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Not Every Gold Trade Profits Buyer
By Patrick A. Heller
April 21, 2014

 

When shopping in grocery stores, I sometimes notice that the larger size containers of some product have a higher cost per ounce for the contents than do smaller packages. That is the exact opposite of a volume discount, which most shoppers would tend to expect when buying in bulk.

Occasionally some coin dealers will promote transactions that are more lucrative for the dealer than for the customer.  In fact, the customer might end up in a worse position than if they did nothing.  A customer reminded me of one of these proposals late last week.

President Franklin Roosevelt signed Executive Order 6102 on April 5, 1933 (and subsequent modifications later in 1933). This prohibited the hoarding of gold coins, gold bullion and Gold Certificates by U.S. citizens. The orders included several exceptions to the requirement that Americans turn in their gold for full compensation.

For instance, there was an exception for “customary use in industry, profession or art” that allowed artists, jewelers, dentists, sign makers, and others to continue to hold physical gold. Every citizen was allowed to keep up to $100 in gold coins or Gold Certificates. There was also an exception for “gold coins having recognized special value to collectors of rare and unusual coins.” Research on this last exception by David Ganz, a former American Numismatic Association president and a legal expert in U.S. monetary law, indicates that the purpose was to avoid the U.S. government from having to pay a collector value in excess of face value for such coins that might be redeemed.

At the time that this fully compensated mandatory redemption was ordered (erroneously labeled as “confiscation” by some marketing companies), virtually all U.S. $20 gold pieces were worth face value and not exempt from surrender. In addition, a high percentage of all lower-denomination coins were also trading for only face value.

Given the reason for the “collector coin” exemption in the original 1933 Executive Order, does owning pre-1934 gold coins offer any greater protection against any future U.S. government action that might call for Americans to turn in their gold coins and bullion?

Before I discuss that, I want to explain that I think there is almost no chance that the U.S. government will do a repeat of what happened in 1933.  There are several reasons behind my conclusion.  

First, the redemption was of circulating money – gold coins are not circulating money today. Second, the U.S. government’s current official position is that gold is not money – any redemption order would contradict this constantly repeated assertion. Third, since it was largely illegal for Americans to acquire gold coins and gold bullion from 1933 to the end of 1974, the percentage of U.S. citizens that own such items is much lower than it was in 1933.

A new recall would yield a relatively dismal amount of gold. Fourth, if it chooses the U.S. government has a far more lucrative target than gold by seizing private retirement assets and replacing them with Treasury debt. Last, for the U.S. government to implement a gold redemption would be an admission that the U.S. dollar is extremely shaky, which would spark foreign holders of dollars and Treasury debt to quickly repatriate their holdings (about $12 trillion in the latest reports I have seen) for physical goods and services that would drain the government’s coffers.  
For all of these reasons, I think the U.S. government would suffer more financial damage if it tried another gold recall than if it did not do one – and that is why I don’t expect it to occur.
Still, the probability of another U.S. government mandatory gold redemption is not zero. For those concerned about such a prospect, does purchasing pre-1934 gold coins offer any extra benefit as supposed “collector coins?”

In my judgment, the answer is a resounding no. Here’s why I think that way. If gold really were at risk of being turned into the government, the easy plan would be to purchase silver. Silver and gold both are generally moving in the same direction. Last year, when the government of India imposed severe restrictions on importing gold, demand for physical silver soared so much that global silver demand in 2013 exceeded year earlier demand by 17 percent.

Second, the 1933 recall only covered coins trading at face value. Today, almost every gold coin trades above its face value. There would be no added protection to owning pre-1934 gold coins if this exclusion were again included as part of any redemption program. Last, most pre-1934 gold coins were not excluded from the 1933 recall, so why would that be any different if it happened again?

However, there are some coin marketers that have picked up the marketing angle of recommending that customers purchase pre-1934 gold coins rather than bullion-priced issues for supposedly offering greater protection against any possible future U.S. government redemption order. There are several reasons why collectors and investors may want to own the older coins, but this “reason” does not apply.

So, why would any marketer push the sale or swap of bullion items to obtain pre-1934 gold coins? One reason is sellers make a larger profit percentage on these collector coins than they do selling bullion. It is also possible to encourage people to acquire these older coins without having to lay out any cash by encouraging a swap of their gold bullion-priced coins.  Here again, the dealers make a profit in such a swap while the customers end up with product that is worth less to liquidate than the bullion they just traded away.

If you are presented with a spiel that you need to own pre-1934 gold coins as superior protection from the U.S. government than acquiring bullion-priced issues, I consider that a warning sign of a dealer with whom you may not want to do business.

Patrick A. Heller was the American Numismatic Association 2012 Harry Forman Numismatic Dealer of the Year Award winner. He owns “Liberty Coin Service” in Lansing, Mich., and writes “Liberty’s Outlook,” a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at Coin Week (http://www.coinweek.com and http://www.coininfo.com). He also writes a bi-monthly column on collectibles for “The Greater Lansing Business Monthly” (http://www.lansingbusinessmonthly.com/articles/department-columns). His radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 a.m. Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com).

More Coin Collecting Resources:

• Kick-start your coin collection with the Fundamentals of Coin Collecting set of essential resources and tools.

• Strike it rich with this U.S. coins value pack.

• Build an impressive collection with Coin Collecting 101.



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