 grains in a troy ounce. A bit weighs 92.8125/480 troy ounces. At market close on 6/25/2011 a troy ounce of silver sold for 34.73. So, two-bits is $6.72.
I wonder if I could get a shave and a haircut for two-bits?
Help me find the best two bit diner in Utah. Utah Gold is about the use of precious metal coins in commerce.
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Monday, June 27, 2011
Tuesday, June 7, 2011
An International Regulatory Regime
The price of silver went up. It then went down again.
Bloomberg reports that this fluctuation resulted in cries for the United Nations to stomp a regulatory boot down on the throats of investors in silver and gold.
A contemptuous unnamed Marxist at the United Nations sniped:
I know for certain that the writer is a Marxist because he has the market backwards. Marxism is based on skewed visions of the market.
The idea of the free market is that people are engaged in an ongoing process of adjusting their portfolios. As billions of people actively adjust their investments, they end up providing better information than one gets from a top down regulated market or in a fully socialized economy.
In the free market people make decisions based on their immediate surroundings. These personal decisions create a market that adjusts to global supply and demand better than a planned economy.
The unnamed Marxist in this post projected an absolutely absurd assumption onto the free market. The participants in a free market do not base their decisions on global analysis of supply and demand. They make their investing decisions based on their personal situation.
Global demand is determined by a summation of all of these individual decisions. The price of silver goes up when people feel it is better to have their cash in a precious metal than in a fiat currency.
The snit at the United Nations has the efficient market theory backwards.
The second idiotic assumption that the writer makes is that precious metal markets are not regulated.
The markets are highly regulated.
The "spot market" that people cite when pricing precious metals is produced by centralized exchanges like COMEX.
When I buy a coin at the coin store, the clerk looks up the price at the central exchange. The central exchange does not look at my purchase. The price I pay for coins is directly affected by the spot market. There are several degrees of separation between my local purchase and the centralized exchange.
The people on these exchanges are trading highly regulated contracts and futures. The regulations include short selling and margin positions.
When we look at the spike in silver prices we see that in the build up to the bubble the regulators at the exchange had very loose margin requirements.
The regulators at the exchanges tightened the margin requirements which reduced the money on the table for the trades. The tightened margin requirements led to a steep drop in prices.
The bubble was a direct result of the regulations in place.
The spike in prices is better explained as a result of actions of the regulatory regime, than as the result of a failure of the free market.
Bloomberg reports that this fluctuation resulted in cries for the United Nations to stomp a regulatory boot down on the throats of investors in silver and gold.
"Commodity markets need international oversight, more transparency and intervention to deflate bubbles because increasing speculation means prices are no longer driven by supply and demand, the United Nations said."
A contemptuous unnamed Marxist at the United Nations sniped:
“Contrary to the assumptions of the efficient market hypothesis, the majority of market participants do not base their trading decisions purely on the fundamentals of supply and demand,” the UN agency said. “They also consider aspects which are related to other markets or to portfolio diversification.”
I know for certain that the writer is a Marxist because he has the market backwards. Marxism is based on skewed visions of the market.
The idea of the free market is that people are engaged in an ongoing process of adjusting their portfolios. As billions of people actively adjust their investments, they end up providing better information than one gets from a top down regulated market or in a fully socialized economy.
In the free market people make decisions based on their immediate surroundings. These personal decisions create a market that adjusts to global supply and demand better than a planned economy.
The unnamed Marxist in this post projected an absolutely absurd assumption onto the free market. The participants in a free market do not base their decisions on global analysis of supply and demand. They make their investing decisions based on their personal situation.
Global demand is determined by a summation of all of these individual decisions. The price of silver goes up when people feel it is better to have their cash in a precious metal than in a fiat currency.
The snit at the United Nations has the efficient market theory backwards.
The second idiotic assumption that the writer makes is that precious metal markets are not regulated.
The markets are highly regulated.
The "spot market" that people cite when pricing precious metals is produced by centralized exchanges like COMEX.
When I buy a coin at the coin store, the clerk looks up the price at the central exchange. The central exchange does not look at my purchase. The price I pay for coins is directly affected by the spot market. There are several degrees of separation between my local purchase and the centralized exchange.
The people on these exchanges are trading highly regulated contracts and futures. The regulations include short selling and margin positions.
When we look at the spike in silver prices we see that in the build up to the bubble the regulators at the exchange had very loose margin requirements.
The regulators at the exchanges tightened the margin requirements which reduced the money on the table for the trades. The tightened margin requirements led to a steep drop in prices.
The bubble was a direct result of the regulations in place.
The spike in prices is better explained as a result of actions of the regulatory regime, than as the result of a failure of the free market.
Saturday, June 4, 2011
Coins as an Anti-Investment
There are many pundits writing about gold and silver as an investment.
I find that coins are better understood as an "anti-investment."
The reason to buy coins is because you want to take some money off the table to be held in physical form.
As the proud new owner of two silver dollars (one just happens to be in the coin pocket of my jeans at the moment) I've determined that coins are something different from a typical investment.
Perhaps it is better to think about coins as an anti-investment. My two coins are an asset that I am holding off the active market.
Pulling money out of the market is a good thing. Disciplined investors routinely pull money out of risky investments into cash positions when they feel uncertain about the market. Taking a cash position when the market appears overheated is not an investment. It is a decision to back away from investments.
Buying physical coins is like a cash position twice removed. One buys physical coins to pull some assets out of the active trading market.
I am now bullish on precious metal coins, but I am not thinking of them as an investment. I think of the coins in a more fundamental way. I see them as something that I own which retains more value than the other things I own. My jeans will grow old and wear out. The coin in the coin pocket was minted in 1879 and will likely be holding value as a silver coin in 2079 ... when my jeans are decomposing in the landfill.
