Coins & bullion since 1973
We educate first-time investors.
" In 1954, the Treasury Department recognized at last that the time had come to legitimize the numismatic gold market. Consequently, an amendment was made to the Gold regulations, to the effect that all gold coins minted prior to 1933 would subsequently be presumed to be rare and of recognized special value to collectors, without the necessity of further specific determinations by the Treasury. Coins minted after 1933 were still subject to specific Treasury Department rulings, which were to be base on the advice of the Curator of Numismatics of the United States National Museum. All U.S. gold coins and the vast majority of foreign gold coins were thus freed from the overhanging threat of confiscation, and a new era for American numismatics appeared to begin. " [Quote excerpted from a detailed account by Donald Hoppe written in 1970.]
From the USAGOLD.com Discussion Forum:
USAGOLD (04/25/00; 10:06:34MT - usagold.com msg#: 29316)
As a major gold dealer from the era between confiscation (1933) and legalization (1975), Mr. Hoppe was well aware of the obstacles thrown before him and the ways to help gold owners get around them legally. Rescued and reposted by Silverbarron at the Kitco site a couple years ago, I think we are lucky to have Mr. Hoppe's account and chronology as it appeared in his book, "How to Invest in Gold Coins," still available.
I was struck by a couple of things in re-reading Mr. Hoppe's work:
First, how little has changed in the battle between hard-money advocates and the neo-Keynsians.
Second, how safe we actually are as owners of pre-1933 European fractional gold coins. It is not the perfect solution to the problem of confiscation (there probably isn't one), but it is the best solution. For the government to overturn all the precedent as listed below, it would require a sea change in a legal system built on precedent and jurisprudence. In addition, at the current low premiums (comparable to similarly sized bullion coins) for pre-1933 European fractionals, coupled with the historically unprecedented low constant dollar gold price, these items, in my opinion, are a steal. In my view, the minor premium you do pay at the outset will evaporate when gold responds to the inflationary policies of the world's governments and central banks.
I will reinforce this argument with one thought: Many of you are familiar with the oft-repeated dictum that down through history an ounce of gold would always purchase a top-quality man's suit. A top-quality man's suit now sells for $600 to $700. That makes gold undervalued at this juncture in monetary history by over half. Obviously, the small premium one pays for pre-1933 European fractionals now is minor compared to the peace of mind attained, not to speak of the fact that this premium would evaporate quickly in gold market bull induced by a failed monetary policy (something I believe we are in the middle of). --MK
How to Invest in Gold Coins by Donald J. Hoppe, 1970
Chapter II -- THE PRIVATE CITIZEN AND GOLD TODAY
Despite the patently obvious
evidence of recent years that Gresham's Law is still
irresistibly in operation, the student of monetary history and crowd psychology may yet have some reservations about gold investing. Before deciding on gold coins as a safe and profitable investment, with the obvious advantages already mentioned, one may properly question the extent to which man's historic faith in the reliability of gold as a standard of value has been or will be affected by the thirty-four-year campaign of the Keynesian economists to escape from the restrictions and disciplines of gold-based money. ( The question is especially pertinent because of the defection of so many so-called conservative economists and bankers to the viewpoints of the New Economics. )
After all, we in what the French like to call the "Anglo-Saxon camp" have been told for a considerable time now, through our press and by the pronouncements of even some of our highest Treasury and banking officials, that gold, like the Deity in the eyes of some modern theologians, is dead; that the use of gold for monetary purposes or as a store of value is, in that already well worn cliché, a "barbarous relic." Furthermore, it is said that the sooner we are able to abandon it completely, the better it will be for us.
