By John Fisher
Some precious metals firms foster the circulation of many myths, misunderstandings, and outright lies about the purchase and sale of precious metals. Generally, these misconceptions and falsehoods promote the notion that the government may again call in gold as it did in 1933 and that “reportable” transactions are preludes to confiscation. By cultivating such fears in investors, unscrupulous firms can sell high-priced (and often overpriced) coins with greater margins of profit.
Investors who believe these stories invariably pay too much or buy the wrong coins. After reading this newsletter, no investor need be taken advantage of.
Avoiding Confiscation
The most frequently used technique to promote high-priced coins is to raise the issue of confiscation. Many telemarketers tell investors that old U.S. gold coins are not “subject to confiscation,” leaving the impression that modern gold bullion coins are. Consequently, many investors buy old U.S. gold coins at prices significantly higher than the value of their gold content. The idea of buying “non-confiscateable” gold sounds like a powerful argument but wilts under scrutiny.
Many precious metals firms maintain that old U.S. gold coins, proof sets, and commemorative gold coins are “collectibles” and would not be subject to another gold recall. Some firms say that premiums of at least 15% automatically make coins collectibles. Another notion holds that coins one hundred years or older are antiques and therefore not subject to confiscation.
One large firm that sells rare coins goes as far as to say:
“Under current federal law, gold bullion can be confiscated by the federal government in times of national crisis. As collectibles, rare coins do not fall within the provisions permitting confiscation.”
No federal law or Treasury department regulation supports these contentions.
The myth that specific types of gold coins are “not confiscateable” stems from the Executive Order that President Roosevelt issued in 1933 calling in gold. The Executive Order exempted “gold coins having a recognized special value to collectors of rare and unusual coins,” but it did not define special value or collector, and certainly not collectibles. Nevertheless, telemarketers promoting old U.S. gold coins perpetuate this myth because it makes easier the selling of high-priced coins.
Just because Roosevelt exempted “gold coins having a recognized special value” does not mean that any future call-in would exempt collectibles. Roosevelt’s Executive Order would have no legal binding on another gold call-in. Besides, on December 31, 1974, with Executive Order 11825, President Gerald Ford repealed the Executive Order that Roosevelt used to call in gold in 1933. This was necessary because on the same day Congress restored Americans’ right to own gold. Furthermore, in 1977 Congress removed the president’s authority to regulate gold transactions during a period of national emergency other than war.
Even if a law did exempt certain coins from future confiscation, the government could change that law. Sadly, the government often simply ignores laws.
Dealers who say they sell “non-confiscateable” gold have no basis for making such claims.
For further discussion of this matter, assume there were another gold call-in. Would old U.S. gold coins, which make up the bulk of the “non-confiscateable” market, be exempted? Probably not, because they are common coins. (The old U.S. gold coins most often promoted are the $20 Libertys and the $20 St. Gaudens, also known as Double Eagles. A $10 coin is called an Eagle, a $5 coin a Half Eagle, and a $2-1/2 coin a Quarter Eagle.)
Although Roosevelt’s Executive Order required Americans to turn in their gold coins and gold bullion, foreigners continued to redeem paper dollars for gold until August 15, 1971, when President Nixon closed the gold window. From the end of World War II to 1971, our gold reserves were cut in half.
It is generally believed that all the gold coins surrendered under Roosevelt’s call-in were melted or refined into .999 fine bullion bars. That was not the case. It was to the government’s advantage to give the foreigners gold coins instead of bullion bars.
With the official price of gold at $35 an ounce, a foreign bank presenting $35 million paper dollars received 1,000,000 ounces if the Treasury delivered gold bullion. However, when the Treasury delivered gold coins with a face value of $35 million, it delivered only 967,500 ounces, saving 32,500 ounces. Each $20 Liberty and St. Gaudens (Double Eagles) contains .9675 ounce of gold. The smaller coins contain the same proportions. Therefore, it was to the Treasury Department’s advantage to give out U.S. gold coins instead of bullion bars. Additionally, before Roosevelt’s call-in, millions of old U.S. gold coins already had made their way to Europe.
So, in view of the government’s policy of delivering “confiscated” gold coins to foreign governments, how can a promoter of old U.S. gold coins claim to be selling “non-confiscateable” gold when the coins he delivers may have been called in back in 1933?
Promoters of old U.S. gold coins rarely reveal the sources of their coins. They foster the idea that the coins they sell somehow survived the 1933 call-in. Probably, the coins being promoted just arrived from Europe a few weeks earlier. Several large numismatic wholesale firms have offices in Europe for finding hoards of old U.S. coins. One firm advertises “Shipments coming in from Europe daily.” Another firm boasts offices in Brussels, Paris, and Zurich.
As noted above, the premise of “non-confiscateable” gold lies in Roosevelt’s Executive Order that exempted “gold coins having recognized special value to collectors of rare and unusual coins.” Are old U.S. gold coins “rare and unusual” today? Not hardly.
Between 1850 and 1907, U.S. mints turned out over 100 million $20 Liberties. Between 1908 and 1933, they coined some 65 million $20 St. Gaudens. Today, no one knows how many have survived, but the number is undoubtedly in the tens of millions, with the bulk of them residing in European bank vaults.
Because of all the old U.S. gold coins in Europe and because of the huge premiums they carry, old U.S. coins are dangerous investments at this time. If gold rallies, European banks may see it as an opportunity to unload, causing old U.S. gold coins to fall in price while gold goes up.
If gold fails to rally, the banks may fear gold will stay down for a long time, prompting them to resume selling. This, too, would cause the old U.S. gold coins to fall in price, shrinking the premiums at which they sell over spot.
Since 1989, PCGS and NGC, the two major grading services, have “slabbed” over two million coins rated MS-60 or higher. Now, the two services are grading 200,000 to 300,000 coins a month. Millions of lower-grade coins (VF through BU) do not even warrant being submitted. Yet, they are sold as “non-confiscateable” semi-numismatic coins. Low-grade coins that have no real collector value are called semi-numismatic. VF/XF common-date Double Eagles are definitely semi-numismatic coins.
Add in the uncounted smaller denomination old gold coins ($10 Eagles, $5 Half Eagles, etc.) and the number of available old U.S. gold coins grows even bigger. There is no way the old U.S. gold coins being promoted as “non-confiscateable” have a “recognized special value to collectors of rare and unusual coins.”
The concept of “non-confiscateable” gold is counterfeit. The idea lives only because dealers continue to push it for their own benefit. Investors who do not have the facts are unable to know otherwise. Readers of this Web page, however, need not be victims to the hype and promotion so prevalent in the gold coin industry.
Investors wanting to buy gold should go with the bullion coins: American Gold Eagles, Maple Leafs, or Krugerrands. These coins move dollar for dollar with the world price of gold and are easy to buy, sell, and trade. Additionally, tracking the value of these coins is easy. No “expert” has to look at them.
