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    Do Goldbacks Count as Legal Tender?

     

    Rising inflation has led many to look for alternative ways to preserve net worth. Many of them have, of course, turned to precious metals.

    However, some states have moved to present a different option. So, let’s discuss what Goldbacks are, where they are used, and most importantly, whether they count as legal tender.

    What are Goldbacks?

    A Goldback is a sheet of gold encased within a thin polymer layer. Each Goldback contains 1/1000th of an ounce of 24-karat gold.

    Traditionally, gold has been available as a coin, a round, or a bar. Essentially, Goldbacks are a fourth format in which to purchase gold. As a group, Goldbacks are a type of foil note.

    However, Goldbacks are bridging the gap between pure bullion investments and legal tender, unlike rounds and bars. How effectively they do so is another matter.

    Are Goldbacks legal tender?

    Possibly. In some locations, they may be accepted by some vendors.

    That said it’s a bit of a misnomer to call the Goldbacks themselves legal tender. They aren’t – their value directly reflects the amount of gold within the polymer.

    There are a few states that have legalized the voluntary use of gold and silver as a medium of exchange. However, in general, there isn’t any kind of specific form the gold and silver must take.

    Goldbacks are sometimes preferred because of their portability and size, though. Carrying a few of them is much easier than sticking a lump of gold in your pocket, and their standard size makes conversion to fiat currency a bit easier to figure.

    Which states consider Goldbacks legal tender?

    At present, there are 11 states that consider gold, silver, and sometimes platinum to be a voluntary medium of exchange. They are Arizona, Indiana, Kansas, Louisiana, Oklahoma, South Carolina, Tennessee, Texas, Utah, West Virginia, and Wyoming.

    However, not all of these states are moving forward with a specific acceptance of Goldbacks as a common medium of trade. At present, the five states that have companies accepting Goldbacks:

    • Utah
    • Nevada
    • New Hampshire
    • Wyoming
    • South Dakota

    Perhaps surprisingly, the pioneering state in this group is Utah, which is not known for its progressive stances on most issues. The Beehive State legalized gold and silver as legal specie tender in 2011. This move largely set the framework adopted by the states that subsequently approved precious metals as similar vehicles.

    One key element of Utah’s law and the law in other states is the fact that any transactions that use goldbacks or other precious metals vehicles must be voluntary for both parties. In other words, the law does not compel businesses to accept gold, silver, or platinum as a medium of exchange.

    Where are Goldbacks made?

    Appropriately, Goldbacks are made in Utah. Goldback, Inc. makes the instruments at its facility in Alpine. Thus, “Goldback” is not a generic term (yet) – it is the brand name of the product itself.

    Goldbacks are distributed from Goldback, Inc. through a roster of selected distributors. JM Bullion is one of those distributors, and we can get you started with Goldback purchases today.

    How do Goldbacks look?

    Goldbacks aren’t just blank sheets of gold in plastic. Goldback, Inc. endeavors to mint them with intricate designs. These designs are somewhat reminiscent of currencies used in the United States in the past, which were backed by the gold standard.

    Thus, there is an “old-timey” feel to each Goldback. However, the company goes a step further by creating state-specific versions of the Goldback.

    So far, the company has released Goldbacks specific to the five states where Goldbacks are used: Utah, Nevada, New Hampshire, Wyoming, and South Dakota. A Florida Goldback is set to be issued sometime in the very near future.

    What is the exchange rate for Goldbacks to dollars?

    Unfortunately, there’s no simple answer. However, you can start to get an idea about how much your Goldbacks are worth in dollars if you know the influencing factors.

    At the end of the day, Goldbacks are bullion pieces, and the basis for their value is the spot price for an ounce of gold. Since each Goldback is 1/1000th of an ounce, the gold itself is worth 1/1000th of whatever gold’s trading price is.

    However, the actual price for buying or selling a Goldback is a more complicated number to reach. For one thing, you’ll have to pay a premium to buy one from a dealer like JM Bullion.

    The reality is that the premium is likely to be significant and push the price much higher than the spot price-derived value would suggest. There is a cost of bringing these instruments to market, and the percentage of premium escalates for all gold products as the size of them decreases. It’s the same reason why kilo gold bars are cheaper, ounce-for-ounce, than 1 oz bars.

    The premium price is not a set-in-stone value of the Goldback, either. Remember – these are used for voluntary transactions, so both parties must agree upon their value. It matters what kind of demand there is for them and how willing a store owner is to do business with one.

    What’s the difference between Goldbacks and fiat currency?

    The difference between Goldbacks and fiat currency is the difference between any precious metal value and fiat currency. One of them is a tangible store of value. The other is essentially a promise that a government makes with its citizens to suggest a medium of trade.

    As such, fiat currency is subject to inflation, and Goldbacks are not. The value of Goldbacks often moves in the opposite direction of the value of fiat currency, and that relationship may be the biggest reason why investors look to precious metals overall.

    Conclusion

    Goldbacks are still a novel way both to buy gold and to do business. Though they are only accepted in five states now, the imminent addition of Florida to the mix could catapult Goldbacks into much wider public knowledge.

    If you want to have gold that is easy to trade and easy to keep in your pocket, then Goldbacks might be the thing for you. They can also be a unique part of your gold collection if you’re looking to add some diversity to the mix.

    All Market Updates are provided as a third party analysis and do not necessarily reflect the explicit views of JM Bullion Inc. and should not be construed as financial advice.