But perhaps the demise of gold as the center of the monetary universe has been reported, as was the death of Mark Twain, somewhat prematurely. Although the obituaries continue to be published, the world remains unconvinced. If gold is indeed dead, it has proven to be a rather lively ghost. The author's clipping files concerning monetary subjects indicate that more press copy on the subject of gold has been published during the last two years that at any time since the crisis years of 1933-34. Countless reports on the future of gold and the attendant opportunities for speculation it offers have also been prepared by private financial advisers and services ( and sold at high prices ) since the dying relic, the "echo of the past" has suddenly become a full-blown crisis. Some went so far as to declare that gold was America's number-one problem. But there is still little public agreement on whether the ancient idol will be finally and forever toppled from his throne or restored once more to past glory.
In the author's opinion, the decisive vote was give in 1967 and 1968, when repeated waves of gold speculation swept the gold markets of the world, shaking its very monetary foundations, breaking up the London gold pool and its fixed $35 per ounce gold price and forcing the devaluation of the British pound sterling. The most revealing part of these episodes was that they imposed an ignominious retreat on the neo-Keynesian money managers of the West. In being forced into a tightfisted defense of their stockpiles of monetary gold, the position of the money managers would have been ludicrous but for the tragic effects of the inflation that had already eroded the wealth and vitality of countless peoples.
Ironically, it was these practitioners of the New Economics who had insisted all along that gold was only a superstition, a vestige of a barbarous past, and that we would have been better off to dump it all into the sea. But now that it has apparently been found necessary, for the moment at least, for the United States and its partners in financial experiment to defend at all costs ( that is, with whatever further sacrifices may be required of their citizens ) what is left of their monetary gold stocks, it may be suggested ( with tongue in cheek ) that we dump our money managers into the sea instead.
However, it is obvious that the present show of defending gold by Britain and the United States, through various austerity programs, exchange controls, high taxes, etc., is a tactical expedient only. The ultimate goal remains the implementation of some new international paper-money scheme, an eventual total devaluation of the dollar, and the complete demonetization of gold. Therefore, stability in the price of gold and an end to the long-term inflation that has accompanied the ascendancy of the New Economics are nowhere in sight. Additional waves of gold speculation, gold-buying panics and recurrent gold crises are not only probable but inevitable.
What part the citizen of the United States and his British cousin have played in these events has been somewhat restricted, legally at least, by the actions of their respective governments. They have been prohibited by law and regulation from direct participation in the purchase, sale or ownership of gold in bullion or monetary form.
In most other civilized lands ( and some that are not so civilized ) the ownership of bar gold and gold in any other form is not only permitted but, as in the case of France and Switzerland, often tacitly encouraged.
These enlightened countries believe that gold in the hands of private citizens is an aid to internal economic stability and complements rather that competes with the official reserves of their central banks.
By allowing the free use of gold as a store of value, the other Western countries have eased somewhat the burden of inflation upon their citizens. Unfortunately, the insidious disease of inflation is, as a matter of record, chronic in every country that practices neo-Keynesian economics. But by permitting the private possession of gold in any form, France and Switzerland at least recognize that the least sophisticated and affluent of their citizens should have the right to defend themselves.
The only other major nation, besides the U.S. and Britain, that prohibits free commerce in gold by its inhabitants is the Soviet Union. Private holdings or transactions in the yellow metal are considered there to be "economic crimes' - most serious offenses in a Marxist state. Those engaged in them are subject to the firing squad. ( Yet is has been reliably reported that a flourishing black market in gold continues to exist in Russia and the other Marxist states ) Curiously enough, the writer finds that the parallel presented by the United States and the Soviet Union, regarding the private holding of gold as an infringement on a state monopoly and therefore a crime, is neither unbelievable nor incongruous. Perhaps the "big brother" philosophy of economics is rather easily recognized whatever its stage of development.
Worldwide, the record of the neo-Keynesian money mangers in the area of maintaining the purchasing power of their fiat currencies has been deplorable. But perhaps I am too harsh on the proponents of the New Economics; after all, monetary delinquency antedates Keynes by a considerable period; it is of course as old as money itself. The coin clippers and debasers caused as much ruin and suffering in ancient times as the paper-money inflationists have in the twentieth century.
