Gold Coins: Their History
By Q. David Bowers - May 21, 2002
Excerpt from “Buyer's Guide to United States Gold Coins.”
In numismatics, as in other walks of life, knowledge is closely equated with success. The more you know, the more successful you will be. The field of gold coins is no exception.
Whether you endeavor to pick up a few scattered “sleepers” as a potential investment, or whether you are determined to acquire a date run or a set of coins, you will find background information concerning the creation and distribution of gold coins to be of value. Beyond that, in the pages to follow there are specific suggestions for identifying undervalued scarce and rare pieces. But, first, here is a survey of United States gold coins:
Gold has always fascinated mankind, and today the lure is no less than it was in the last century when the prospect of acquiring the bright yellow metal was responsible for the California Gold Rush. Silver has its advocates, platinum may be worth more from time to time on the market, but it is gold that has been characterized as the most noble of metals, the king of elements, the stuff of which dreams and treasures are made.
From the very outset, gold was conceived as a part of the federal coinage system. However, when the Philadelphia Mint opened its doors in 1792 and began producing coins in quantity for circulation in 1793, no gold pieces were among the issues struck. It was required that surety bonds in the amount of $10,000 each be posted by key Mint officials, and they were unable to raise the sum. So, the advent of gold coins awaited the year 1795, by which time the bond amounts were reduced and the requirements satisfied. The first United States gold coinage consisted of $5 pieces, called half eagles, delivered that year, followed by $10 or eagle pieces. An additional denomination, the $21/2 piece or quarter eagle, had its advent in 1796, thus completing the spectrum of early United States gold coin denominations.
The country was in its fledgling state, and in the channels of commerce, both within the United States and abroad, there was a great distrust of paper money (previously issued Continental Currency notes were virtually worthless, so obligations of the new American government were viewed with suspicion), and emphasis was on intrinsic value. So, framers of the act passed on April 2, 1792 took care that the weights of gold and other coins were equal to their intrinsic or melt-down value. The gold $10 piece was established at a weight of 270 grains, consisting of nine parts gold and 10 parts copper, the copper being added to give strength to the alloy. Lesser denominations, the $5 and $21/2 values, were given proportional weights.
The intrinsic value concept was quite satisfactory so far as promoting the acceptance of new federal coins, but a backlash occurred whenever the value of gold metal rose on international markets. Each time this happened, vast quantities of minted quarter eagles, half eagles, and $10 pieces went into the hands of bullion brokers who melted or exported them.
As published mintage figures in the Guide Book reveal, quarter eagles were produced in low quantities during the early years. $10 pieces were also coined in relatively modest amounts, with relatively few exceptions, with production in the early years terminating in 1804, after which no pieces were minted until 1838. Thus it fell upon the $5 half eagle to be the “workhorse” denomination. Gold coins of this value were struck more or less continuously from 1795 onward, with typical years generating production in the tens of thousands of pieces. In 1810 a record 100,287 coins were produced, and the next year, 1811, the mintage was about the same and amounted to 99,581. A glance at the figures in the Guide Book will show generous mintages of half eagles through the 1820s and early 1830s. At the same time, it will be readily observed that these pieces, which by superficial glance should be “common,” post some of the highest values in the American series. Then there is the curious notation that although 17,796 half eagles were minted in 1822, just three are known. An example in EF-40 grade, catalogued by the present writer for the sale of the Eliasberg Collection of U.S. Gold Coins in 1982, realized $687,500!
The explanation is provided by the bullion markets of the time. The price of gold rose during the 1820s and early 1830s, so that by the end of the period very few pieces had escaped the melting pot. A freshly-minted 1822 half eagle, or any other half eagle of the era, could be melted down and return more than $5 in value. Producing such coins was an exercise in futility for the Mint. Realizing this, Congress passed legislation on June 28, 1834, effective August 1, 1834, mandating a change in the authorized weight of gold coins. After that time, gold coins were worth less in melt-down value than face value, so they were once again seen in the channels of circulation.
Until the 1820s, there was no significant known source of native gold in the United States. Bullion to make quarter eagles, half eagles, and eagles carne from a variety of origins, including foreign gold coins melted down (an important source), bullion from Central and South America, and the reduction of various wrought items such as jewelry. By the 1820s, gold discoveries in North Carolina became important. In 1838 mints were established at Dahlonega, Georgia, and Charlotte, North Carolina, to produce coins from bullion found in those areas.
