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The Great Confiscation: Gold ownership was illegal in the USA from 1933 to 1975

Thursday, December 31st, 2009
Roosevelt 1933

Roosevelt

Have you heard of Roosevelt’s Emergency Banking Act on April 5th 1933? This was the date on which the American president declared that it was illegal for US citizens to own gold and ordered them to return their coins, ingots and gold certificates to the federal reserve banks before May 1st 1933 at a price of 20.67 USD per ounce. Immediately devaluing the dollar by 40 percent; and setting the price of gold at $35.00 per ounce. At a single stroke, Roosevelt increased the government’s gold assets, stabilized the monetary system and increased wholesale prices by more than 33 percent. However, he also inflicted losses of 40 percent on gold owners and stripped them of the gold that they saved to insure their financial futures.

1933 was the year when the great depression had led to a severe shortage of gold. Anxious Americans, demanding gold, had reduced the Federal Reserve’s gold supply almost to the legal minimum, creating additional fears of an impending monetary crisis. The 1933 Emergency Banking Relief Act was approved to ‘provide relief from the national emergency for the banking sector and for other purposes’. On March 6 of 1933, the President set in motion a chain of events that ended the international gold standard once and for all. First, he closed the nation’s banks and prohibited them from paying out or exporting gold coins and bullion, using emergency powers granted by the Trading with the Enemy Act that had been enacted during World War I.

From 1933 forward, private possession and ownership of gold was illegal for U.S. citizens. Any refusal to return one’s gold was punishable by a fine of 10,000 $ and 10 years in prison.  These exceptional measures were aimed at preventing the general public from storing gold. The solution was simple: make it illegal to directly own gold.

In 1934, Roosevelt proclaimed the confiscation of the gold held by the banks (Gold Reserve Act: in exchange for gold certificates that could not be exchanged for gold!)

This law remained active in the USA until 1975, a few years after the dollar’s value had stopped being linked to that of gold.

All of this failed to prevent Americans buying and selling gold on the black market especially gold in the form of nuggets which the law had forgotten. Of course there were also all those Americans who knew all about gold and stored it in vaults in Switzerland: the reserves of wealth are immobile but the value that this wealth represents (currency) circulates.

Although private ownership of gold in the United States was legalized on August 15, 1974, the power to confiscate gold remains in the hands of the President. The President still retains the right, under the Emergency Banking Relief Act, to “investigate, regulate or prohibit… the importing, exporting, hoarding, melting or earmarking of gold” in times of a declared national emergency.

The time to act is before, not after, a crisis occurs. If you wait until gold confiscation, currency exchange controls or any other emergency measures are taken it will be too late.

As an investor, what should you do? Put some of your savings in the ultimate crisis hedge – numismatic coins. In the event of a crisis it would be better to own numismatic gold than bullion

Maurice Hall

The Saint-Gaudens Indian Head Eagle ($10) coin

Thursday, December 31st, 2009

Roosevelt sought to elevate the artistic qualities of US coinage by collaborating with friend and acclaimed sculptor Augustus Saint-Gaudens to originate a new US gold eagle coin ($10 face value), and double eagle ($20).
It became the president’s personal mission to rejuvenate the image of American coinage. Beginning in November 1905 through May 1907, Roosevelt and Saint-Gaudens exchanged frequent correspondence on the development of new US gold coinage.

At Roosevelt’s urging, Saint-Gaudens added a fictional Native American war bonnet to Liberty. Hence the name “Indian Head Eagle” is usually, but inaccurately, applied to this series of coins. The reverse featured a proud eagle astride a bundle of arrows, very similar to the Inaugural medal of 1905.
Thirteen stars are placed above the head in a semi-circle representing the first colonies; the word LIBERTY is on the front of the Indian headdress and E PLURIBUS UNUM is placed above the majestic eagle on the reverse side. The sides contains forty six stars.

Two versions were minted in 1907, on both, the words of the expression on the reverse side were separated by periods. The first Indian Head Eagles struck in 1907 were of the “wire edge” variety, characterized by a sharp rim along the coin’s circumference, rather than an elevated rounded edge, which had long been the standard for U.S. coinage. The “wire edge” variety, an example of which is shown directly above, possessed 46 raised stars on its edge, symbolizing the 46 states of the Union at the time, and had periods stamped next to the E PLURIBUS UNUM motto. Because of their inability to stack well, the “wire edge” concept was abandoned. Only 500 examples of this variety were struck.

