What are gold bonds?

Almost 60% of all bonds in this catalog are classified as "gold" bonds. Gold bonds promised repayment in gold coin as opposed to silver coin or ordinary paper money. Why the difference?


I suspect the idea of promising repayment in gold had more to do with promoting bond sales than anything else.

Companies promised two things when they borrowed money. They promised they would repay investors and they promised they would pay interest. Investors, on the other hand, were also concerned with inflation.

Inflation essentially means that the value of money decreases over time. Inflation works to the benefit of borrowers who get to pay with money that decreases in value over time. Conversely, inflation works against lenders for the same reason; lender receive money that is worth less and less as time does on. As a general rule, it appears lenders were willing to buy into the belief that gold was more likely to hold its value than dollars, pounds, or pesos.

While it took a while to embrace the concept, companies ultimately realized they could borrow money more easily if they decreased inflationary worries. One way to do that was to guarantee to repay loans in gold. Prevailing financial theory argued that gold was an effective hedge against inflation.

Appearance of the first gold bonds

Inflation had always existed, but it took the Civil War to really bring the problem front and center into the minds of ordinary investors. Between 1860 and 1866, inflation robbed the dollar of at least 70% of its value in the North, but even more in the South. Few companies had denominated their bonds in gold before the end of the Civil War. Then came a serious recession in 1872 that seriously crippled the country and halted practically all rail expansion.

One of the earliest gold bonds known, issued by the City and County of San Francisco issued in 1865

To entice investment during threatening post-war times, many companies began promising repayments in gold coin. Based on surviving populations, only 6% of railroad bonds had been denominated in gold during the 1860s. During the next decade, the percentage more than tripled.

Gold bonds became increasingly fashionable from that time forward. During the 1880s, gold bonds probably constituted almost half of railroad bonds printed. (That assumes surviving bonds are somewhat representative of all bonds issued during that time.) Between 1890 and the early 1930s, gold bonds accounted for almost three-quarters of all railroad bonds!

What about the risk?

Promising to repay loans in gold was an effective sales ploy. Since the future was unforeseeable, It was also extremely risky.

Considering the percentage of bonds denominated in gold, it appears very few companies appreciated the risk of promising to repay investors in gold. In effect, they were wagering their companies on the beliefs that post-war inflation would remain under control. They were also betting that gold would always buy roughly the same quantity of goods and services over time, even in the face of inflation.

Every company executive knew the history of repetitive market panics. All knew more would follow. Probably none saw as far into the future as October 24, 1929. That day, now known as Black Thursday, represented the most devastating single-day sell-off of corporate shares in American history up to that time. The accepted rules of financial stability and recovery had changed radically. Economies around the globe had become highly interconnected after World War I. The crash of the market collapsed not only American business, but economies around the world. With few exceptions, countries fell into the Great Depression of the 1930s. With gold universally perceived as a haven of value, demand for gold, and therefore prices, crept upward.

While disagreements still swirl, there is no shortage of written commentary and opinions about the causes of both the crash and the depression. Nonetheless, by the end of 1932, global circumstances had driven world gold prices above the U.S. government's fixed Gold Standard price of $20.67 per ounce. Gold began flowing out of the U.S. economy in devastating amounts as the country repaid its foreign debts in gold. Gold prices climbed further in the early months of 1933. In April, newly inaugurated U.S. President Franklin Roosevelt issued Executive Order 6102, "Forbidding the Hoarding of Gold Coin, Gold Bullion and Gold Certificates." It limited private ownership to $100 worth of gold and gold certificates and gave Americans until the end of May to trade gold coinage for paper. The order was not well-received by the American public.

President Franklin Roosevelt's signature on Executive Order 6102

Demand for gold on the world market rose further over the next two months. Getting a firm handle on exact prices is difficult and estimated mainly by comparing the dollar against other currencies, but gold had passed $25 per ounce in June. By that time, it had become increasingly obvious that It was clear that repaying corporate and public debt in gold was going to be impossible. The U.S. government was never going to sell businesses large amounts of gold while trying to pay its own foreign debts in gold. A literal torrent of gold was already going overseas. Even if sufficient gold coinage could have been found, paying inflated prices for gold in order to pay interest and principal would have bankrupted businesses anyway. Additionally, paying investors in gold would have been a violation of Executive Order. Yet, not paying in gold would have been a violation of bond contracts.

What were companies to do?

1933 order displayed in Post Offices requiring surrender of gold coins and bullion

The end of gold bonds

While it could do little about the ongoing depression, Congress solved most businesses' gold-based problems with a resolution. In one fell swoop, Congress nullified every gold clause in every U.S. contract. That resolution (HJR 162) was subsequently formalized into law (73rd Congress, Chapter 48, 112-113) and said that requiring payment in gold was against public policy. It stated in clear language that, Every obligation heretofore or hereafter incurred, whether or not any such provision is contained therein or made with respect thereto, shall be discharged upon payment, dollar for dollar, in any coin or currency which at the time of payment is legal tender for public and private debts.