As I hold this coin, I am thinking at a more fundamental level than I think of other investments. This precious metal coin holds value through time as it is traded, hoarded or carried about.
I find that coins are better understood as an "anti-investment."
The reason to buy coins is because you want to take some money off the table to be held in physical form.
As the proud new owner of two silver dollars (one just happens to be in the coin pocket of my jeans at the moment) I've determined that coins are something different from a typical investment.
Perhaps it is better to think about coins as an anti-investment. My two coins are an asset that I am holding off the active market.
Pulling money out of the market is a good thing. Disciplined investors routinely pull money out of risky investments into cash positions when they feel uncertain about the market. Taking a cash position when the market appears overheated is not an investment. It is a decision to back away from investments.
Buying physical coins is like a cash position twice removed. One buys physical coins to pull some assets out of the active trading market.
I am now bullish on precious metal coins, but I am not thinking of them as an investment. I think of the coins in a more fundamental way. I see them as something that I own which retains more value than the other things I own. My jeans will grow old and wear out. The coin in the coin pocket was minted in 1879 and will likely be holding value as a silver coin in 2079 ... when my jeans are decomposing in the landfill.
As I hold this coin, I am thinking at a more fundamental level than I think of other investments. This precious metal coin holds value through time as it is traded, hoarded or carried about.
Wednesday, June 1, 2011
The Coin Pocket
Have you ever noticed that jeans often come with a secure coin pocket stitched into the right front pocket?
I've never used the secure coin pocket for normal change (pennies, nickels and dimes). Coin pockets were designed for securely holding coins and are too awkward to use such small change like pennies and dimes.
To tell you the truth. I had forgotten that my jeans even had a coin pocket.
The Utah Legal Tender Act has people talking about a return to a day when people carried around real coins made of something valuable like silver or gold.
Two months ago, I bought two silver dollars. I wanted to test to see what it would feel like to wander around with real coins.
As mentioned, I had forgotten about the coin pocket. Even worse, there are holes in my front pockets; So, I slipped the large silver dollars in my back pocket. If you were wondering about that inch and a half circular object in my back pocket ... it was a silver dollar.
I felt stupid carrying a silver dollar in the back pocket, and forgot about the experiment.
While mending my jeans, I remembered the coin pocket that I never use. I went and grabbed my two silver dollars, and slipped them into the coin pocket. I discovered that the pocket and coins were a perfect fit. While it is an effort to dig pennies out of the pocket, the silver dollar roles smoothly in and out of the pocket and I appreciate the secure design of the coin pocket.
It finally dawned on me that jeans were designed in a day when people routinely wandered around with large silver coins in their pockets for use in commerce.
Imagine a hundred years ago when people were paid a dollar a day (back then, a dollar had the purchasing power of $100.00).
Workers would be paid in silver coins that they would stuff in the coin pocket of their jeans and head out for a night on the town. They most likely used the coin pocket for the dollars, and front pocket for change.
By stuffing an 1879 Morgan Dollar into the jeans, I felt connected to the past.
I checked the price of silver. Silver dollars are worth just about $30 per coin today. The two coins in my coin pocket are valued at $60. That is a lot more than I dare carry in my wallet. Of course, it is alot easier for pick pockets to get at the back pocket than the coin pocket.
This idea of returning to the day when people used silver coins may not be as awkward as it first seems. The very clothes we wear were designed for such an idea.
Two coins feel great. I wonder how three coins would feel in the coin pocket? eBay is the place I would buy the coin; so I will shamelessly end this post with an eBay ad for Morgan Dollars.
I've never used the secure coin pocket for normal change (pennies, nickels and dimes). Coin pockets were designed for securely holding coins and are too awkward to use such small change like pennies and dimes.
To tell you the truth. I had forgotten that my jeans even had a coin pocket.
The Utah Legal Tender Act has people talking about a return to a day when people carried around real coins made of something valuable like silver or gold.
Two months ago, I bought two silver dollars. I wanted to test to see what it would feel like to wander around with real coins.
As mentioned, I had forgotten about the coin pocket. Even worse, there are holes in my front pockets; So, I slipped the large silver dollars in my back pocket. If you were wondering about that inch and a half circular object in my back pocket ... it was a silver dollar.
I felt stupid carrying a silver dollar in the back pocket, and forgot about the experiment.
While mending my jeans, I remembered the coin pocket that I never use. I went and grabbed my two silver dollars, and slipped them into the coin pocket. I discovered that the pocket and coins were a perfect fit. While it is an effort to dig pennies out of the pocket, the silver dollar roles smoothly in and out of the pocket and I appreciate the secure design of the coin pocket.
It finally dawned on me that jeans were designed in a day when people routinely wandered around with large silver coins in their pockets for use in commerce.
Imagine a hundred years ago when people were paid a dollar a day (back then, a dollar had the purchasing power of $100.00).
Workers would be paid in silver coins that they would stuff in the coin pocket of their jeans and head out for a night on the town. They most likely used the coin pocket for the dollars, and front pocket for change.
By stuffing an 1879 Morgan Dollar into the jeans, I felt connected to the past.
I checked the price of silver. Silver dollars are worth just about $30 per coin today. The two coins in my coin pocket are valued at $60. That is a lot more than I dare carry in my wallet. Of course, it is alot easier for pick pockets to get at the back pocket than the coin pocket.
This idea of returning to the day when people used silver coins may not be as awkward as it first seems. The very clothes we wear were designed for such an idea.
Two coins feel great. I wonder how three coins would feel in the coin pocket? eBay is the place I would buy the coin; so I will shamelessly end this post with an eBay ad for Morgan Dollars.