Next, a “rolled edge” was tried, consisting of a raised, rounded edge typical of rims normally formed on coins. The periods and stars were retained, resulting in weakly defined features caused by poor metal flow during the striking process. Before calling off the effort, 31,550 of the “rolled edge” variety were produced. All but 42 of them were melted down, creating a major rarity in US numismatics. The owner of a high quality example of this variety can expect to be paid at least $400,000 at selling time.

Improved strike quality was observed after the Indian Head Eagle was retooled to remove the periods around E PLURIBUS UNUM. Mass production of the “rolled edge” no periods ten dollar eagle began in November 1907. Before the close of the year, 239,406 of them were issued by the Mint

These 10 dollar coins from 1907 and early 1908 did not have the expression IN GOD WE TRUST. This was added in 1908 in front of the eagle. Two additional stars were added on the edge in 1912. Once again, the public reception was quite negative. People were unhappy that Liberty wore an Indian headdress instead of the traditional Phrygian bonnet. President Roosevelt had to intervene himself saying: ‘It’s complete nonsense. There is no reason why an Indian is always represented with a head of feathers and the Phrygian with a bonnet. The Indian symbolises liberty in its way. Why does Liberty’s face always appear in a conventional form? The head designed by Saint Gaudens is Liberty’s head, the American Liberty, and it perfectly acceptable that she is wearing something typically American on her head.’

The USA stopped minting gold coins in 1933. Franklin Roosevelt removed the coins from circulation and ordered banks to return them to the Treasury in order to constitute a reserve to cover the paper money. This order, made on March 6th 1933, specified that all gold imported or extracted in the USA had to be sold to the US Treasury at a price of 35 USD per ounce. However, it allowed collectors and traders to hold and exchange gold coins that had a recognised numismatic value. Read our article on this subject

The Indian Head Eagle Statistics.

Diameter Weight Minted Fineness Designer
26.8 mm 16.718 gm 1907-1933 .900 Gold/.100 Copper Augustus St. Gaudens

Weight of gold = 16.72 x 900/1000 =15.05 grams of pure gold

The Saint-Gaudens Liberty Double Eagle ($20) coin

Thursday, December 31st, 2009

A series of new and very beautiful types for the American coinage resulted from a collaboration between Theodore Roosevelt (1901-1909) and Augustus Saint Gaudens, one of America’s finest artists. Roosevelt wanted to upgrade America’s image by the appearance of the national coinage.  He also wanted them to have a beauty and high relief that was comparable to the coins of ancient Greece. Saint Gaudens accepted the challenge and created the 20 dollar coin (double eagle) first.

The coin features a full length image of liberty in flowing gown in front of the rising sun with the Capitol Building in the  background and walking forward as if stepping out of the coin. The word LIBERTY is written above her head.

She holds the torch of enlightenment in her right hand and an olive branch of peace in her left hand. The coin’s edge is surrounded by 46 stars and 5 branches. The date is shown in Roman numerals (MCMVII) to the right of this figure, with the engraver’s initials, ASG, below it.

The reverse features a majestic eagle  flying in the rays of the sun. In the upper part, the inscriptions: UNITED STATES OF AMERICA – TWENTY DOLLARS appear in two concentric arcs.

Twenty-two test coins were minted in very high relief which required  nine hits of the coining press; two of them were subsequently melted down. Two of the remaining examples are in the American Numismatic Association’s collection. The Smithsonian Institution and the Theodore Roosevelt Museum both have one example.  The coins needed to be reworked to lower relief but the samples in the opinion of chief engraver Charles Barber were still to complex for practical use. However, Roosevelt ordered production to begin in late 1907.  11,250 coins were minted with lower relief and these entered circulation. They had the words E PLURIBUS UNUM on their edge. There were only 13 rays of sunshine on the reverse side compared to 14 on the test pieces.

They were too complex for mass production and bankers and businessmen complained that they were difficult to stack.

The Mint replaced the dies with ones of lower relief and substituted the Roman date with Arabic numerals. The coins had a much less salient relief and some of the detail was lost but the overall beauty was intact.. They entered circulation at the end of 1907 and continued to be minted during the following years.

One thing all 1907 Saint-Gaudens Double Eagles have in common is the omission of the motto IN GOD WE TRUST ( found on every gold coin since 1866). Roosevelt wanted this left off because he considered it blasphemous to write the name of God on money, since it could be spent for immoral purposes. However, Congress took a dim view of the missing motto and passed legislation in 1908 mandating its restoration. Roosevelt decreed that the expression would be used on new coins: during 1908, it was added on the reverse side of the coin above the sun.

