If you were to go online to UKBullion’s website and purchase the latest Gold Sovereign coin, you’d expect to pay something in the region of £250 for the privilege, depending on what the live price of gold is. If you were to go to the bank and then ask them to deposit the full value of that coin into your bank account, you’re bank account would be credited by a fairly meagre £1 thank you very much.
So what’s behind this discrepancy? Here’s a quick look.
What is the face value of a gold coin?
Quite literally, the face value of a coin is the amount of money the coin itself says it’s worth. In most cases, it’ll be inscribed onto the surface of the metal itself. Circulating currency also has face values – the £1, £2 or 50p coins in your pocket all have their value written on them. This is exactly the same for commemorative gold coins. The only difference is that the gold in the gold coins is worth a great deal more than the face value of the coin as currency.
Precious metal bullion coins, like the Gold Sovereign and the Gold Britannia are primarily traded for their precious metal content, rather than because the coins will actually serve as physical currency. In that situation, if there’s a single reference point for the current value of gold relative to national currencies (there is), and everybody agrees on it (the reputable merchants do anyway), the need for the coins to actually reflect a specific value of currency becomes redundant. They are in this sense purely decorative.
So why bother with face values anyway?
In some cases, the face value is completely arbitrary, and decorative. In others, however, the face value of the coin reflects an important historical tradition. When the Gold Sovereign coin was used as circulating currency in the British economy (in the 19th and early 20th centuries), it would actually have been worth the £1 that its official face value still says it is today.
Of course, since then, the value of £1 has fallen dramatically, as inflation has continued to rise since the gold standard was abandoned. Thus, the physical amount of gold in a Sovereign coin became more and more expensive, relative to the less valuable £1.
You can rest assured that here at UKBullion all of our gold coins are priced as closely as possible to the live gold price.