Why I’m Taking Gold Double-Eagles on My Next Trip to Utah

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Federal Reserve Chairman Ben Bernanke may think he has everything under control, but the truth is the monetary ground is literally shifting beneath our feet.

That's why his loose monetary policy has some U.S. states looking to get into the gold coin business.

As I'll explain later, it's why my Gold Double-Eagles are becoming even more valuable.

Because while the U.S. Constitution bans states from printing their own paper money, it does allow states to make "gold and silver Coin a Tender in Payment of Debts."

Now no fewer than 13 states are seeking approval from their state legislatures, either to issue their own currency or to explore it as an option as the Fed's printing presses spin out of control.

So why is there this big rush by states to move into gold as an alternative currency?

It's simple really.

The Trouble with Fiat Money

Fiat money, created by central banks, possesses no intrinsic value. Paper money only works as long as governments don't create too much of it.

For pieces of paper to have value, we all have to believe there won't be too many of them and that the authority creating them has the preservation of their value as its top priority.

When that confidence vanishes, the fiat currency returns to being just paper – as it did famously in Weimar Germany in 1923. Or even more catastrophically in post-war Hungary, where the last stable symbol of value, the 1931 gold pengo, became worth 1.5 octillion 1946 paper pengos.

Of course, central banks do occasionally compete for foreign depositors by offering paper currencies with more stability.

In fact, before 2000, the U.S. dollar benefited from these flows that came from all over the world, including Europe.

Now, apart from the eccentrics who swear by the Japanese yen or the Chinese yuan, flight capital is largely confined to the Swiss Franc.

Since Switzerland is a small economy, the Swiss National Bank has drawn a hard line. It refuses to allow the franc to rise above 1.20 against the euro, so even that refuge has been made less attractive.

The Attractiveness of Gold

As you would expect, the private sector and some governments have begun to look further afield, and are beginning to focus on gold in particular.Gold is attractive because it has historically been the premier unit of money. Therefore, gold combines the support from all the possible alternatives to fiat currencies.

Recently, Iran and China signed an oil deal, breaking U.S./EU sanctions, which allows China to pay in gold. As you know, China has secretly been accumulating gold reserves for the last couple of years.

It's now likely that more private companies will begin invoicing each other in gold, as individual currencies become less attractive owing to over-production by central banks.

Since Bernanke has committed to keeping U.S. interest rates at ultra-low levels until late 2014, it's likely that inflation will accelerate, both here and around the world.

In turn, increasing amounts of trade and investment transactions will be done via payments in gold.

In the long run, that could lead to an unofficial but universal gold standard, with a huge proportion of the world's larger transactions being carried out in gold, and paper currencies reserved only for the small fry and the unsophisticated.

Central banks and governments will resist this strongly because it would deprive them of the very profitable "seigniorage" from issuing currencies.

However, if gold usage develops far enough, they may find they no longer have control of the world's monetary system.

The Advantages of Gold Double-Eagles

The states recognize this and are moving towards the shiny metal themselves.

So far, Utah has led the way, not by issuing its own currency, but by allowing gold and silver coins issued by the U.S. Mint to be used as payment in Utah transactions.

In this case, the value of the coins is determined by the current price of gold, not by the face value of the coin itself.

That's important because the Gold Double-Eagle, minted from 1850 to 1933, has a face value of $20, but – containing 0.9675 ounces of gold– has a current value of $1,650. Since 1986, the U.S. Mint has issued bullion Gold Eagles, the largest denomination being $50 and containing 1 ounce of gold — making the coin worth about $1,700 today.

So check local regulations, but in states such as Utah where gold payment is recognized, take along some gold eagles if you have any substantial business to transact.

You'll find an increasing enthusiasm for your real money!

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  1. JollyD | February 14, 2012

    A real possible corollary threat to government from those transacting in gold become when companies or individuals tkae payment at the legal tender value of gold or silver coins, thereby receiving nominally say $20 in pay or revenue for their products/labor/service, but in gold dollar value $1650 – so technically having received only 1/83rd of what would be the dollar amount they would accept, they will owe only 1/83 in taxes as the revenue or salary will legally be only that

    • SnowCrash | February 19, 2012

      @JollyD wrote: "they will owe only 1/83 in taxes as the revenue or salary will legally be only that"

      I think the Utah law forbids transacting in the face values of the coins. Utah is, after all, an income tax state.

  2. Fred Zak | February 14, 2012

    The saying is " Only government can take perfectly valuable paper, cover it with perfectly valuable ink, and make it totally worthless."

  3. JOHN TYTLA | February 14, 2012

    Why use your gold now when it will be worth more in the future? Use the paper currency now while it is still useful and save your gold when it will really be needed. But the point of the article is well taken.

  4. Jim | February 14, 2012

    There are two problems with the gold/silver tax evasion scheme proposed by JollyD. If the payment is declared, the IRS would never agree and if you want to cheat on your taxes just pay in cash and don't declare the payment.

  5. Fred Stork | February 14, 2012

    This a suspicious theory. Gold is a good refuge from fiat money now, just as a place to hide the values. but if gold becomes universal money, it will still be vulnerable to market forces and inflation. Just like silver, not many people realize a British "pound" is not a symbolical name, it originally stood for a pound of silver by weight. Not very practical, compact, and highly mobile currency… now it's next to worthless, about 1/2 ounce? of silver. And "printing" money, or more likely "stamping", that was historically done as well, gold coinage of same "value" getting smaller and thinner as inflation eroded the value of the currency, and king's coffers were getting depleted.

  6. Ben Bernanke | February 15, 2012

    This is all well and good since it's the only action states can take but as long as fiat currency is still accepted it is what I will use to pay bills. It's Gresham's Law which basically states if bad money is allowed to circulate, good money will be hoarded.

    I applaud the effort but really you are a fool if you pay for things with precious metals while Federal Reserve Notes still work. There will be a time and place. We aren't there yet. Keep stacking and spread the word.

    • SnowCrash | February 19, 2012

      I agree that the Utah legislation's biggest value will not be realized until some future date when fiat money will be rapidly losing value. Then transacting in bullion will be an attractive option, because, as a seller of goods, I won't want to deal with buyers giving me paper.

      I can also see some present advantages to having the option to transact in gold or silver bullion. I'm talking about mutual advantages for both buyer and seller.

      For example, I have a friend who paid for a fishing boat with some of her gold bullion stash. I'm guessing she got a better price for the boat, as the seller was also in the market for some bullion, thus making her a more attractive buyer than someone who wanted to pay in paper. The seller saved money by not having to pay a margin on the bullion he obtained. My friend saved money by not converting her gold to paper, thereby avoiding the 28% collectibles tax.

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