Gold and silver legal tender in Utah

Gold coins. Will gold and silver coin replace paper money soon?
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Gold and silver coins are now legal tender in Utah—and worth their weight in gold. This signal is as much financial as political.

The Legal Tender Act of 2011

The Legal Tender Act of 2011 allows any merchant to accept gold or silver coin as payment of any debt. That change by itself wouldn’t mean much. Any United States coin is already legal tender—at its face value. But the new Utah law allows a merchant to credit the one offering the coin for the market value of the metal, not the face value.

This will stop people from melting down coins to sell the metal for more than their face value. But this new law threatens to blow down the world financial system like a house of cards.

What is legal tender?

Legal tender is anything that anyone owing money to another, can offer and know that the other person must accept it. Most civilizations throughout history have accepted gold and silver as legal tender. Even coins from different civilizations were acceptable. Currency exchange was as simple as weighing different coins of the same metal. The only arbitrary rate was the gold-to-silver ratio. Typically this was twenty to one. Thus the first United States silver dollars weighed one ounce. A gold ounce was worth exactly twenty dollars.

The Sixth Amendment to the Constitution recalls this original value of gold. It provided for jury trials in any civil cases in which twenty dollars or more was at stake.

Why has gold and silver increased in value?

That’s the wrong question. Gold is the standard of value. But none of the major currencies have any fixed rate of gold exchange. In 1971, the United States stopped exchanging gold for dollars. The United States went into technical default on that day. The only thing that has stopped the dollar from becoming worthless is the petrodollar system.

Until recently, the Federal Reserve System, the central bank of the United States, behaved with enough restraint to stop inflation. Today the Fed is buying Treasury paper—monetizing the debt. It shows no sign that it will stop doing that, and every sign that it will keep doing that.

What can the States do about it?

They’re doing it now. Utah was first State to let people buy things with gold or silver. It won’t be the last. Five other States have considered similar laws. They haven’t passed them yet, but they will.

What will this do to the dollar, and to gold and silver prices?

It will push gold and silver prices higher almost at once. Now, in at least one State, gold and silver are media of exchange, as well as stores of value. When people realize that, they’ll start buying these coins as fast as they can get them. And they will want physical gold and silver, and to have it in their hands.

Utah is famous for another reason. The Mormon theology that dominates Utah tells its followers to prepare for any kind of emergency. Mormon “survival outfitters” are famous for selling a year’s supply of food and equipment in a package. Soon people will want the metals to make sure that they can afford the packages.

Add this to it: the petrodollar system is breaking down already. China and the OPEC countries are already propping up the euro. Last week, all commodities went up in price.

What next?

Those of you waiting for the prices of gold and silver to stop “correcting” cannot afford to wait any longer. The breakout could come at any time. What Utah did will make it come faster. If other States follow Utah’s lead, the breakout will come shortly afterwards.

The time has come to buy, but not necessarily with the last of your cash, or all at once. Look for dealers willing to make up for a drop in price with extra coins thrown in for good measure. If any dealer offers that kind of trade, buy at least the smallest amount of gold and silver for which that deal will hold. (Some dealers will do that for you if you buy ten thousand dollars’ worth, and will waive their shipping fees if you buy five thousand dollars’ worth.) Silver is highly undervalued—the gold:silver ratio has stayed at about 40. It will likely fall to 16, given silver’s industrial uses. So buy four dollars’ worth of silver for every dollar’s worth of gold. Storage will be that much more difficult, but you can’t help that.

Buy in these increments, once a month, or even once a week, depending on how much cash you have on hand. (The financial advisers call this “dollar cost averaging.”) When the breakout comes, don’t hold back.