From August 1, 1834, through the late 1840s, gold coins were produced in fair quantities at Philadelphia, then subsequently in Charlotte, Dahlonega, and the additional branch mint at New Orleans. Supplies of gold primarily came from Georgia and North Carolina, with additional amounts coming from international payments, the melting down of foreign coins, and other traditional sources.
In the United States, gold coins were commonly used in large commercial transactions. At the time, during the middle of the 19th century, the country was inundated with a flood of privately-issued paper currency notes, with most values being from $1 to $10, but with abundant quantities of values from $20 to $100 as well, plus some stray examples of higher denominations. Just about every bank in existence issued its own currency. The enforcement of laws was loose, and many were the so-called “wildcat banks” which had little or no substantive backing, but which issued hundreds of thousands of dollars in worthless notes. The public distrusted these notes, and many demanded gold in payment for transactions. On the international scene, privately issued bank notes were not accepted, and gold coins were the norm. Thus, quantities of United States gold coins found their way to England, France, and other trading centers.
The discovery of gold at Sutter's Mill on the American River in California in January 1848 ignited the Gold Rush, which saw the migration westward of tens of thousands of individuals. Soon, vast quantities of gold were extracted from the rivers and soil of California. Shipped to the Eastern markets, the yellow metal became “common” in relation to earlier supplies. In view of the increased availability of gold, in 1849 two new coin denominations were created. The first was the gold dollar, which was to become the smallest federal gold coin. The second denomination was the $20 double eagle, minted in pattern form in 1849 and for general circulation beginning in 1850. This new, large, heavy coin made it economical to convert large amounts of bullion to struck form, for it took much less manpower and effort to make one double eagle than it did to coin an equivalent amount of gold in four $5 pieces or eight $21/2 pieces. By 1853, gold had become so plentiful in relation to silver that silver had risen sharply on the market, and federal silver coins were worth more in bullion value than in face value – the same situation which confronted gold coins two decades earlier.
In the meantime, large quantities of gold came forth from California, and record numbers of coins were struck. In the year 1851, for example, the Philadelphia Mint saw a coinage of over two million double eagles, equal to over $40 million in face value.
It was not until 1861 that federal notes were made in quantity for circulation. During the 1850s the supply of privately issued bank notes grew sharply, and abuses of such issues continued. Gold coins continued to be the refuge for those distrustful of paper money. During the Civil War, the first federal “greenbacks” were issued, and in the South the Confederate States of America produced its own currency. The values of federal and Confederate paper money were uncertain, and at one point Union notes sold at a sharp discount in terms of coins. In other words, $1 in “hard money” – gold or silver coins – was worth more than a $1 note. Eventually, Confederate notes became worthless. After the Civil War ended, federal greenbacks and gold coins traded at par, although it was not until the 1870s that gold and silver coins were once again seen in general circulation. By about 1880, public faith in federal currency had been securely established, and no longer were $5, $10, $20, and other gold coins demanded for payment. By this time, privately-issued bank notes had disappeared from circulation. Federal currency became the mainstay for large transactions.
There was an exception, and the exception was provided by international trading. Foreign merchants and bankers were skeptical of United States paper money and often demanded gold. The memory was still clear of the depreciated value of federal notes during the Civil War and the eventual worthlessness of Confederate notes. London banks which had been paid in Confederate notes less than two decades earlier saw their investment become worth zero, and they weren't about to repeat the scenario.
In general, United States gold coins were widely used for commercial transactions in America from 1795 up until about 1880, for reasons stated, and after 1880 found their main use on the international market. This history and background has important implications for the rarity of gold coins as we perceive such today.
Gold coin production continued with intensity through the late 19th century. By that time North Carolina and Georgia sources of gold had largely petered out and production in California had diminished, but a new source, the Cripple Creek district of Colorado had been exploited and was yielding untold millions in yellow metal. Additional gold was obtained from other western sources, including Montana and Nevada. The San Francisco Mint, established in 1854 to convert California gold bullion into coins, remained an important mint. The Carson City Mint, established in 1870, continued in operation through 1885, then again from 1889 through 1893, then closed its doors. In 1906 a new mint, at Denver, Colorado, was opened and produced large quantities of gold coins, primarily from Cripple Creek metal.
Although today it is common to read that the United States was on the “gold standard” from 1795 onward, in actuality our country did not adopt the gold standard system until the year 1900, at which time the United States was one of the last developed nations to do so. Under the gold standard, countries participating in this stored gold coins and bullion in central banks and simply exchanged currency or certificates among themselves to settle transactions. Thus, after the year 1900 large quantities of American coins were stored in European, South American, and other vaults and were seldom moved. In the meantime, within the United States gold coins were rarely seen in day to day commerce.
If you had been a typical citizen in the year 1900, chances are that during everyday grocery purchases, real estate transactions, and any other business transacted during a given 12-month period not a single gold coin would have been encountered, particularly if you lived in the East (gold coins were seen in circulation with more frequency in the West). Although gold issues were not needed in everyday circulation, they continued to be minted in record quantities. For example, the year 1904 saw a coinage of over six million double eagles at Philadelphia and over five million in San Francisco. What happened to them? Most were shipped overseas.
Gold coinage continued in large quantities, and in the 1920s, when gold coins were mainly kept in banks and rarely seen in circulation, record numbers were produced. The year 1928 saw a production of 8,816,000 double eagles, an all-time high!
From 1929 onward, the economic situation in the United States deteriorated, creating what eventually became known as the Great Depression. Unemployment increased, factory production decreased, and many banks, security firms, and others became bankrupt. By the time of the inauguration of President Franklin D. Roosevelt in 1933 there was widespread concern for the security of the American monetary system. On April 5, 1933, the new president proclaimed that gold coins were to be returned by the public to the Federal Reserve System by May 1st, with the exception of pieces of numismatic value. Citizens were prohibited from holding gold except for: “Such amounts of gold as may be required for legitimate and customary use in industry, professions or art within a reasonable time, including gold prior to refining and stocks of gold in reasonable amounts for the usual trade requirements of owners mining and refining such gold. Gold coins and gold certificates in an amount not exceeding in the aggregate of $100 belonging to any one person, and gold coins having a recognized special value to collectors of rare and unusual coins.”
On December 28, 1933, the order was revised slightly, and, among other provisions, the statement allowing individuals to hold up to $100 worth of gold coins or gold certificates (in addition to pieces having recognized numismatic value) was deleted, after which only numismatic pieces could be legally held. In the same year the government issued several notices to the effect that the United States would remain on the gold standard and that citizens should not be alarmed.
The Gold Reserve Act of January 30, 1934 provided that: “No gold shall thereafter be coined, no gold coins shall hereafter be paid out or delivered by the United States… all gold coins in the United States shall be withdrawn from circulation…” This legislation effectively ended gold coinage production and removed the gold backing of paper money. In the same year the United States withdrew from the gold standard.
At the time of the decrees of 1933 and 1934, millions of dollars worth of gold coins, primarily of the higher “bullion” values of $5, $10, and $20, were held by various world banks. The idea of shipping them back to the United States in exchange for currency seemed patently ridiculous to foreign bankers, especially in view of the increasing worthlessness of certain world currency at the time, as exemplified by German notes which weren't worth the paper they were printed on. Accordingly, foreign banks held on to United States gold coins more tightly than ever! Years later, when gold coin ownership regulations for United States citizens were relaxed, then dropped entirely, European, South American, and Asian banks became a prime source for specimens. Q. David Bowers has been in the rare coin business since 1953 when he was a teenager. The author has served as president of the American Numismatic Association (1983-1985) and president of the Professional Numismatists Guild (1977-1979), is a recipient of the highest honor bestowed by the ANA (the Farran Zerbe Award), was the first ANA member to be named Numismatist of the Year (1995), has been inducted into the Numismatic Hall of Fame (at the ANA Headquarter in Colorado Springs), is a recipient of the highest honor bestowed by the Professional Numismatists Guild (The Founders' Award), and has received more “Book of the Year Award” and “Best Columnist” honors given by the Numismatic Literary Guild than any other writer. He has has written over 40 books, hundreds of auction and other catalogues, and several thousand articles.