The Saint-Gaudens gold double eagle coin was issued every year from 1907 to 1916, and again from 1920 to 1933. Most of the “Saints” dated 1929 and later were held in government vaults to augment the federal gold reserve, and nearly of all these were melted following President Franklin Roosevelt’s Gold Order of 1933 (the great confiscation). Under this directive, gold coinage or bullion in private hands was declared illegal, and required redemption to the government in exchange for other forms of currency. Gold coins with numismatic value were not subject to the Gold Order, however. Once the gold had been consolidated under federal control, the Treasury department set the price of gold bullion at $35.00 an ounce, up from $20.67, nearly doubling the value of the gold in its possession. The price of gold was regulated by the government until January 1, 1975, when all gold ownership restrictions and price controls were ended.

The 1933 double eagle currently holds the record for the highest price ever paid for a U.S. coin when it was purchased in 2002 for $7.59 million. There were 445,500 double eagles minted in 1933, but none were ever placed into circulation and nearly every last one of them was melted down after the Gold Order was issued ( see The Great Confiscation)

The Saint-Gaudens Liberty Double Eagle Specifications

Diameter Weight Minted Fineness Designer
34.0 mm 33.436 gm 1907-1933 .900 Gold/.100 Copper Augustus St. Gaudens

Weight of gold = 33.44 x 900/1000 =30.1gms of pure gold

Longacre’s Liberty the first double eagle ($20) gold coin

Thursday, December 31st, 2009

The story of the California gold rush is well known. A few nuggets found in a mountain stream in Coloma 40 miles from Sutter’s Mill in 1848 triggered a global movement towards the Californian gold fields. In the single year of 1849, over two hundred thousand people arrived to look for gold and was a major event in the settlement of the American West.
The gold produced by California distorted the world market for the metal. The price of silver increased in relation to that of gold so that it became profitable to smelt silver coins for the value of their metal content. Silver coins were rapidly disappearing  so the minting of gold dollars was authorised in the Act  3rd March 1849. The authorisation also permitted a larger coin to be minted, the gold twenty dollars or double eagle. The $20 double eagle was first designed by Mint Engraver James B. Longacre, his initial, L, appears at the cut of the bust.  The obverse featured Liberty facing left, wearing a small crown called a coronet, inscribed with the word LIBERTY and was surrounded by 13 stars. Longacre modeled Liberty from the ancient Roman sculpture, Crouching Venus.

The reverse was patterned after the Great Seal of the United States, which had been an inspiration for U.S. coinage as far back as 1797. The face value denomination was indicated as “TWENTY D”.

An analogous Liberty head, designed by Christian Gobrecht, had already started being used in 1838 when the ten dollar (eagle) coin was reintroduced; in 1839, she was represented on the five dollar coin and, in 1840, on the two and a half dollar coin..Numismatists have named the Longacre twenty dollar coin as the Coronet Double Eagle. It is often referred to as the Liberty Head type and it was minted from 1850

The $20 double eagle quickly became the preferred denomination for international transactions and bank deposit holdings. Thus, larger quantities of double eagle coins were minted than any other gold denomination.

Coronet Double Eagles are broken into three classifications. Class I was minted from 1850 through 1866. Class II originated in 1866 when the addition of the motto IN GOD WE TRUST was added above the eagle on the reverse. The motto was an appeal to the Almighty for national guidance and healing during the difficult Civil War era. In 1877, the reverse was modified by replacing the “D.” abbreviation with the full word “DOLLARS”, resulting in Class III double eagles. These were minted every year until 1907 when the Coronet twenty dollar coin series was replaced by the Saint-Gaudens Double Eagle.

More than 100 million Coronet Double Eagles were minted over a span of 58 years. Many dates are rather common today in lesser grades and experience price movements paralleling bullion market activity, and are popular for gold buyers seeking a hedge against inflation with some built-in collectible value.

The Liberty 20 dollars Specification.

Diameter Weight Minted Fineness Designer
34.0 mm 33.436 gm 1849-1907 .900 Gold/.100 Copper James Longacre

Weight of gold = 33.44 x 900/1000 =30.1 grams of pure gold

The Californian Gold Rush

Monday, December 28th, 2009

John Augustus Sutter C. 1835

In 1848, for the first time in history, an accidental discovery in California gave everyone and anyone the chance to get rich thanks to gold. It all started in 1839 with John Sutter, an ambitious immigrant from the village of Kandern in Germany.

Sutter settled in California and decided to create an agricultural empire on the fertile hills around the Sacramento valley. It was here that he built a fort in order to protect his rapidly growing assets. Nearly ten years later, he owned 1,200 head of cattle and employed over 100 people.

He also had plans to build a flour mill in order to supply the needs of the people who came to settle in the west. Sutter needed wood to do this.

James Marshall arrived at Sutter’s Fort in 1845, at the age of thirty-four, and was immediately hired as a handyman by Captain Sutter. Anxious to get back to farming, Marshall bought a ranch on Butte Creek but continued to work for Sutter.
Marshall fought in the Mexican War, serving in Captain John Frémont’s California Volunteers for one year. When he returned to Sutter’s Fort in 1847, he was dismayed to find that all his livestock had either strayed off or been stolen. He had no choice but to go back to work for Sutter.  Sutter contracted him to build a saw mill and Marshall found a suitable location in the Nevada foothills some 40 miles from Sutter’s fort near an Indian village called Cullumah (Coloma)

The workers had to dig a big trench to bring water to the saw mill and the deepest part of the trench, called a race, was at the level of the land’s sub-strata. It was here on the morning of January 24th 1948 that James Marshall was making his routine inspection when he made a discovery that would change the course of Californian and American history.

The flowing water had carried away sand and dirt and lighter minerals, but a heavier metal was left behind to accumulate in the deepening ditch. Marshall hesitated twice before taking the trouble to bend down and pick it up. “I sat down and started some serious thinking, my heart was beating strongly, I was certain it was gold. The piece had the shape of a small pea”.

Marshall ran some crude test to determine the authenticity before returning to show Sutter who would later write: “Mr. Marshall started by showing me this metal. In reality, some small fragments and pieces, some of which could be worth a few dollars He told me that he had told the workers at the saw mill that it was possible that it was gold.”

Sutter decided to keep the find secret until one of his workers went to town to have a drink without any money on him. Once there, the worker searched his pockets and brought out a gold nugget that he had found in a stream; he slapped it down on the counter. ”Here’s some money, it’s gold” he said. The transaction took place in the general store owned by a Mormon called Sam Brannan who knew a bit about supply and demand at the frontier.

Sam Brannan saw an opportunity and  went to San Francisco and bought everything that he could get his hands on to supplies the miners would need over the following months. Then Brannan did everything to ensure that crowds of miners were attracted. He wandered around the streets of San Francisco announcing the new discovery: “Gold in an American river! Gold in an American river! ”

When the news reached the state of Oregon, two thirds of working men packed their bags and headed for California. They claimed to be gold prospectors. Finding the metal became a new trade. A Spanish official at Monterey commented: “farmers have left their ploughs, lawyers their cases, doctors their tablets, priests their flocks and everyone is now digging for gold”.

The news spread even faster by sea, the Chinese knew before the New Yorkers. “The news took so much time to reach the east of the country that these people were known as the 49ers, from 1849, instead of the 48ers.”

Forty Niners

In 1852, the population of California had more than doubled as 250,000 people arrived. Virtually the whole world had participated in the gold rush. You can read in the registers that people came from the Indian sub-continent and from every country in Europe but also from Australia, South America and, of course, the United States.

There were three possible routes to the gold bearing lands for the approximately 80,000 Americans who left the east coast. By train the journey could take up to six months. By ship, going around South America, it could also take six months. Or there was the combined ship and land route, crossing the panama isthmus; the shortest route and also the most expensive.

These three solutions all produced great suffering; there was hunger and terrible diseases plus many other dangers. We should not forget the bad country and the fear, worries not only for the family left behind but also about what you would find to live on in California.

When the ships moored in San Francisco, the sailors, tempted by the chance of earning twenty years of salary in just two months as prospectors, joined the passengers and accompanied them in this rush to the gold fields. The SS California arrived in April 1849 with a crew of 36. After only a few days, the only people left on board were the captain and a mechanic. Another ship’s captain went so far as to hang two deserters from the yardarm until inches from death as a warning, but to no avail. The gold fever had made everyone mad.

It was the chance of a lifetime for many people who had known nothing but poverty and had suddenly heard of this extraordinary news.

Before the find at Sutter’s saw mill, any gold that had been found immediately became the property of kings or conquerors. The Californian gold rush introduced a new facet or, to put it simply, allowed common people to search for gold and keep whatever they found for themselves.

All of a sudden, there were independent miners who managed on their own in the cold and rain, who broke their backs as they extracted and searched the gold-bearing gravel. It’s completely unique in the world’s history.

