Some readers may remember the Vietnam War-era protest song by Edwin Starr that starts with the lyrics, “War, what is it good for? Absolutely nothing!” Younger readers may attribute the song to Bruce Springsteen, but the point is that war benefits almost no one, unless you own gold. Don’t get me wrong; I’m not an advocate of starting a war just to see the price of gold rise, quite the contrary, but just the threat of serious military action can cause people to seek a safe-haven investment of gold.
During the Revolutionary War, which was fought to obtain our freedom from Great Britain, people who had copper coins and silver coins from other countries fared better than those who had to rely on using the virtually worthless paper Colonial and Continental notes, even though the notes promised to be redeemable in coin. Where and when this redemption was to occur was unclear.
Our Civil War was another example of the wisdom of having hard currency available. Hoarding of coins in the North got so bad that merchants had no coins to make change when paper dollars were presented for purchases. Many resorted to striking one cent size coins as a substitute for government coinage to alleviate the problem. Ironically, these substitute coins make great collectibles. There were thousands minted under the two categories of store cards, which had the name and address of the business that paid to make them, and patriotic, which were imprinted with some patriotic saying such as “The Union Must and Shall be Preserved.” Also, the government started printing fractional currency in varying denominations to substitute for coins (another great collecting opportunity).
The Confederate States had their own problems with coins, since they had no source of gold or silver from which to strike coins. Even though they took over the New Orleans Mint at the outbreak of the war, there was no raw material available to make any serious amount of coinage. They issued paper money with the promise of redemption at the successful conclusion of the war (their success, that is). The Confederacy also issued bonds with interest rates payable periodically. Great Britain bought many of these bonds hoping the South would be successful. The South was a major source of cotton that Great Britain needed, so one could almost say they helped finance their war effort, since these bonds were purchased with gold and silver. Once again, these notes and bonds make great collectibles.
So much for the history lesson. Let’s examine some current examples where war or threat of war can influence the price of gold, and where gold can be used as a hedge again falling currency values. The first example is Russia, which technically has invaded and taken over land in the Ukraine. In response, the United States and the European Union imposed sanctions against Russia, which has caused the value of its currency, the ruble, to decline. To stabilize the ruble, Russia purchased large amounts of gold, an international commodity, and since those purchases the value of gold has risen.
Fast forward to this past week, when with all the saber-rattling between the United States and North Korea, jumped in price by almost $30 an ounce over the span of three days to just under $1,390. Although things have quieted down a bit, gold is still holding at $1,380 per ounce as of this writing, which indicates a wait-and-see attitude.
I’ve always advised that investing in gold should be approached as an insurance against hard times and turmoil, both economically and physically. We really don’t want to see gold rise, especially in leaps and bounds, because that is an indicator something is going wrong. But if something does go wrong, having a little bit of gold can help you through.
Douglas Keefe is the president of Beachcomber Coins Inc. He and his wife, Linda, operate Beachcomber Coins and Collectibles, formerly in the Shore Mall and now at 6692 Black Horse Pike in the old Wawa building just beyond the former Cardiff Circle. They have satellite offices in Brigantine and Absecon. Between them they have more than 70 years of experience in the coin and precious metals business. They are members of the American Numismatic Association, the Industry Council of Tangible Assets, the Numismatic Guarantee Corporation, the Certified Coin Exchange and the Professional Coin Grading Service.