Bonds of Gold

So claim modern prospectors

Gold prospecting ain't what it used to be. The old Forty-Niner went West to make a fortune all by himself. Today the new breed organizes, suits up in pinstripe, and tries to dig gold out of an obscure clause in 85-year-old bonds. This week the 300 members of the Gold Bondholders Protective Council plan to file a class-action suit in Anchorage, Alaska, that could force several companies and states to pay off $1 billion in long-term bond debt in gleaming gold.

After the Civil War, gold bonds were issued to entice inflation-wary investors. Some 1895 bonds promise to pay in gold the interest every year and the face value in full in 1995. While the 1895 price of gold was $20.67 per oz., the precious metal closed in New York last week at $511. For decades the Atchison, Topeka & