Reading that story about the sovereigns in the piano this morning reminded me of the story of Saudi Arabia’s King Ibn Saud reproduced below as originally posted in 2015:
When Saudi Arabia’s King Ibn Saud sold oil concessions to the major oil companies in 1933, he demanded a payment of 35,000 British sovereigns — a coin many of you hold in your own sovereign wealth funds. The good king understood the difference between the value of gold and the value of a paper promise.
At the time, British sovereigns were valued at $8.24 each, or $288,365 for the 35,000 coin lot. The price of oil in 1933 was about 85¢ a barrel. A British sovereign, as a result, could buy about ten barrels of oil. Today those same sovereigns would bring a little less than $9 million at melt value ($256.50 each/$1090 per ounce gold price) and a barrel of oil is selling for about $44. Thus, a British sovereign can buy almost six barrels of oil — a statistic that gives you an inkling of gold’s current under-valuation. For gold to buy the same amount of oil now that it did in 1933, the price would have to go to $1880 per ounce.
MK 2017 note: Prices have changed but the point remains. Gold is undervalued at current prices when weighed against the price of oil – even at the current reduced price ranges.
History buffs will appreciate this additional quote and comment from the September 2000 edition of News & Views:
“The only remaining problem was how to obtain that much gold. Because America had just gone off the gold standard, Socal’s efforts to dispatch the gold directly from the United States were turned down by Assistant Secretary of the Treasury Dean Acheson. But finally, the Guaranty Trust’s London office, acting on behalf of Socal, obtained thirty-five thousand sovereigns from the Royal Mint, and they were transported on a ship belonging to the P&O line. Care had been taken that all the coins bore the likeness of a male English monarch, and not Queen Victoria, which it was feared, would have devalued them in the male-dominated society of Saudi Arabia.” – Daniel Yergin, “The Prize”, on the signing of the first oil exploration concession with Saudi Arabia in 1933
The good King Ibn Saud, back in 1933, demanded 35,000 gold British Sovereigns in payment for oil exploration rights in his country. Had he known that he was sitting on a massive pool of oil that would make Saudi Arabia the most important piece of real estate in the world, he might have asked for more. Ibn Saud did however understand the ultimate value of a paper promise, hence the payment in hard, yellow metal. To this day, the Gulf (as it’s come to be known) becomes squeamish whenever it appears the Fed is printing too much paper currency.
Old British sovereigns, like the ones in the photo below, are a preferred acquisition among safe-haven gold IRA rollover investors. We now have a quality selection of George V sovereigns available at attractive bullion-related prices. We invite you to call the Trading Desk at 1-800-869-5115, extension #100 to learn more. British sovereigns were a guardian of wealth in 1933 and remain a guardian of wealth today.
Value+history+gold money = portfolio safety for the long run