Monday, March 22, 2010
US Mints ‘Gold Disks’ for Oil Payments to Saudi Arabia
Anyone who has read ANOTHER (THOUGHTS!) ("The Inside Story on the Gold-for-Oil Deal that could Rock the World's Financial Centers") and FOA ("Walking the Gold Trail Using the "Thoughts!" of ANOTHER") or has been following this blog should immediately recognize the significance of these two articles (written in 1981 and 1991 respectively) presented today by CoinLink. (Hat tip Sigo Plapal)
(This first article appeared on pages 2-5 of the September/October 1981 print edition of Saudi Aramco World. by Robert Obojski.)
The Coins that Weren’t
“In Saudi Arabia, gold coins have always been important in the monetary system. For years, in fact, paper money was unacceptable, and to pay royalties to the government, Aramco once flew kegs of both gold and silver coins to jiddah. In 1952, when the Saudi Arabian Monetary Agency (SAMA) was formed, the first coin issued was a Saudi sovereign – a gold coin equal in weight and value to the British sovereign – that was later demonetized and today sells for about $124.
To collectors, however, the most interesting Saudi gold coins weren’t coins at all; they were “gold discs” Similar to coins, they were minted by the Philadelphia Mint in the 1940’s for Aramco, and bore, on one side, the U.S. Eagle and the legend “U.S. Mint, Philadelphia, USA” and, on the other side, three lines on the fineness and weight. They looked like coins, they were used as coins, but, technically, they weren’t coins.
In the 1950’s, numismatists were puzzled by these “discs” until - in 1957 – the story emerged in The Numismatist. Aramco, required to pay royalties and other payments in gold to the Saudi government, could not obtain the gold at the monetary price fixed by the United States so the U.S. government specifically began to mint the “discs” – actually bullion in coin form for these payments. In 1945, for example, the mint turned out 91,210 large discs worth $20, and, in 1947, 121,364 small discs worth $5, according to The Numismatist.
Because most of the discs were melted down for bullion, or later redeemed for the Kingdom’s gold sovereigns, the discs are interesting additions to art collections. But care is necessary as counterfeits are common.”
(Then in 1991, the New York Times printed an article by Jed Stevenson on the “disks” in reference to several which were to be sold by Stacks in an upcoming auction in May of 1991.)
By Jed Stevenson
Published: April 14, 1991
Gold coins made by the U.S. to help oil companies pay their debts to the Saudis.
Sometimes coins are minted for the strangest of reasons. Some Saudi Arabian bullion coins, several of which will be auctioned by Stack's early next month, are a prime example.
The coins were struck in Philadelphia by the United States Mint in 1945 and 1947 to satisfy the obligations of the Arabian American Oil Company, or Aramco, which had been set up in Saudi Arabia by four American oil companies. The company was obliged to pay the Saudi Government $3 million a year in oil royalties and its contract specified that the payment be made in gold.
The United States dollar at the time was governed by a gold standard that, at least officially, made the dollar worth one thirty-fifth of an ounce of gold. But the price of gold on the open market had skyrocketed during World War II.
For a time the Saudis accepted payment in United States currency, but by 1945 they were insisting that the payments in gold be resumed. Aramco sought help from the United States Government. Faced with the prospect of either a cutoff of substantial amounts of Middle Eastern oil or a huge increase in the price of Saudi crude, the Government minted 91,120 large gold disks adorned with the American eagle and the words "U.S. Mint -- Philadelphia."
Aramco paid for the minting and the bullion. The coins were shipped off to Saudi Arabia.
These bullion coins weighed 493.1 grains, slightly more than a troy ounce, and were 91 2/3 percent gold and 8 1/3 percent copper. The fineness was that of the British sterling system then current in the Middle East. The United States standard was only 90 percent gold.
Although some Aramco employees reported seeing the coins in circulation in the late 1940's, even using them as poker chips, the coins were not widely circulated. Islamic law discourages images and most Saudi coins are adorned with only Arabic script as decoration. The eagle with its wings spread wide must have been a startling sight to Saudi Arabia's more orthodox Muslims.
But most of the coins disappeared for more temporal reasons. The bullion coins were crated and shipped to Bombay, where the $35-an-ounce American gold was sold for $70 an ounce. Most of the coins were melted into bars and later sold in Macao.
In 1947, Aramco contracted for 121,364 smaller bullion coins with the same design, but weighing just 123.27 grains. Those coins actually saw some popular use in Saudi Arabia and traded for about $12, or 40 silver Saudi riyals. But the popularity declined after Swiss and Lebanese counterfeiters began striking coins that were similar but less valuable.
In 1951, Saudi Arabia began minting its own gold coins and melted down most of the remaining small and large bullion coins from the United States Mint, restriking them as Saudi coins.
Today both sizes of the Aramco bullion coins are quite rare and many counterfeits are in circulation. The genuine large disks have fine lines in and around all the letters; the counterfeits have small dots. Counterfeit small disks often show a large indentation above the M in Mint.