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Gold Revisited:
An Old Friend Reaches New Heights

by David L. Ganz

Column 17 - April 27, 2006
Law and Coins David L. Ganz

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         Gold has reached back and recaptured popular imagination as it reaches heights not seen in 25 years--$600 an ounce. A look at the metal from 1967 until the present shows the unnatural rise of 1979-80, a dramatic retreat, then a steady, progressive solid increase that has brought it to present levels and suggests a push beyond.

         An exponential graph of the annual pricing shows a smooth upward trend line, and a bowed decline that has long-since righted itself. Moving averages provide an objective measure of trend direction by smoothing the price data.

         For a long time, gold was a stable metal. Its price was fixed in the Mint Act of April 2, 1792 at 15:1; today it is about 60:1. In the years between, it has been at various ratios, showing that the marketplace and demand for each precious metal has changed over time.

         When Jefferson’s “Notes on Coinage” was written in 1798, the gold to silver ratio was about 14.96:1, or nearly the 15:1 ratio that follows in the original Mint Act. When that legislation began to be tinkered with in 1790, the ratio had already crept to 15.04:1, and by passage in April, 1792, it was actually 15.17:1, dooming a currency that called for free coinage of gold and silver. (The coining wasn’t really free. The Mint always took a half a percent to cover their overhead, as the statutes permitted; but anyone who had the metal could deposit it and, voila, it was produced into coinage of the realm with a legal tender value).

         That, alas, was the problem. Gold was undervalued, silver was overvalued and the twain did not meet. Gold that was converted into coin was shipped abroad; there was no incentive to produce silver coin, so there was a perennial shortage of specie. (The calculations all come from Lawrence H. Officer, "What Was the Gold Price Then?" Economic History Services, EH.Net, 2002. URL:

         Gold’s stable price starting with the passage of the Coinage Act of January 20, 1837 set the stage for America’s economic expansion. The price of gold was fixed at $20.67 an ounce, and the ratio for silver was about 16:1, meaning that the average price of silver was around $1.2929 an ounce.

         Gold’s price remained stable at $20.67 an ounce, with some notable exceptions, for nearly a century. From 1862 to 1877, the New York market price of gold spotted above the official price. The Civil War, Reconstruction and a host of economic maladies seems to be the historic cause. Jay Gould’s attempt to corner the market of gold was another (1869).

         These historic anomalies notwithstanding, gold’s price stability was its attraction. As silver declined in direct proportion to the withdrawal of the Comstock Lode and other mining scores from the ground, gold stayed stable in value – until the great depression. Even then, it took devaluation of the dollar – really re-valuation of gold to $35 an ounce – to regain stability.

         That rate remained from 1934 until 1968, when the free market again took over. The price of the metal fluctuated, but within a narrow range. On January 16, 1970, the price actually went below the official value (to $34.95 an ounce) before starting the inevitable upward progression.

         Contrasting gold’s value with other currencies, such as the Euro, the Yen, and the British pound, shows that overall, the value of the metal stays in a narrow range among nations, even as the price of the metal has risen considerably over the last six years.

         Americans lost their right to own gold as part of the revaluation of 1934, except for “rare and unusual” gold coin, i.e., numismatic collectibles.

         Every December 31st is New Year’s Eve, but as the new year 2006 came about, it also marked the 31st anniversary of the end of the battle for Americans to regain the right of private gold ownership. The battle was of 40 year’s duration, a struggle of epic proportion, and the result worthwhile for those who hung in through the ensuing ups and downs of the marketplace.

         When the United States was founded as a nation, the Constitution was leery of the colonial experience with currency “Not worth a Continental” and banned issuance of “money” that was not gold and silver. That didn’t mean copper coinage couldn’t be issued for change, and indeed, just three years after the Constitution was adopted, the Mint Act of 1792 called for gold, silver and copper coinage.

         Gold and silver metal, bullion, foreign coin or plate could be deposited with the Mint where, for a small service or convenience fee, the Mint would smelt it down and coin it into national money using prescribed weights and sizes. The value of gold and silver per ounce was determined, the volume of metal legislated, and coinage was ready as soon as the Mint director and chief coiner filed their bonds – which took two years.

         Each gold coin had its full weight and measure, that is, a gold eagle had just about $10 worth of gold in it. Silver dollars were similarly regulated, as were subsidiary coinage, but the historic problem is that precious metal prices are generally unstable absent a market-maker who guarantees a fixed price.

