July 11 (Bloomberg) -- The 10 rare Double Eagle gold coins at the heart of a federal trial in Philadelphia are remnants of the last U.S. government default, almost eight decades before the current stalemate in Congress over raising the debt limit.
The daughter of a Philadelphia jeweler found the coins in a family safe-deposit box in 2003. The coins were confiscated by federal authorities. None were issued to the public after minting in 1933, the year President Franklin D. Roosevelt made it illegal for citizens to own gold and told investors that the government wouldn’t repay bonds with the metal. In 2002, a single Double Eagle fetched a record $7.59 million at auction.
Joan Langbord’s lawsuit to reclaim the coins is stirring passion among the numismatic community at a time when gold is near a record reached in May and has rallied every year for a decade. President Barack Obama and congressional leaders have failed to reach a compromise on reducing deficits and raising the $14.3 trillion federal debt ceiling before the government exceeds its borrowing authority on Aug. 2.
“The government is broke and, eventually, they will dig into everyone’s pockets,” said Tobina Kahn, the vice president of House of Kahn Estate Jewelers in Chicago. “Anyone who puts money into gold coins has no confidence in the government or fiat currencies.”
Gold has rallied 9 percent this year and reached a record $1,577.40 an ounce on May 2 as the U.S. kept borrowing costs at a record low and purchased Treasuries to help boost the economy. Gold priced in euros was the highest ever today as investors sought a haven against declining currencies amid Europe’s sovereign-debt crisis.
Melted at Mint
A single 1933 Double Eagle believed to have once belonged to King Farouk of Egypt sold at auction in 2002 for $7.59 million, according to the court filings. The government minted fewer than 500,000 of the $20 coins in 1933, and all were ordered to be melted, according to the U.S. Mint.
Langbord believed the coins belonged to her father, Israel Switt, according to the filings. The government, in a court filing, said the Secret Service in 1944 investigated “Switt’s involvement in the apparent theft of 1933 Double Eagles from the Mint.” The U.S. Attorney’s Office declined to prosecute Switt, citing the statute of limitations.
The family gave the Double Eagles to Daniel Shaver, the chief counsel for the U.S. Mint, saying they wanted to sell the coins and split the proceeds with the government. Officials concluded that the coins were authentic and were government property.
Langbord’s attorney, Barry Berke, didn’t immediately respond to a message for comment. Patty Hartman, a spokeswoman for the U.S. Attorney’s Office in Philadelphia, said the trial is expected to last two weeks.
Thirteen of the Double Eagles are known to exist, according to Robert W. Hoge, the curator of North American Coins and Currency at the American Numismatic Society. Besides the 10 coins on trial in Philadelphia, the Smithsonian has two and the King Farouk coin is currently on display at the Federal Reserve in New York.
The coins, which have less than an ounce of gold in them, were “too expensive for most people to consider collecting them at the time they were minted,” Hoge said. “There’s so much history with these coins. The gold value of the piece is minimal compared to its historical value.”
Double Eagles were minted during the Depression, when Roosevelt was trying to prevent hoarding of gold and a run on bank deposits. The coin depicts an eagle with spreading wings on one side and the other has the image of a woman portraying liberty as designed by Augustus Saint-Gaudens that had been in use since 1907. In 1986, the same design for liberty was chosen for American Eagle Gold Coins.
It’s unlikely that the government of today would confiscate private gold holdings as it did in 1933, said Michael Haynes, the chief executive officer of American Precious Metals Exchange, an online bullion dealer.
“Unlike the period to the 1930s, the U.S. currency is not now convertible into gold and silver,” so the circumstances that led to Roosevelt’s order don’t exist, he said. APMEX sales are headed for a record year and may be up more than 67 percent from a year earlier.
The case is Langbord v. U.S. Department of Treasury, 06-cv-5315, U.S. District Court, Eastern District of Pennsylvania (Philadelphia).
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