But holding aside for a time further comments on the great questions concerning future trends of inflation and the coming rise in the price of gold, let us proceed directly to the problems and opportunities confronting people generally and citizens of the United States and Britain in particular who might wish to speculate on these possibilities, or who might want to invest in a gold-related activity as a hedge. Since possession of monetary gold ( bullion ) by citizens of the U.S. and Britain is unlawful, there remain only two ( legal ) avenues of gold investment open to them: the purchase of shares in gold-mining companies, and the collection of gold coins.
The gold coin was once a very vital part, at times the lifeblood, of the economic body. Today is not so. The lifeblood of the New Economics is credit. The coin of gold, the ancient king of money, was forced to abdicate in disgrace during the depths of the Great Depression and it has been banished from the realm ever since. But the gold coin still has a meaning, and sometimes a very profitable one, for those who have the eyes to see it.
The provisions of the Gold Reserve Act of 1934 and the Executive Orders and banking laws of 1933, which originally demonetized and confiscated all outstanding gold coin in the United States, prohibited the individual possession of gold bullion (or any other recognizable use of gold as a store of value). However, they made no prohibitions regarding the ownership of gold-mining stocks, and they also permitted the retention of gold coins of "recognizable numismatic value." Failure of the original legislation to define adequately what constituted recognizable numismatic value caused considerable confusion for some years, but in general, the parts of the gold regulations concerning numismatics were not rigidly enforced - at least not to the point of harassing collectors of gold coins.
It is now obvious that considerable quantities of U.S. gold coin were never surrendered at the time of the original order. Some coin was withheld because it was in the possession of foreign citizens, banks, or governments, and some because its owners chose to defy their government because of what they considered to be an arbitrary and unjust confiscation. Considerable quantities of American gold coin also found residence in Canada. At any rate, choice uncirculated U.S. and foreign gold coins were generally available through coin dealers in the United States after 1934 and they sold at prices that from today's vantage point were fantastically cheap.
Unusually strong demand for the more common gold coins, strictly as a speculation on a possible rise in the price of gold or as a hedge against inflation, occurred from time to time, notably in 1946, 1957, and 1961, but in general, the market for the so-called common type of gold coins remained unexciting - until 1967. In the truly numismatic area, however, astute and knowledgeable collectors gradually reaped a tremendous reward for their patience. During the postwar years, gold coins of unusual scarcity or rare numismatic value enjoyed a spectacular and continuous rise in price.
In the forties and fifties, the U.S. Treasury held most of the world's gold bullion, and consequently, the attitude of the government toward gold-coin collectors was one of indifference, even though the legality of possessing so-called common-date coins was somewhat questionable, at least until 1954. Prior to that year, the Treasury held the opinion that it alone had the right to determine whether or not any gold coin was of numismatic value. Determinations were to be made on the merits of each individual coin presented to the Treasury for ruling.
The pre-1954 criterion for judging a coin minted before 1933 was whether or not the coin in question had possessed a recognized numismatic value on or before April 5, 1933. Gold coins minted after 1933 were to be judged on the basis of the number issued, the purpose for which they were issued, their condition, mint mark, historical significance and other numismatic factors. However, there appeared to be no great rush of collectors to the Treasury Building to have their coins checked.
It must be admitted, however, that the Treasury Department of that era did not rigidly or aggressively enforce a narrow and legalistic interpretation of the "numismatic value" provision of the Gold Reserve Act. Had it done so, American numismatics would have suffered severe and irreparable damage; many fine gold coins which are now the prized possessions of American collectors would have been lost forever. "Numismatic value" is a term of varied and at times subtle meaning. Many regular-issue coins gradually become scarce or even rare, through natural attrition, while they are still technically part of the circulating medium, and these scarcity situations are invariably recognized at first only by the most astute and sophisticated collectors. By the time the numismatic value of such coins becomes common knowledge, it is usually well past the point where that value or the potential for numismatic value was actually acquired.