         Through the early 1800's, there was a real need for coinage, and Congress tried to rectify the problem by regulating the value of foreign coins that circulated domestically. For example the Act of Apr. 29, 1816 regulates the legal tender value of foreign coins of Britain and Portugal, and calls for their assay. The Act of March 3, 1819 continues to enforce legal tender values of foreign coin. Two years later, the act of March 3, 1821 regulates five franc and crown legal tender values, which was renewed on March 3, 1823.

         But Congress had a hard time getting it right; the bullion market was constantly changing. As a result, on June 28, 1834, the legal tender value of foreign silver coins of Mexico, Peru, "Chili" and Central America were fixed; the same day, another law reduces weight of foreign gold coins per dollar, thus revaluing the U.S. dollar in the process.

         Overall monetary stability came at a price – the monetary system could not expand easily and the government had difficulty assisting the economy. Once, during the Civil War, the government literally ran out of money and had to print paper substitutes. This innovation, by then-Treasury Secretary Salmon P. Chase, saved the Union – only to be declared unconstitutional, after the emergency was over, by newly appointed Chief Justice of the Supreme Court, Salmon P. Chase; yes, the same one.

         By the time that the Coinage Act of 1873 was passed in April of that year, silver had moved to then all-time lows and, aside from trade dollars which contained the heavier 412.5 grains– but were not a legal tender – there was no right to coin silver by depositing metal. The ‘Crime of 73 all but demonetized silver, an act made complete with the passage of the Gold Standard Act for 1900.

         America’s golden era ceased with the great depression of 1929, when the U.S. sneezed and the world economy caught pneumonia. Gold reserves started an outflow, and it simply never stopped. By the time of the 1932 presidential election, the depression worsened and a political switch to the policies of Franklin Delano Roosevelt lay in the wings.

         FDR took office March 4, 1933 (the January 20th inauguration we take for granted today did not begin until 1940) and shortly thereafter, the New Deal required millions of dollars worth of gold coinage to be turned in by citizens who held them, acting on a government mandate and under a Presidential Proclamation requiring it.

         Only rare and unusual gold coins were exempt -- enough to allow coin collectors to maintain and keep a collection, assuming that they would be able to do that during the depths of economic despair of 1934.

         FDR’s Presidential Papers offer a partial explanation as to why he nationalized gold, ended the striking of gold coins, and prohibited ownership of gold bullion by all Americans. On January 31, 1934, his papers show that he wrote he was taking his action “to maintain a reasonably stable cost of living . . . to foster steadily increasing employment . . . to maintain such position of the dollar with reference to other currencies as would encourage an increasing domestic and foreign trade . . . to eliminate broad fluctuations in exchange rates without sacrificing sovereignty over our monetary policy . . . (and) to avoid competitive depreciation of currencies.”

         When Roosevelt took office, the 100 days of revitalizing the American economy had begun. The drive to end the ownership of gold and the striking of gold coins began on March 6, 1933, just two days after FDR had braved the bitter snow in Washington to deliver his first inaugural address.

       Telling a hopeful but desolate America that he offered them a "New Deal," FDR could only tell them the "The only thing we have to fear is fear itself."

         On March 6, 1933, Roosevelt declared a "Bank Holiday" by invoking an obscure section of the 1917 Trading with the Enemy Act. The Act permitted the President to prohibit "under such rules and regulations as a he may prescribe . . . any transactions in . . . export or earmarking of gold or silver coin or bullion . . . by any person within the United States."

         FDR closed the nation's banks by declaring that "there have been heavy and unwarranted withdrawals of gold and currency from our banking institutions for the purpose of hoarding; and . . . these conditions have created a national emergency."

         During the banking holiday, Roosevelt prohibited the operation of any banking institution, prohibited any bank from paying out, exporting or earmarking gold or gold coins, and temporarily suspended the striking of gold coin by the Mint.

         Roosevelt's action, one leading constitutional scholar, Henry Mark Holzer wrote in a 1973 retrospective law review article, was probably illegal at best, and unconstitutional at its worst. Yet, the American people were desperate; a depression gripped the land. Roosevelt, they believed, offered salvation -- a New Deal, even if it was without gold.

         Systematically, Roosevelt acted to remove gold from the citizenry, the banks, and the Federal Reserve. The key purpose of the action was to prevent any citizen from buttressing his currency against the debasement about to be perpetrated by the government.

         The government's gold stock in 1933 consisted of $2.3 billion in bullion and $806.4 million in gold coin of various denominations. The Federal Reserve held $743-million in gold coin, and a fraction of that amount ($66.5 million) in bullion.