In short, debts were to be paid henceforth in lawful money, not gold. The period of high-flying gold bonds ended at 4:40 in the afternoon of June 5, 1933.

World gold prices rose further throughout the rest of the year and the U.S. desperately needed to get in front of the problem. Eventually Congress decided the century-old price of gold relative to the dollar was too low. It subsequently repriced gold at $35 per ounce under the Gold Reserve Act enacted January 30, 1934.

Although the jump to $35 could have been even higher, that price allowed the U.S. government to begin replenishing its gold reserves. The problem of the economy was far from being solved, but a crucial first step had been taken. Still, there remains another way of looking at the solution.

On the morning of January 30, 1934, the U.S. Mint had been able to buy an ounce of gold from miners for $20.67. By the next morning it needed to pay $35 for another ounce. Politely speaking, the act of needing to pay more legal tender for the same commodity meant implicitly that the value of the dollar had dropped. More crudely speaking, it meant that the U.S. Government had devalued the dollar by 59%. While gold miners were initially overjoyed that they would be paid more for their efforts, average American did not feel the effect immediately. As long as transactions were internal to the United States, the effects of the devaluation were subdued. After all, the country was in the middle of its second Great Depression. Hard times and seemingly high prices were the rule, not the exception. The devaluation was much more noticeable to companies and individuals doing business abroad.

It is also important to appreciate that most other countries had either devalued their currency relative to gold, or abandoned their gold standards entirely. .

Identifying gold bonds

Typical railroad gold bond issued by the Chicago Aurora & Elgin Corporation in 1922

The word GOLD was usually displayed prominently on railroad bonds. Some bonds, especially earlier ones, displayed the word "GOLD" in bold underprints. The phrase "...in gold coin..." usually appeared in the text of bonds, right after a mention of the amount to be repaid. A few companies like the New York Central had foreseen possible repricing of gold and had stipulated the base value of gold by saying something like "...will pay to the bearer $1,000 in gold coin equal to the standard weight and fineness as it existed on the first day of October, 1913..." Some companies, and especially municipalities, recognized the long-term risk of denominating bonds in gold, and had purposely worded most of their issuances with phrases like "...will pay to the bearer $1,000 in lawful money on the first of January..."

Gold bond frauds

Are any gold-denominated U.S. bonds still redeemable in gold today?

No! No! No! Absolutely not!

U.S. law is crystal clear on this subject. Objections have been upheld in repeated in legal challenges. Still, that has not prevented criminals from trying to convince people otherwise.

In the late 1990s, scam artists sold uncancelled collectible gold bonds from over 250 different extinct companies for 5,000, 10,000, even 20,000 (!) times the amounts collectors were paying. Criminals focused primarily on railroad bonds because railroads had represented the big business sector in the 19th century, had huge money needs, and frequently attracted investors through high interest rates. Fraudulent sales of those uncancelled bonds to victims used exaggerations and outright lies. They all relied on greed and old fashioned "gold fever." I want to advise today's collectors that gold bond scams remain alive today. They currently focus on bonds issued outside of North America, but do NOT be surprised if they cycle back to railroad bonds at some point.

The mechanics of gold bond frauds

I take no pleasure in saying that gold bond scams still succeed because their victims are ignorant of certain facts. Past frauds sold uncancelled gold bonds to "investors" for big, big money and all used variations of three lies.

  • Lie 1: Gold bonds were redeemable in gold.
  • Lie 2: The bonds were guaranteed by the United States government.
  • Lie 3: Interest had accrued for decades.

All three lies are utterly false, but let's dispel them in order.

Lie 1: Old gold bonds were still redeemable in gold.

It is true that gold bonds were originally redeemable in gold. It is also true the few people know the contents of House Joint Resolution 192 to Suspend the Gold Standard and Abrogate the Gold Clause that passed on June 5, 1933. The resolution, when formalized into law, altered EVERY clause in EVERY contract in the United States that had specified repayment in gold. The law is simple, clear, and to the point.

Lie 2: Payments of old gold bonds were guaranteed by the United States government.

The majority of collectible gold bonds show the phrase "United States of America" at the top. Collectors know the phrase indicates that bonds were issued IN the United States and not elsewhere. Nowhere on any railroad bond does it say that such bonds were issued BY the United States of America. Nowhere on any bond does it say the United States government guaranteed repayment. Again, criminals of the 1980s — as well as today! — knew that very few victims had ever seen old gold bonds, let alone read them critically.