There is also the case of the unusually well struck or prooflike coin which was selected from a regular issue; certainly this type of coin has exceptional numismatic value even though the issue it was taken from was not particularly scarce. And how does one objectively judge the roll of uncirculated coins put away by the foresighted for the benefit of future generations of numismatists? And specimen coins retained because of their artistic merit or historical associations? Surely the final U.S. gold-coin series designed by Augustus St. Gaudens, one of America's most noted sculptors, would fall into this latter class. To have ruthlessly insisted on the surrender of all gold coins extant on or before April 5, 1933, that were still technically part of the circulating medium, and/or not obviously or generally recognized to be of unusual historic numismatic value, would have been catastrophic indeed, as far as numismatics is concerned.
But the Treasury officials of that day chose to be tolerant, if not amiable, and, except for prevent the importation of large numbers of post-1933 foreign gold coins, did little to disturb numismatic gold activity. Apparently, numismatists, collectors, and even hoarders were too few in number at that time to cause alarm on the Potomac. Whatever the reason, we can feel thankful that the Treasury authorities of the first quarter-century following the demise of gold coinage in the U.S. did not flail about with the typical bureaucratic myopia that has characterized their successors. In any case, the "common" U.S. gold coins (which, as we know now, are anything but common) and most pre-1933 foreign gold coins were allowed to be traded and collected more or less openly during the years prior to 1954.
In 1954, the Treasury Department recognized at last that the time had come to legitimize the numismatic gold market. Consequently, an amendment was made to the Gold regulations, to the effect that all gold coins minted prior to 1933 would subsequently be presumed to be rare and of recognized special value to collectors, without the necessity of further specific determinations by the Treasury. Coins minted after 1933 were still subject to specific Treasury Department rulings, which were to be base on the advice of the Curator of Numismatics of the United States National Museum. All U.S. gold coins and the vast majority of foreign gold coins were thus freed from the overhanging threat of confiscation, and a new era for American numismatics appeared to begin.
It might have been reasonable to expect after 1954 that further relaxation of the Treasury's Gold Regulations, particularly as they applied to numismatics, would be a natural development in time. But the subsequent course of American economic history ruled otherwise. By 1960, the underlying inflationary instability of the Western world had reached the point where the once seemingly unlimited gold reserves at Fort Knox had noticeably begun to shrink.
This unfortunate (and, in my opinion, wholly avoidable) turn of events precluded any possibility of further liberalization of the gold rules, numismatic or other. Instead, in 1961, the Kennedy Administration saw the necessity of establishing within the Treasury Department the Office of Domestic Gold and Silver Operations ( ODGSO ) , in order to institute a more rigorous control over the import and export of gold and silver, the licensing of jewelers, goldsmiths and industrial users of gold, and import and sale of gold coins.
The most positive accomplishment of the new ODGSO was to reaffirm, as its own policy, the 1954 amendments to the Gold Regulations, which ruled that all gold coins minted prior to 1934 are rare and consequently of recognized numismatic value. For gold coins minted after 1933, the office required a separate ruling in each case and the issuance of a special permit for the importation of possession of each post-1933 coin approved. ( Once an initial ruling on a particular coin was made, however, no further permits or applications were necessary to purchase or hold other coins of the same identity within the United States, although a license to import any post-1933 gold coin is still required, whether it has been previously approved or not. )
By some obscure and tenuous logic ODGSO also required ( until 1969 ) a permit to import pre-1934 gold coins, even though the purchase or possession (or both) of such coins was unrestricted within the United States. I might add that the majority of applicants desiring to import pre-1933 gold coins were invariably refused.
The author once applied for a permit to import some pre-1933 Mexican gold coins offered by a Canadian dealer. The license was refused, even though the coins under consideration were the rarest of their series and selling for more than twice their intrinsic value, on the grounds that they were "not of exceptional numismatic value within the meaning of the Treasury Department Gold Regulations." In reply, I could only point out, politely ( and in vain ) , that the Treasury Department Gold regulations, which ODGSO was supposed to be administering, stated without qualification that all gold coins made prior to 1934 were to be considered of "recognized special value to collectors." The spectacle of federal regulatory agencies regulating themselves in a circle is at times wondrous to behold.