The 49ers worked a rocky region that was rich in gold which was referred to as the mother-lode. Over the course of millions of years, the gold had been carried by streams until it reached the river; this is why we talk about gold-bearing sand or gravel.

However, even though California was inundated with gold, money was scarce, the nearest place to obtain money was Philadelphia on the other side of the country. The Californians therefore has to improvise and used the foreign coins that were already present.

The Spanish silver dollar, called a piece of eight, was the most common; they could to be cut into eight smaller pieces with each of them worth 12.5 cents. e.g. six bits would buy you a haircut and a shave.

However, David Broderick, recently arrived from New York, started buying the gold dust which he melted into gold coin that  allowed the Californians to develop a reserve of money that became indispensable. It was only later that it was discovered that the so-called 5 and 10 dollar gold coins were possibly not made entirely of gold, thus Broderick to make a good profit from his business.

Broderick was not the only trader to make his fortune without ever touching a rock. At the height of the rush, Sam Brannan, who supplied all the miners, became the country’s richest man. Sam Brannan is known as the first millionaire: a million dollars in gold dust without ever having swung a pick.

However, only a handful of the 49ers got rich from the adventure. In 1849, California produced 10 million dollars of gold, when split between an average of 40,000 miners, this is about 250 dollars each. But people kept on coming by hundreds and thousands, attracted by the extravagant stories told about the rush.

Production reached 77 tonnes in 1851. Most of it left for the east of the country – an annual cargo which had a value that was greater that the whole of the federal budget. Production reached 93 tonnes in 1853 but the easy gold that could be panned in the rivers and streams had now virtually run out, the bell had tolled for the end of the Californian gold rush. The adventure only lasted for four short years but was fundamental for the future development of the American west.

It had had a scale, it was far greater than any other event of its type in history of America, not only in terms of the quantity of gold extracted but also for what it did for America. Those miners who realised that chasing gold was a pipe dream went back to doing what they did best and established productive  farms in California’s fertile land.

As with all the history of the American west, development has a cost. The massive immigration upset an economic and social system that had been stable for many years. The different routes to the gold had devastating effects on the native Indian populations, it was the beginning of the end of their way of life.

Over a five year period, the Californian Indian population fell from 150,000 to less than 30,000 people. Most died of hunger or disease, others were killed by miners.

Those who started the rush had similar fates: James Marshall, the man who found the first nugget in the river, spent the rest of his life a drunkard as he searched in vain for another seam

John Sutter’s prosperous agricultural empire disappeared. His workers went out into the gold fields and abandoned the land to squatters. Sutter refers to his broken dreams in his memoires: “This sudden gold find destroyed all my best plans, if only I had succeeded a few years before gold was found I would have been the richest person on the Pacific coast. But instead of being rich, I am ruined.”

Some 49ers were unable to get over their gold fever. In the next half century, there were several other gold rushes around the world. Each of them triggered a migration of prospectors stimulated by the simple rumour of the next great find.

In the gold fever, a ruined 49er found gold under the ground. The main gold seam that supplied the great Californian gold rush, the mother-lode as it is called, is in reality a vein of quartz containing gold that extends over 160 km across the mountains of northern California.

Edward Hargreaves

In 1850, Edward Hargreaves, aged 34, returned home to Australia after having spent two years there searching for gold in California. Even though he was now penniless, Hargreaves realised that the geology of the Californian region where he had been was similar to that in New South Wales in Australia. He forecast to one of his fellow travellers that he would find gold within a week. “There is as much gold in the country I am returning to as there is in California. And her gracious majesty the queen, blessed by God, will name me as one of its gold high-commissioners.”

Hargreaves was not far from the truth. In 1851, barely six weeks after his return, accompanied by a guide who’s service he had rented, discovered gold in his pan. In six months, some 50,000 prospectors, most of them ex-Californian dreamers, had descended on Australia.

A few months later, the news of the find reached England along with the first cargo of Australian gold.
Thomas Harvernot, the steamship’s captain, wrote: “Our colony is totally paralysed. Every man or boy capable of holding a shovel has already left or is leaving to dig. The price of almost every foodstuff has increased by as much as two hundred percent.”

Australia, which had been detested as a penal colony for  British convicts, suddenly became the promised land for anyone who had a dream and a shovel. 372,000 immigrants settled there in1852. They were simply ordinary people who said to themselves “it’s a gold rush, let’s get up, let’s go there and see if we can get rich.”

