Mount Washington Hotel, site of the Bretton Woods Conference. Image: Richard Hicks
In the aftermath of World War II, the United States cemented its position as the world’s largest and most powerful economy. The new international monetary order created at Bretton Woods, New Hampshire in 1946 was based in part on the gold-exchange standard of the 1920s, only with the dollar as the sole international reserve currency—since it was as good as gold. All countries tied their currencies to the dollar at fixed exchange rates, with the dollar being defined as FDR had left it, at 1/35 ounce of gold (i.e. $35 per ounce of gold). While individuals in the United States were still unable to own gold or to redeem their dollars for gold, foreign governments were able to cash in their dollars to the U.S. government and receive gold in return, a process that became known as the “gold window.” While the United States would pyramid its dollar issue on top of its gold reserves, other countries were supposed to hold dollars, and not gold, as their primary foreign exchange holdings.
After first asking Chairman Bernanke if he does his own shopping (because anyone who does their own shopping knows that prices are rising faster than the Fed says they are), Ron Paul whips out a one ounce silver round and proceeds to lecture Bernanke on the importance of sound money.
90% Silver Half Dollar (L); Cupronickel Clad (0% Silver) Half Dollar (R)
Today marks the 50th anniversary of the Coinage Act of 1965, perhaps the most radical piece of monetary legislation since the founding of the Republic. For the first time in American history, all circulating coinage was intended to be made out of base metals, not gold or silver. You’ll notice in your pocket change that half dollars, quarters, and dimes have a thin band of copper visible along the edge. This is because those coins are now “clad” – made of a sandwich of copper and nickel known as cupronickel. You’ll also notice that the only coins you’ll ever see minted before 1965 are pennies and nickels, neither of which contained silver. Silver dimes and quarters (1964 and before) are rarely seen in circulation, and when they are they’re immediately removed since their metal value is far higher than their face value.
The mainstream financial media have been beside themselves with glee at the recent drops in the prices of gold and silver. Both precious metals have reached five-year lows, with gold closing yesterday below $1100 and silver below $15. Mainstream pundits have crowed that this proves the “gold bugs” wrong, that gold and silver are poor investments and not the safe havens they are made out to be. But is that really true?
On this Throwback Thursday, let’s take a look back at US gold and silver eagle sales for 2006 and 2014. US gold eagle coin sales in 2014 suffered their largest annual drop in sales since 2006. And we all remember what was happening in 2006, right? The housing bubble was peaking and about to burst. At the end of 2006 the first rumblings of Bear Stearns’ troubles were about six months away. The Lehman Brothers collapse was still over a year and a half away. And the onset of QE1 and the Fed’s zero interest rate policy were nearly two years away. But could the drop in gold eagle sales have been a harbinger of economic difficulties to come?
The Royal Canadian Mint recently came out with an interesting product, a packet of 25 one gram .9999 fine gold coins. Each coin is individually packed in a removeable, individually serial-numbered blister pack. One gram coins are pretty small but their metal content is currently worth about $50 each. Between that and the development of CombiBars and CombiCoins, there are some very interesting products that could be used for day-to-day transactions in precious metals.