Fortunately, the 1954 amendments are now a well-established precedent, and they provided at least a basic protection for the numismatic gold collector. Furthermore, although it has required a change of administrations, ODGSO has finally come to recognize that some of its interpretations of the gold rules have been, in the words of its new director, "of dubious merit."
On April 22, 1969, the Gold Regulations of the U.S. Treasury Department were amended to correct the obvious and unreasonable inconsistency introduced by Executive Order 11037, issued July 20, 1962, which required, among other things, a permit from ODGSO for the importation of pre-1934 gold coins. The new director of ODGSO, Mr. Thomas Wolfe, appointed by the Nixon Administration, admitted candidly that "it really didn't make a lot of sense" for ODGSO to prohibit or confiscate a pre-1934 gold coin coming from abroad, when the collector could walk across the street and buy the same coin in the U.S. without restriction.
Therefore, the provisions requiring a license to import pre-1934 gold coins were eliminated. Collectors and dealers in the U.S. are now free to import such coins, provided they are genuine, subject only to the usual customs regulations and import duties. Counterfeits or restrikes, however, are subject to confiscation, regardless of a pre-1934 date. The Gold Regulations were further amended to require import licenses only for gold coins struck from 1934 through 1959. The granting of such licenses is to be subject to the usual criterion of judgment. No gold coins struck after 1959 will be admitted, except for those issues already granted exemption by ODGSO prior to April 30, 1969.
The 1969 modifications of the Gold Regulations bring a welcome breath of fresh air into the bureaucratic smog that has shrouded the rulings and statements of the Treasury and ODGSO since 1961. However, one can only regret the arbitrary cut-off date of 1959, which automatically excludes such highly desirable numismatic treasures as the Canadian $20 centennial gold coin of 1967, and most of the post-1960 commemorative gold coins of Israel.
Fortunately, past history has demonstrated that common sense eventually triumphs, even in the Treasury; we can therefore continue to hope that the absolute 1960 cut-off ruling will also be re-considered one day.
By contrast, however, British gold collectors were apparently dealt a severe blow when in 1966 the Bank of England issued regulations requiring the registration of all coin collectors and limiting collectors to no more than four gold coins minted after 1837. But fortunately, as was the case with the original numismatic provisions of our own Gold Reserve Act of 1934, these rules were softened considerably in their administration. Although not specifically stated in the regulations, it has been made known that "collectors may possess two gold coins or sets of any one type or series, that is, two 1887 five-pound pieces, two 1902 two-pound pieces, two 1937 proof sets, etc. - only holders of large quantities of common-date sovereigns will be required to surrender them.
The citizen of the United States, if interested in acquiring a speculative or investment position in gold, is then limited to gold-mining stocks or gold coins. The citizen of Great Britain has the same options except that he is much more limited in the area of coins. The natives of Canada, France, Switzerland, Germany, South Africa, and innumerable other areas of the world, presumably not as far along on the path of enlightenment as we, are free to do as they please regarding gold.
There has been some talk that once gold was successfully demonetized by the U.S., the free holding of gold by its citizens would be permitted. If this is ever tried, it will be as a last desperate bluff to prove that the dollar is better than gold. But like our former policies of trying to hold down the international price of gold by selling it freely through the London "gold pool" and trying to hold down the price of silver through massive Treasury sales, it will be just another phenomenal failure. By its demented economic and fiscal policies of the last three decades, the U.S. government has forfeited all confidence in its ability to maintain the value of its currency. If U.S. citizens were now granted the right to cash in some of their paper dollars for gold, what is left of our national gold reserve would disappear in a month.