Lie 3: Interest had accrued for decades.

Stock and bond collectors know that bonds were issued by COMPANIES and know that railroad companies had a notoriously bad habit of going bankrupt. What happens when companies stop paying their bills? Creditors foreclose on debts owed to them. They take companies to court and let courts decide how creditors will be repaid.

Speaking in highly general terms, there are normally three possible outcomes when companies are forced into bankruptcy:

  • they survive and repay their debts as promised, often under modified terms
  • they are sold intact to successive companies and those companies agree to repay original debts in some manner
  • courts order sheriffs to auction off company assets and use the proceeds to repay creditors as much as possible

When bonds were paid off under the first two scenarios, bonds were either cancelled and stored away in warehouses or they were cancelled and then incinerated. In the third case, courts declared the companies insolvent and they ceased to exist. Remaining bonds were paid from liquidation funds to the extent possible. Whether those bonds were physically cancelled was a matter for the courts, but they retained little if any redeemable value whatsoever. tried to repay as much of the outstanding debts as possible. Remaining unpaid debts are cancelled. With the exception of certificates discovered in safe boxes and dusty attics, the vast majority of collectible bonds available today are the results of old bankruptcies. Court records are commonly hard to find, but most of those bankruptcies probably have supporting records available somewhere.

In other words, MOST bonds were either paid off or were rendered dead by corporate bankruptcy. That begs the question of how any bond, whether denominated in gold or not, could possibly accrue interest once invalidated by payment or bankruptcy. It is true that a few "perpetual" bonds promised to pay interest for as long as 999 years, but even those bonds stopped paying when they were retired, cancelled or rendered moot by bankruptcy.

There is one final point that is highly important in relation to the many gold bond frauds. All claimed that interest had accrued for years. In truth, railroad bonds NEVER promised to pay compound interest. Period. End of story. Corporate bonds usually promised to pay interest semi-annually on or after a specific day. Only a few paid interest on any other schedule. However, regardless of whether bondholders collected interest on redemption day or ten years later meant nothing. Bondholders received their specified amount of interest and nothing more. If someone finds a still-valid $30 coupon from a bearer bond AND somehow discovers money is still available today, they will receive $30 and no more.

Outrageous valuations

Uncancelled 1873 Chicago Saginaw & Canada Railroad Co gold bond

In 1996, I learned that scammers had sold $1,000 bonds of the Chicago Saginaw & Canada Railroad Co (shown at right) to victims for as much as $10,000 apiece. Why would anyone pay $10,000 for a collectible bond that collectors were buying for $40 to $125 at the time?

But wait; there's more.

Records of a Federal court case in the Central District of California show that criminals sold some of those very same bonds for as much as $40,000!!! Again, why would anyone pay so much for a collectible bond with NO inherent value? Especially a bond that had been the subject of a bankruptcy proceeding in 1876 and had paid off about a quarter of its original debt before being declared worthless.

The answer is that victims believed fraudulent appraisals foisted on them by criminals.

I saw several so-called appraisals from the late-1990s that had estimated the "values" of certain collectible gold bonds for as much as $42,550,000 per bond. Today, those bonds sell on the collectors market for $200 or less and some for $20 or less.

Certificate attesting to the bogus valuation of Chicago Saginaw & Canada Railroad gold bonds

But even that wacked-out $42 million appraisal is NOTHING compared to one presented in the 1998 Securities and Exchange Commission lawsuit referenced above. Prosecutors reported an outrageous appraisal for an East Alabama & Cincinnati Railroad bond at $400,000,000. Today's experienced collectors would probably pay about $250 for such a bond. (I recorded a sale for $91 in a December, 2018 auction, but only because the seller had failed to report a celebrity autograph that appeared on the back.)

Think the scams have subsided?

Think again. The Treasury Department displays an image (at right) of a bogus 2007 valuation of a Chicago Saginaw & Canada Railroad bond at $110,181,000. Criminals were active in 2007 and there is no reason to believe they have somehow abandoned their quest for gullible "investors."

How did you find this page?

Anyone who came to this page wanting to cash in on gold bonds needs to visit the Historical Bond Fraud page on the U.S. Treasury Department website at TreasuryDirect. Please go to that page for a review of criminal schemes from an enforcement perspective.

Then, PLEASE search for names of your "investment" contacts on this page on Google Groups. The page is old, but searching through the names should give you pause. And it does not matter whether your contacts live in the United States or not.

If you think that cashing in on gold bonds is something you want to pursue, PLEASE, PLEASE, PLEASE do your research. Yes, you are free to spend your money any way you want, but it won't be yours for long if your think you're going to get rich this way.