But as was the case in California, the Australian gold rush did not last long. Over four years, all the gold hidden on the surface and in the water courses was cornered. Edward Hargreaves boast became a reality. Queen Victoria named him High-Commissioner of the Lands. Apart from a payment of 10,000 pounds sterling, she also gave him a job for life. Even though he never found any more gold, Hargreaves continued to be venerated as the man who had the gift of changing everything he touched into gold.

The Californian and Australian gold rushes made common people into part-time prospectors. I suppose that it had almost become a semi-profession by the second half of the 19th century. You were a prospector, your ear was always cocked to hear the latest gossip and discussions that circulate in bars.

With California and Australia now out of play, the ultimate advice was “go to the Rockies”. Watch this space…

Maurice Hall

Golds protective quality

Thursday, December 24th, 2009

You undoubtedly know gold’s internal value and you recognise its value as a defensive security but do you know its protective value? In fact we also consider that gold has the ability to protect its owner from arbitrary decisions taken by governments. We believe we can protect ourselves equally well from internal currency devaluation following price increases (reduced purchasing power) as from an external degradation of the currency such as an exchange rate devaluation. In this respect, we are often reminded of what has actually happened in countries where successive devaluations after the Second World War has led to people suffering losses of wealth that in many cases was mitigated  to a certain extent by people transferring their money to gold

Gold is Alien

Thursday, December 24th, 2009

In the early stages of its youth, the Earth was partly in fusion.  The heaviest elements, such as iron or nickel, migrated towards the core over several tens of millions of years and drew other heavy metals that had an affinity for iron with them. Given this, why do we still find gold, platinum or palladium on the earth’s surface? Shouldn’t it all have been drawn into the Earth’s centre by the iron?

According to research work conducted by Professor Gerhard Schmidt at Mainz University, in Germany, it is probable that the principal rare metals, such as platinum, gold or iridium, arrived on Earth in iron meteorites. It is even possible that most of this metal was the result of the collision between the Earth and Theia, a little planet the size of Mars, which resulted in the moon being formed.

Professor Schmidt presented his results at the European Planetary Science Congress EPSC) at Munster, Germany, September 21st to 26th 2008.

Gold the one true surviver

Wednesday, December 23rd, 2009

When gold was disconnected from the US Dollar during the seventies, its detractors forecast that it would not be worth any more than other precious metals and certainly much less than 35 USD per ounce. Yet it is the opposite effect that has occurred.

When gold is compared to the US dollar, which has lost much of its value over the last thirty years, the price of over 1200 USD per ounce of November 2009 is only a third to a half of its medium to long term potential.

When we compare it to other precious metals, we see that there is also something here that confirms that gold is not just another precious raw material. Over the millennia, one unit of gold has been equivalent to between 9 and 19 units of silver. This value is certainly correct if we consider their respective rarities. But nowadays, you need to exchange 60 to 80 units of silver for the same unit of gold. Silver is no longer a coin, nor is gold (except….) but neither is it considered a safe investment. Who remembers the bi-metal period when the value of coins was based on the values of both gold and silver?

Things are even worse for platinum. Platinum was thought to be the most expensive quoted metal for many years but now has the same price as gold. Why has it fallen out of favour? Platinum is mainly used to decontaminate in catalytic converters and its value is mainly linked to the automobile industry where it is used as a credible decontaminant (something that is now being questioned). In short, the situation with platinum is worse than that of silver. It is rare but neither a currency nor a safe investment and is simply a rare industrial product which the manufacturers would like to replace as soon as possible by something less expensive with fewer negative effects. Platinum is certainly not in the same league as gold.

Man and Gold

Wednesday, December 23rd, 2009

A history of gold

Inca Gold

Gold coins were already creating the main trade links in the 5th century BC. Empires were created and fell because of gold. The trade routes that linked the eastern and western markets were ‘paved with gold’. People fought for gold from South America to South Africa. The New World was conquered and civilisations such as the Aztecs and Incas would be destroyed for the love of gold.

It started when the sparkling metal was used to make ornaments; it then became the subject of cults. From the Israelites, who melted their jewellery to make the golden calf, to South American Indians, who referred to gold as ‘God’s sweat’, cultures across centuries have believed that gold has divine properties. Even the Bible talks about the three wise men who came to visit the newly born king bringing a gift of gold.

Throughout time and all around the world, from Egypt to Peru, man has decorated his palaces and his temples with this timeless metal. It is estimated that between 130 and 150 thousand tonnes of gold have been extracted since pre-history. If all this gold was melted into a single block, it would produce a cube with sides about 20 metres long.

