Double Eagle

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Over the long Easter weekend, I wanted to share a few excerpts from my financial history book, Panic, Progress, and Prosperity. Here’s today’s piece:

The stunning bull market in precious metals in the late 1970s, followed by its swift collapse, has a fascinating and remarkable history. The roots of the event date back to the dark days of the Great Depression, when President Roosevelt issued Executive Order 6102 which outlawed the “hoarding” (that is, the ownership in almost any form) of gold by any person or other entity within the United States.

Prior to this order, gold was intricately intertwined in the nation’s currency. U.S. dollars were convertible into gold on demand, and this convertibility had helped constrict the velocity of money severely. Roosevelt recognized that inflating the money supply was essential to turning the economy around, so he took the extraordinary step of criminalizing private ownership of gold as one of the steps to decouple the precious metal from the nation’s currency.

The President signed the order on April 5, 1933, only weeks after his first term in office began, and it gave the nation’s citizens until May 1 to turn in all their gold in exchange for $20.67 per ounce in cash. This seems like an extraordinarily low price today, but in inflated-adjusted dollars, it equals about $400 per ounce. Some exceptions were made to the order: those who used gold as a component of a professional service (such as artists, dentists, and jewelers) could buy and use gold, and rare, collectible coins were spared the melt-down process that other coins would undergo.

Although they were supposed to obediently turn in their coins, the wealthier citizens of America who had meaningful amounts of gold simply stored it away overseas, usually to Switzerland. In spite of the severe penalties sanctioned in the order, there actually wasn’t a single successful prosecution of anyone in the country for violating the order.

The U.S. Mint had been producing gold coins, as it had for many years, including a $20 gold coin designed in 1907 by famed sculptor August Saint-Gaudens. The coin was called a Double Eagle, and it is considered to this day to be the most beautiful coin ever minted by the United States. It was 90% gold and 10% copper, and its gold content was equal to its $20 face value.

Many of the coins had been minted since the design was completed in 1907, and they were still being produced by the U.S. Mint even after the executive order banning gold had been signed by the President. The new coins were not distributed, however, and by late 1934 all but two of the coins had been ordered to be melted down. The two officially-saved coins were presented to the U.S. National Numismatic Collection and, as far as the U.S. Mint knew, those were the only 1933 Saint-Gaudens Double Eagle coins in existence, as the others had been assumed melted back into gold bars already.

After May 1 passed and the Treasury had paid everyone their $20.67/ounce for the gold that was turned in, the Treasury ratcheted up the official price of the metal to $35 per ounce, an increase of 70%. This had two immediate effects: first, it meant that all the citizens who had dutifully turned in their gold found themselves with paper money that was suddenly worth a lot less, and second, the government had an instant 70% profit on all the gold it had bought from the citizens. The profits were used to fund the Exchange Stabilization Fund that was sanctioned by the Gold Reserve Act of 1934. One individual who failed to submit his substantial gold holdings (5,000 ounces) to the government was an attorney named Frederick Campbell. The federal government charged Campbell with his failure to turn in his gold, but the judge refused to prosecute Campbell with the crime based on a technicality: since the order was signed the President Roosevelt, as opposed to the Secretary of the Treasury, it was deemed invalid. Campbell did ultimately have to sell his gold to the Treasury, but he did not have to endure a criminal prosecution for his initial failure to do so.

The double eagle gold coins from 1933 should have been completely lost to history, with the exception of the two specimens saved by the U.S. government, having been melted down by government order. It turns out, however, that a small number of the coins found their way out of the U.S. Mint, and one of them eventually become the most expensive coin sold in history.

The circuitous, multi-decade route of the “escaped” coins is an interesting tale in itself. It seems that someone at the U.S. Mint with access to the gold coins – perhaps the Mint Cashier, although no one will ever know for sure – pilfered at least twenty coins and got them into the hands of Israel Swift, a jeweler in Philadelphia. This went unnoticed for years, until one of the coins appeared at a coin auction.

A reporter was intrigued by the appearance of this coin which wasn’t supposed to exist, so he contacted the U.S. Mint as part of his research. In turn, the Mint notified the Secret Service, which opened up a case to investigate the matter.

One would not normally think that a single coin from over a decade ago would have been a matter of national interest, but the Secret Service took the matter very seriously and wound up tracking down seven different coins, each of which were doomed to be melted at the Mint, as they should have been ten years earlier. Because of the age of the crime, Israel Swift had the statute of limitations to thank, since he could not be prosecuted.

Unknown to the Secret Service, there was another 1933 Double Eagle sitting in Egypt, owned by none other than King Farouk, who was an enthusiastic collector of all kinds of objects and treasures. He had, in 1944, purchased the coin and had actually taken great care to follow the letter of the law and fill out all the export paperwork so that the purchase and shipment of the coin was legal and proper. This all took place just a few days before the Israel Swift matter came to light, and the export license was granted.

Although the Treasury Department tried to get the coin back through diplomatic channels, the King saw no reason to hand over his legally-acquired property. In 1952, he was deposed from his throne, with his many treasures seized and put up for public auction. The Treasury Department asked the new Egyptian government to hand over the coin, and the government agreed that it would. Strangely, however, the coin once again vanished.

Decades later, at the Waldorf-Astoria Hotel in New York City, the U.S. Secret Service arrested British coin dealer Stephen Fenton, and among his holdings was the very Double Eagle that King Farouk had possessed so long before. A court battle ensued, and it was decided that the coin belonged to the government of the United States and that it could be sold at auction. In an interesting settlement, it was also decided that, unlike all the other Double Eagles, this one would be made into legal tender (that is, monetized), as originally intended in 1933.

The story of this small, single coin becomes more interesting still: when deciding where to store this singularly valuable coin, the Treasury officials settled on the vaults of the World Trade Center. In July 2001, only a few months before terrorist attacks would destroy the building complex, the coin was moved to Fort Knox.

Finally, on July 30, 2002, the coin was put up for auction at Sotheby’s and sold for $6,600,000. A 15% surcharge was tacked on by Sotheby’s plus – almost comically – a $20 fee in exchange for the intrinsic $20 “monetized” value of the coin as legal tender (although it can safely be said the coin would never be spent in exchange for $20 in goods or services).

Thus, the final bill of $7,590,020 was the final bill for the coin, with half the cash (plus the intrinsic value of $20) going to the U.S. Treasury and the other half going to coin dealer Stephen Fenton. After over 70 years of making its way all over the world, the coin finally found a permanent home to an anonymous buyer after only nine minutes of bidding. Finally, it should be noted that ten more Double Eagles have been uncovered – again, emanating from the actions of Israel Swift – but that lengthy litigation has determined that these too are the property of the U.S. Government. They remain securely stored at Fort Knox and, as of this writing, their fate has not been determined.