Collecting Ever Be the Same
By David L. Ganz
Gold is in a foot race sprint
towards $1,000 a troy ounce and beyond. Platinum
is already at $2,174 an ounce. Silver exceeds
$20 an ounce. The price of oil has gone over
$100 a barrel. Copper is now at a record $3.91 a
pound; nickel is a $14.82 a pound and even lowly
zinc is at $1.27 a pound.
The age of commodities is upon us.
Here's the scary thing. A couple hundred dollars
ago, gold reached its high of the 1980s, then
the height of inflation and a series of economic
pressures that were very apparent to the nation
as a whole and to coin collectors in particular.
Just as a refresher, the consumer price index in
1980 was going at a clip of more than 10
percent, while the previous year, 1979, saw a
13.5 percent average.
The Hunt brothers had cornered the silver
market, or tried to, before it topped out at $50
an ounce. Gold followed, largely on Soviet
pressure, and withholding of sales, before it
reached its zenith in the $850 range. The
economic prospects looked dismal.
With silver at $50 an ounce, a silver dollar,
even the most common date was $38.67 for the
precious metal in it. Off they went to the
melting cauldrons. It's over now back again at
$20, that leaves about $15.47 worth of silver in
the dollar coin, again enough to threaten
low-grade coins sometime sought by variety
I recall how I used the price of silver for my
own collection, buying essentially at melt a set
of early Washington quarters, 1930s and 1940s,
all in circulated. It's clear that with .18084
troy ounces of silver, common-date Washington
quarters now have more than $3.61 worth of
silver in them and, at least, circulated coins
are threatened with extinction.
(By contrast, with $50 silver each quarter had
about $9.04 worth of metal in it and there was
little likelihood that sum would ever be reached
if valued solely as a collectible.
There's a difference this time: the Chinese
government and the American balance of payments.
On Feb. 19, the World Gold Council released
estimates that China absorbed 300 tons of gold
jewelry and bullion in calendar year 2007.
Imagine that: 24,000 troy ounces per ton (12
troy ounces to the pound) multiplied by 300 (7.2
million troy ounces).
There is also the value of the U.S. dollar, now
at historic lows.
For hundreds of years, unlike other metals, gold
has been an asset of last resort. That means
that in times of desperation, it has made the
difference, for some, between life and death. It
has outpaced inflation, frequently outstripped
other investment vehicles, yet at other times
has been a stick in the mud going nowhere.
The CPI in the past month moved 0.4 percent
(about 5 percent annually) - about double the
2.68 percent in 2006, but less than the 13.5
percent in 1979 (when home mortgages on the
conventional market topped out at 21 percent. (I
remember being grateful at the time for a
purchase money mortgage given to me at 14
The stability of gold is legendary. From 1837 to
1933, for example, with some narrow wartime
exceptions, gold had a fixed and guaranteed
international value of $20.67 an ounce. That
broke down in FDR's administration when the
dollar was devalued by about 59 percent and
gold's price raised to $35 an ounce.
That guaranteed rate was forcibly retained until
the late 1960s when gold was set free from a
fixed dollar rate in a floating market, and
later on Aug. 15, 1971, the dollar was again
devalued and gold's price raised to $38 an
ounce. A subsequent devaluation to $42.22 an
ounce for gold - still the official rate -
followed in 1973.
Even today, with gold nearing $1,000 an ounce,
official U.S. gold reserves are valued at
$42.22, while the market price of gold is about
20 times higher. (That means that as of Jan. 31,
2008, the Federal Reserve and the Treasury have
261 million ounces of gold with a book value of
$11 billion - a realistic value of about $260
For all the talk of American economic collapse
internationally, the U.S. gold reserve still far
outstrips everyone else's. The $260 billion
outstrips official gold holdings of many other
nations. The tonnage is calculated at the rate
of one metric ton (1,000 kilograms) = 32,150.7
Gold's price has been less than stable since it
was uncoupled from the dollar in 1968, but it
has had a stability - if upward mobility -
perhaps in part because when you add the top 20
holders of gold excluding the International
Monetary Fund itself, the U.S. has about a third
of the world's official gold (261 million ounces
or 8,133 tons. The IMF has 3,217 tons, or a
little bit over 100 million ounces of the metal.