The reason we can be so accurate when calculating these figures comes from the very nature of the asset: gold is indestructible. Gold objects found in Egyptian tombs still look exactly the same as they did on the day they were made. Gold remains intact whether it is buried for 200 years or submerged for 200 years. When a gold coin is found, it has exactly the same weight as when it was minted.

It is highly likely that gold was the first metal worked by man. It is very malleable: a one ounce piece of gold (nearly 30 grams) can be drawn into an 8 km wire or flattened into a 100 m2 leaf. Gold is so inert that it is called the King of Metals; it resists the effects of wind, rain and weather.

I believe there is no other element that has all these exceptional qualities. It does not become dull; it is always shiny and does not degrade. Silver approaches it, as does platinum but there is nothing that really matches gold.

We can find gold on every continent but Mother Nature guards it jealously. The precious metal is held prisoner in quartz seams in the heart of the rock, in mountainous crowns rising from the centre of the Earth. Under the unrelenting work of the wind and rain, the rock surrounding it is eventually eroded and the gold revealed.

Ancient man used chips and nuggets that were found in water courses or bits of rock until kings started to reign and imposed their golden rules: the precious metal became their monopoly irrespective of where it was found. The first time you swing your pickaxe looking for gold you are entering a merciless business.

When the Egyptians conquered the Nubians, they enslaved the nation in the gold mines, when the Romans conquered what is now Spain, they also enslaved the population in the gold mines and when the Spanish conquered Peru they too enslaved the people in that country’s gold mines.

The metal that is obtained is the most magnificent there is but often the people who mine it work in some of the most inhuman and miserable conditions imaginable. The search for gold has always been more or less continuous but it is often pursued  mercilessly.

Gold’s growth potential

Wednesday, December 23rd, 2009

You may recall that gold cost 250 US Dollars per ounce in 1999. Remember, one ounce is 31 grams. It will now cost you around 1085 US Dollars for an ounce which is a price that has increased more than four fold in eight years. So, is it too late to but any? And how do you invest in this precious metal?

A small snapshot of the gold market: following a peak of 1200 US Dollars in Nov 2009, gold has remained at the 1080-1120 US Dollar level which are historical levels. At this price, despite everything, hasn’t the gold shot its load? Isn’t it too late to get on the market?

If you look at the price increases and decreases, there is still an enormous potential because the 1980 record price was 850 US Dollars. When adjusted for inflation, 850 US Dollars would be the equivalent to 2,200 US Dollars nowadays. That still leaves some growth potential.

However, this has to be considered in context: 1980 was just prior to the Iran-Iraq war so conditions were also very special and the price fell by 40% during the next two months. Gold can be very volatile. However, the current increase has been more constant and this leads us to believe that there is real demand and real growth potential. Société Générale analysts forecast that gold could increase by 50 -100 US Dollars per year for the next few years. These same analysts suggest that 5 – 10% of a portfolio or wealth should be held as gold.

Every forecast of inflation and, more particularly, deflation suggest that the price of gold will rise.

The quality of gold coins

Wednesday, December 23rd, 2009

The quality of investment specific gold coins

Electronic scales are used to detect worn coins.

Electronic scales used to detect worn coins

All too often, buyers of investment gold tend to forget the quality of the coins they are buying, until they come to sell them, when they are greeted with an unpleasant surprise. In reality, when you sell gold coins they are evaluated as numismatic objects.

Saying “it’s a Liberty Double Eagle so I can sell it with a premium of 40% in the event of a crisis” can very quickly turn to ashes if you have not taken the trouble to understand the quality that you are buying.

The dealers who buy your coins do not want to negotiate the quality of the coins that you offer them and will use any argument to reduce the premium. They will want to buy your coins by weight, less their commission and any standard reduction due to the fact that you have handled the coins. In short, at the end of the day, you have made no profit.

Obviously, the greater the rarity of a coin, the lower the quality required to get a good price. However, this is purely a numismatic argument and we are speaking about investment here. Obviously, we are not going to buy a rare coin in the same way as investment gold. In practice, a rare coin is not greatly effected by crisis or the rise and fall of gold but mainly by the supply and demand for coins of the same type.

What is the minimum condition for a coin to have a premium?

