WHAT IS A Gold Certificate
A gold certificate is a physical document that represents a legal claim on a specified value of gold.
BREAKING DOWN Gold Certificate
Gold certificates can resemble a paper bank note, and have been used as legal tender in the past. For example, a $10 gold certificate could be used as an equivalent to $10 in regular currency. Since the dollar itself was on a gold standard, gold certificates merely served as a parallel currency that was technically exchangeable, though this rarely happened in practice. Gold certificates were in general circulation in the United States and used as money until 1933.
Gold certificates represent ownership of a value or quantity of gold, similar to how stock certificates represent an ownership share in a company. Because gold bullion is difficult to transfer and store, gold certificates facilitated the ownership and use of gold when it was legal currency. Rather than carrying around coins or bullion, transactions could be carried out using these certificates of ownership. Today, gold certificates are used primarily for the purpose of simplified ownership of gold as an asset.
The History of Gold in U.S. Currency
The United States has an interesting history when it comes to gold and the gold standard. Gold certificates were used as legal tender until 1933 when the United States government under President Franklin D. Roosevelt left the gold standard. The dollar was no longer conceptually redeemable in gold, but gold certificates still were. To avoid a situation where dollar holdings were transferred to gold certificates, ownership of certificates, as well as the possession of gold in any other form except jewelry, was made illegal as part of the Emergency Banking Act of 1933.
In the 1960s, it once again became legal to hold U.S. gold certificates. The catch is that they were only to be considered collectibles and not legal tender. So the various issues of U.S. gold certificates are highly prized by collectors, but are not considered an investment. There are, however, banks and companies in the world that still issue gold certificates. These generally specify an amount in ounces and the dollar value fluctuates with the market, making them a precious metals investment rather than an investment in real currency. It is worth noting that conversion of modern gold certificates is still challenging and issuing companies can go under, rendering the certificate worthless for all but collectors, just like a stock certificate for a bankrupt company.