From 1980 to the present, the price of gold went
through several different periods, but a trading
range of $300-$450 an ounce is a dominant
feature. It comes off a 1980 high of $850 an
ounce, an average (for the year) of $613 an
ounce and then the ups and downs associated with
a commodity, not an asset of last resort. It's
gone up more than $200 an ounce since the
beginning of the year.
With this as background, a reader inquired
recently whether I thought it better to retain
gold as bullion, Krugerrands, U.S. Eagles or
U.S. numismatic gold coinage. The unanswered
question is what performs better: numismatic
coinage or gold bullion.
I undertook an analysis not scientific, but
rather random - using several different coins
designed to mimic a numismatic coin with more
bullion content than numismatic worth. That
meant condition ran from about uncirculated to
MS-63, but most were plain old MS-60. I also
looked at VF double eagles of no special date or
description (generic coinage). The result: a
clear numismatic kick or preference over pure
bullion - even American gold Eagles outperformed
100-ounce and 400-ounce bars.
The American gold coinage has integrity the
world over. That is because:
" It's a legal tender at its nominal face value;
" If someone copies it, they are liable for
American counterfeiting penalties and Secret
" Civil protection of unintended copies with the
Hobby Protection Act;
" Formal sales contracts on various commodity
" Daily price postings not only on Web sites,
but in daily press financial section;
" Well-recognized design and clearly spelled out
fineness, weight, value, and
" Integrity assured by U.S. government.
There are other nations that have component
parts of these bullet points, but no one except
the U.S. gold Eagle matches up on all counts.
(The same holds true for the silver and platinum
version). There are, of course, variations as
well as components that the Eagle shares with
Krugerrands - owned primarily for bullion are a
legal tender. But this is by virtue of
legislative action - the South African Mint &
Coinage Act No. 78 of 1964, as amended by the
South African Mint & Coinage Act of 1966, and
the South African Mint & Coinage Further
Amendment Act. No. 40 of 1966, §§11 through 12.
The legal-tender value of the Krugerrand is the
price of an ounce of gold. That means it varies
daily. But it is valued at less than the U.S.
gold Eagle because of ongoing doubts about the
vitality of South Africa.
For the same reason, the Canadian Maple Leaf is
a legal tender by virtue of the Currency
Exchange Act, Canadian Revised Statutes, Chapter
C-39 §4, Schedule 1 (1970) (Amended by Order of
the Privy Council No. 3048 (1979)). These coins
have fixed (if low) value in Canadian dollars.
Since its launch in 1970, more Krugerrands have
been issued - some 46 million ounces - than all
other gold bullion coins combined. In fact, the
World Gold Council estimates that more than 15
million ounces of Krugerrands are held in the
U.S. - the world's largest gold bullion coin
Some research discloses a measure of legal
protection. In U.S. v. Bertram, 719 F.2d 735,
C.A. Tex., 1983, a federal court found that a
counterfeit Krugerrand with word "copy" on them
still is counterfeit. The same principals would
prove true for other legal-tender coinage,
including other bullion pieces. That's full
legal protection against illegal duplicates.
Prior to the 1960s, there were no "bullion"
coins, per se, but coins with a full measure of
gold. Gold coins were traded and available on a
widespread basis, even British sovereigns of the
modern era (.2354 troy ounces) - 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
Eventually, an arbitrary line in the sand was
drawn with 1960 as a 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
As a 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 also drive its price down.
And so it did in the early days of 1970. By Jan.
16, 1970, 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 at
$34.90 an ounce. Who would have imagined that on
March 3, 2008, it would top $981?
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, Reuss would say that this marked the real
beginning of the drive for legal private gold
ownership in the United States which did not
take place until Dec. 31, 1974.
Now gold sprints towards $1,000 an ounce - and
beyond. Surely this makes collecting modern
coins of gold content difficult, hard for the
Mint to market $5 gold pieces (they should
switch to quarter eagles). It also encourages
like-kind exchanges of higher valued bullion
coins for lesser-valued.
Certainly, it makes for an interesting entry
into the new era of the age of commodities.