History With Gold
By David L. Ganz
history probably should be divided into three
parts. First is the period prior to 1933, when
President Franklin Roosevelt effectively
nationalized gold and prohibited private gold
ownership. Second is the period from 1934 to
Dec. 31, 1974, when U.S citizens lost the right
to own gold, except for "rare and unusual" gold
coins - numismatic items.
Third period in this is from Jan. 1, 1975, to
the present when Americans fully participated in
the gold market. A fourth period may be in the
future when Chinese are able to fully
participate in a developed gold market, opening
up 300 million middle-class purchasers to this
Gold's price history has been remarkably stable
over the past century and a half. The
accompanying chart shows this stability from
1837 until 1933, with various spikes
characteristic of a free market, but aware
nonetheless of a giant overhang of bullion held
by the world's central banks. The U.S. stockpile
is at Fort Knox and the Federal Reserve Bank
vaults in lower Manhattan, not far from the
former World Trade Center site.
The U.S. gold reserve is a tough cookie to
measure, in part because it does not value the
gold at market, but instead at the "official"
price set by Congress at $42.22 in 1973. (That
changed the value from $38 an ounce and
effectively devalued the dollar since that was
the unit the most banks used to define net
Most gold is in long-term storage - over 258
million ounces - a huge overhang that has led
some to suspect price manipulation by the
Treasury (which values this at $10.9 billion or
about $193 billion at current prices). They deny
this, going so far as to say on a government Web
site that "We would like to emphasize that the
Treasury Department does not seek to manipulate
the price of gold or any other metal by
intervening in or otherwise interfering with the
America's history with gold is an uneven one.
Gold at the nation's beginnings did not have its
role of today as an asset of last resort, but
rather it was a primary asset of wealth. When
the United States was founded as a nation, the
Constitution was leery of the colonial
experience with currency "not worth a
Banned was 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
Gold and silver metal, bullion, foreign coin or
plate could be deposited with the Mint where,
for a small service or convenience fee (half of
1 percent), 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.
The result was that American silver coinage was
worth more melted than coined. Deposits all but
ceased, coinage flowed abroad to settle debts or
for smelting, and by the turn of the 19th
century, silver dollar coinage was entirely
suspended not to be restarted until the
mid-1830s. Lacking a domestic source of gold
until deposits were discovered decades later in
the Carolinas and Georgia, there wasn't much
gold coinage either.
Through the early 1800s 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 April 29, 1816, regulated the legal
tender value of foreign coins of Britain and
Portugal and called for their assay.
Another law, signed March 3, 1819, continued in
force legal tender values of foreign coins. Two
years later, the act of March 3, 1821, regulated
5 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 reduced weight of foreign gold coins
per dollar, thus revaluing the U.S. dollar in
By 1837, it was necessary to do it again, but
this time Congress got it right, setting the
value of gold at $20.67 an ounce - a rate that
would hold for nearly a century and provide
substantial stability. (Charting this using
authoritative sources shows that there are
slightly higher prices on average due to market
Through the California gold field discoveries,
the Civil War, the expansion of America meeting
its manifest destiny and to World War I and
beyond, the $20.67 an ounce gold - the U.S.
double eagle $20 gold piece contained $19.999
worth of gold - the price essentially held
To be sure, there were spikes, such as when Jay
Gould attempted to corner the gold market
(1869), but that overall 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
Starting around 1867, silver discoveries in
Nevada began to impact the marketplace and it
became impossible for the government to allow
unregulated quantities of metal to be converted
into coin - cheap money, for instead of costing
a dollar to mint a silver dollar, the cost with
metal was more like 67 cents.
By the time that the Coinage Act of 1873 was
passed, silver had moved to 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, 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
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.
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.
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 coin 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 Jan.
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-Wis., then
chair of an international economic subcommittee,
Volcker called the agreement with South Africa
"consistent with a two-tiered system" of pricing
A couple of years later, in an interview with me
while serving as Numismatic News Washington
Correspondent, Reuss would say that this marked
the real beginning of the drive for private gold
ownership - which did not take place until Dec.
Gold's importance to the overall numismatic
market wasn't overlooked in the 1970s, 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 government buy price.
Ironically, within 18 months, inflation would be
ravaging the nation, and on Aug. 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. (Later
it would go to its present official price of
$42.22). But ironically, with or without an
official price, the run on the metal proved the
historic truism that gold was, and is, king of
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
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 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 Dec. 31,
1974, private gold ownership was again
permissible for the first time in 40 years.
Gold's historic role once again moved to
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
inflation hedge - better in fact than bullion.
In retrospect, the fight to regaining old
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.
Gold probably has a floor in this at $650, but
will likely strengthen if formerly solid
financial institutions find themselves in
dissolution. This all has an effect on the coin
market, but data suggests that a trading range
of $750 to $975 in the short run is likely, with
higher numbers coming up in the long term. This
amazing asset has a history and longevity that
simply won't die.