         The nation's national banks had $141,000 in gold coin, while the public, state and private banks (other than national banks) had $310-million.

         FDR next called a special session of Congress to deal with the crisis at hand. Set to commence on March 9, 1933, the session of the 73rd Congress would last less than a hundred days. Yet, in that short period of time, Roosevelt accomplished more than any other chief executive in history.

         That 100 days also became the standard by which future president's actions would be measured – what they could accomplish, under very difficult circumstances, in just about three month's time.

         Congress was bombarded with bills all designed to put America back on her feet. The Civilian Conservation Corps (CCC) was enacted; the Agricultural Adjustment Act (AAA) was passed; the National Industrial Recovery Act (NIRA) was rammed through; the Thomas Amendment to the AAA gave the President authority to change the content and value of the dollar; the Tennessee Valley Authority Act (TVA) was quickly passed; a Federal Deposit Insurance Corp. (FDIC) was created; and the Gold Standard and gold clause was abrogated.

         Abrogation of the gold clause – which allowed citizens to demand payment in gold coin – was significant. Ironically, the use of the clause has renewed itself in the last decade of the 20th century by those seeking to preserve a standard of value measured against a fixed asset.

         Congress, an historian wrote later, was "passing laws 'to order'," and neither Congress nor the American people appeared to object. The days of March, April and May 1933 were dark and desperate times, and FDR's solutions seemed to be panaceas.

         On March 9, 1933, the very day that the special session of Congress convened, Roosevelt submitted "The Emergency Banking Act" to them for consideration. He also sent them a message, stating that "On March 3 banking operations in the United States ceased . . . Our first task is to reopen sound banks."

         He called for prompt action on his legislation, for "with action taken thereon, we can proceed to the consideration of a rounded program of national restoration."

         Almost immediately, the bill was introduced in the House. Majority Leader Joseph Burns asked for "immediate consideration," and Minority Leader Bertrand Snell declared that "The house is burning down, and the President of the United States says this is the way to put out the fire!"

         The bill was then read to the House assembled. Section 3 provided that "Whenever in the judgment of the Secretary of the Treasury such action is necessary . . . the Secretary of the Treasury, in his discretion, may require any or all individuals, partnerships, associations and corporations to pay and deliver to the Treasurer of the United States any or all gold coin, gold bullion, and gold certificates owned by such . . . Upon receipt of such gold coin . . . or gold certificates, the Secretary of the Treasury shall pay therefore an equivalent amount of any other form of coin or currency coined or issued under the laws of the United States."

         Thus, the bill proposed that if the Treasury head, or really the President, determined that it was no longer in the national interest to allow private ownership of gold coin or bullion (which would be determined only when it would hinder inflation of the currency and debasement of the dollar), individual Americans would have to give up their "hedge" against this.

         Congress approved the procedure in an unusually fast way; the bill authorizing it all passed the House by voice vote at 4:30 p.m., barely four hours after it had been introduced. Promptly introduced in the Senate, that body ratified it at 7:30 p.m. An hour later, President Roosevelt signed the bill into law–all in record time.

         By contrast, the recent spate of coin legislation took most of 2005 to work its way through the Congressional process.

         Further American action guaranteed convertibility of the dollar at the rate of $35 for each troy ounce of gold; American dollars abroad, offered by foreigners, were the lure since U.S. citizens universally lost the right to own most gold after January 30, 1934.

         The stake: for the previous century, 351 million gold coins worth $4.5 billion had been struck. The true specifics: 174 million double eagles, 57 million eagles or $10 gold pieces, 78 million half eagle or $5 gold pieces, and 20 million quarter eagles or $2.50 gold pieces. There were also 539,000 $3 gold pieces and 19.8 million $1 gold coins produced.

         By the mid-1960's, the economics of the Vietnam controversy were having a profound, if not disastrous effect, on the American economy. In time, it displaced the Great Society under President Lyndon Johnson, and caused international economic calamity.

         March, 1968, saw LBJ forced to renounce a second full term, and nearly simultaneously, set up a two-tiered market for gold based on the official price of $35 an ounce, and a free market price that was permitted to float somewhat higher.

         The price of gold jumped, moving to heights of $43 an ounce, which caused a sensational ripple in the coin market, because double eagles traditionally traded at a price of about 48% above the spot price of gold. Overnight, they went from $48 a coin to $60 for uncs. One of the largest sellers at that time was Scotia Bank (the Bank of Nova Scotia) whose weekly price lists of availability set the market trends.