In Russia and the Marxist countries of Eastern Europe, there are of course no gold-mining stocks. If it were not for the Communist ideology, however, no doubt there would be; the Soviet Union is thought to be the third largest producer of gold in the world ( after South Africa and Canada), although the actual production figures are a closely guarded state secret. It is also reported that the Russians pay production cost equivalent to $100 an ounce for their gold. Despite Lenin's boast that gold would one day pave the public rest rooms in the worker's paradise, the Russians seem to have found other uses for it - like buying vitally needed equipment and raw materials in Europe, Africa, and Asia.
But as we have said, private trafficking in gold bullion in the Soviet Union is considered ( as in the United States ) a most serious crime. The state mints occasionally issue gold commemorative coins and medals, and sometimes restrikes of older gold coins. We can assume they are sold on a strict one-to-a-customer basis at home, although some of these restrikes have been widely exported to the West ( and smuggled into the United States ) for profitable sale. However, whether a tovarich can acquire a collection of gold coins without arousing the suspicion that he is surreptitiously planning an "economic crime" I do not know, but I imagine the mental hazards are discouraging.
The general worldwide availability and popularity of gold coins as an investment and speculative medium, and the rather intense activity of recent months call for diligent, thorough and hopefully objective investigations in the merits, hazards, techniques and problems involved in the purchase and collection of gold coins. That is the main purpose of this volume. It is hoped that it will also serve an auxiliary purpose by revealing something of the extent of monetary deterioration in the West and by showing the absolute necessity, as well as the advantages, of finding alternative stores of value to rapidly depreciating paper currency.
An additional note to clients:
To understand how a gold confiscation might be possible nearly 70 years after the last one under Franklin Roosevelt occurred in 1933, all one needs to do is attempt to postulate how the massive federal debt (nearly $6 trillion and growing) and the outstanding international dollar float (resulting from the U.S. trade and budget deficits) are going to be reconciled. At present, the U.S. dollar enjoys special status around the world as the primary reserve currency. This encourages -- some would say "forces" -- central banks and individual investors globally to hold it. Leaving the various circumstances and potential scenarios aside, what would be the outcome if the props were kicked out from underneath this built-in dollar market, for whatever reason, and even a portion of the foreign-held greenbacks were repatriated to the United States, or set loose on world currency markets? Even more importantly, how would the government react to an economic emergency in which individuals, beset by either a devastating domestic inflation or a deflationary nightmare or both, were fleeing the banks and equity markets for gold as a means of preserving their personal capital? Beyond that, what would happen if our foreign creditors decided that the national debt should now be backed by something other than the government's promise to pay, and forced the United States to bring its gold reserves into play? Historically, confiscation has all too often been the option taken by governments beset by an economic breakdown. Just as gold is the asset of last resort for the individual portfolio doing service in the most financially threatening times, so it is all too often the asset of last resort for troubled governments as well. As recently as 1998 during the Asian Contagion, both South Korea and Thailand implemented "voluntary" gold call-ins. The temptation presented by its citizens' gold holdings was simply too facile to resist.
This memorandum -- which includes a question and answer overview and comprehensive supporting appendices -- details why we believe pre-1933 gold coins offer the best protection against a potential government gold confiscation. We do not in any way intend this to be a formal legal opinion, but a simple presentation of documents and political/economic history that might help you form your own opinion on the matter. Furthermore, we are not stating categorically that pre-1933 gold coins will survive confiscation. Instead we are stating that we believe, given the weight of legal precedent as reprinted here, this is the best option available for those with concerns about confiscation. Ultimately, you will be the one to weigh the potential for a gold confiscation and whether or not pre-1933 gold coins will be part of (or the totality) of your gold holdings. This memorandum provides to our knowledge the most detailed and comprehensive documentation on the subject of gold confiscation in the United States assembled to date. We sincerely hope it it fulfills the purpose for which it is intended -- to help you make an informed decision on the type of gold best suited to meet your portfolio goals.
First-time Gold Buyers: What you need to know before you buy your first ounce of gold.
Available in .pdf format at NO CHARGE upon your request. To obtain your FREE digital copy of this MEMORANDUM, simply contact Centennial to indicate your interest. "firstname.lastname@example.org"