A good magnifying glass to detect defects on gold coins

A good magnifying glass to detect defects on gold coins

Usually, it’s the EF or VF quality level that is required to obtain a premium with current coins. Your purchases of investment gold should be concentrated on this type of coin. With the exception of a few rare coins, the VG and F quality coins are sold for their weight in gold. As for the UNC (uncirculated new coins), we recommend that you do not buy these as an investment because they are rare coins with a base premium (average premium over gold value) that is already high and a low premium differential( the difference between base premium and the highest actual premium). These are very good quality coins that should be reserved for the pure numismatist.

Avoid.
If, despite the following table, you are not able to judge the quality of the coins you buy, we recommend that you do not buy from private individuals and, generally, avoid on-line auction sites, such as Ebay (where you can only evaluate your purchase based on photos, which tend to mask defects). Remember that it’s the most worn side that determines the coin’s general condition. One third of coins sold by on-line auction sites are not of an adequate quality. Worse still, they are often sold by unscrupulous dealers who know that they can not sell them directly to their own clients…
Be wary of coins that are too shiny and where the details are blurred. It’s the sign that they have been cleaned with abrasive products or instruments, initially to mask defects but which has ended up removing some of the gold. The weight test is usually determinant to a standard quality. The Sovereign weighs 7.93g to 7.98g. so avoid anything that weighs less than 7.93g (0.7% from newly minted weight). Coins can be verified using a Fisch gold coin gauge which tips the balance at 0.7% of the newly minted weight or as above weighed on an accurate digital scale to detect gold loss through wear.

Table of the different conditions or degrees of conservation for coins

  • UNC (Uncirculated). Coin in perfect condition (no scratches, no wear, no traces of shocks) just as it left the minter’s die. This condition assumes that the coin has not been in circulation, only the patina and oxidation indicates that the coin is old. UNC is in its mint condition with all its mint sheen. No defect is acceptable. This is a rare condition because even coins that have never entered circulation but which have been transported in bags do not have this quality due to the fact that they have had shocks during their transport. These coins are reserved for numismatists. They are not considered as part of a strategy of investing in gold because of their high base premium.
    Equivalent terms in other countries:
    – France : FDC (Fleur de Coin)
    – Germany: STG (Stempelglanz)
    – Italy: FDC
    – Spain: SC
  • EF or XF (Extremely Fine). This is the condition of an almost perfect coin that has not circulated much where the defects, hardly visible to the naked eye, can only be seen clearly with a magnifying glass (slight scratches, slight wear on some reliefs such as the hair, beard, moustache, feathers…). The mint sheen has gone and there are minor shocks related to transport.
    Equivalent terms in other countries:
    – France : SUP (Superbe)
    – Germany: VZ (Vorzüglich)
    – Italy: SPL
    – Spain: EBC
  • VF (Very Fine). Condition of a coin where the wear shows clearly that is has been in circulation but it still presents very well with slightly tired reliefs, a rim that may be a bit flattened but which is still net. The signs of wear are visible but the coin is still in a good condition. This is an average plus state of conservation which still allows the coin to obtain a premium.
    Equivalent terms in other countries:
    – France: TTB (Très Très Beau)
    – Germany: SS (Sehr Schön)
    – Italy: BB (Bellissimo)
    – Spain: MBC
  • F (Fine). Condition of a coin that has been in circulation for a long time. Some details of the engraving start to disappear (ribbons, hair, inscriptions on the side, etc.). The metal’s surface is dull (or, in contrast, too shiny ‘to be true’), criss-crossed by little scratches and accidents may be visible (shocks to the rim, large scratches). Its appearance is still acceptable to a numismatist but investors avoid this type of coin because it is usually bought without a premium when it is a current gold coin.
    Equivalent terms in other countries:
    – France: TB (Très Beau)
    – Germany: S (Schön)
    – Italy: MB (Molto Bello)
    – Spain: BC+
  • VG (Very Good). Often referred to as “Good”, the condition of these coins means they are relegated to being bought and sold for their weight in gold. These are worn or very worn coins with a mediocre appearance. You can only just determine their type. The writing is partially deleted, the effigy is no longer sharp, many accidents can be seen. This is a coin that has been in circulation for a very long time and which will end up one day soon in a smelter unless it is a rare type.
    Equivalent terms in other countries:
    – USA / UK: VG (Very Good)
    – France: B (Belle)
    – Germany: SGE (Sehr Gut Erhalten)
    – Italy: B (Bello)
    – Spain: BC

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Thoughts
"For a mountaineer, the important things are the effort, the posture and the muscles. The rope that holds him serves no purpose when everything works but it gives him a sense of security. In the same way, all gold does is ensure confidence; it's a safe haven."