         Gold coins were traded and available on a widespread basis, even British sovereigns of the modern era – but if any were made after 1960, they could not be legally imported into the United States without a permit from the Office of Domestic Gold and Silver Operations.

         Dr. Leland Howard, an assistant director of the Mint, became head of the ODGSO, and his task was to protect the integrity of the Roosevelt seizure order, while simultaneously allowing rare and unusual coins to be imported.

         Eventually, an arbitrary line in the sand was drawn with 1960 as the demarcation point. Before that, it was rare and unusual – even if it was a 1958 sovereign with 8.7 million pieces produced; afterwards, it was common, and not importable with a license – even if it was a 1962 sovereign with 3 million pieces manufactured.

         The humor of this governmental regulation of the economy can be seen with thousands of words of government regulation that then resulted to try and explain what was rare and unusual; why, and how some items were prohibited, while others could be imported.

         As gold faced the real market for the first time following 1968, it was inevitable that economic forces that traditionally had driven the price upward -- inflation, war, and economic fears – could, in the converse, drive its price down.

         And so it did in the early days of 1970. By January 16, Under Secretary of the Treasury Paul Volcker (later chairman of the Federal Reserve) announced that the new gold agreement signed with South Africa provided "no assured 'floor price' for gold speculators," and with that, the metal dropped to its lowest price in London free trading in 16 years -- below the official floor.

         In a letter to Rep. Henry Reuss, D-Wisc., then chair of an international economic subcommittee, Volcker called the agreement with South Africa "consistent with a two-tiered system" of pricing gold.

         A couple of years later, in an interview with me, Reuss would say that this marked the real beginning of the drive for private gold ownership -- which did not take place until December 31, 1974.

         Gold's importance to the overall numismatic market wasn't overlooked in the 1970's, and later. Indeed, I often wrote of the parallel that seemed obvious between the way that the price of gold bullion moved, and the manner in which the coin market responded.

         The events of January, 1970 were at once liberating as well as thought provoking. In a totally free market, gold could rise or fall -- and without an official price or a floor, as Volcker put it, the metal price could go below an official buy price of the government.

         Ironically, within 18 months, inflation would be ravaging the nation, and on August 15, 1971, President Nixon would suspend the dollar's convertibility into gold, slamming down the gold exchange window, institute wage and price controls, and set the stage for the dramatic rise of gold – and the numismatic market-- for decades to come.

         Once again the dollar was devalued -- raising the official price of gold to $38 an ounce. (Still later, it would go to its present official price of $42.22 an ounce). But ironically, with or without an official price, the run on the metal proved the historic truism that gold was, and is, king of precious metals.

         In 1973, gold regulations were eased slightly, to allow more gold coins minted between 1933 and 1961 to be admitted to the country as “rare” coins, however, a drive in Congress to reverse the action of four decades before failed when the House failed by a single vote to call for immediate ownership.

         By early 1974, the President had gained the legal authority from Congress to allow private gold ownership at any time he felt it is in the best interests of the international economic situation of the United States.

         Gold ownership finally came about in one of the most unusual unitings of interest of diverse political elements -- the conservative "gold bugs" and the liberal democrats.

         Succinctly, the Democrats had a foreign aid package that was in need of passage; the conservative Republican "gold bugs", most of whom had voted against every foreign aid proposal that ever came before Congress saw a truly golden opportunity.

         They added a clause to the foreign aid bill that would simultaneously legalize private gold ownership by a certain day, but also retroactively repeal all of the regulations and laws that impeded holding the precious metal.

         The unusual political coalition held together, the foreign aid bill became law, and on December 31, 1974, private gold ownership was again permissible for the first time in 40 years. Gold's historic role once again moved to preeminence.

         Gold’s price rose in the 1979-80 commodity surge to $800 an ounce, but then relented. Gold coin prices for common typical uncirculated pieces closely mirrored the bullion price, with a modest numismatic surcharge. Charting the coins over an extended period of time shows that they still make a valid investment as well as an inflation hedge– better in fact than bullion.

         In retrospect, the fight to regain gold ownership – and the governmental battle to prevent it – seems silly. Today, people buy gold, invest in it – and hold gold coins – without giving the metal a second thought.

         The international monetary system did not fall apart with private gold ownership, and neither did the American economy. What was ultimately shown is that those who held onto rare coins – rare gold coins– were richly rewarded.

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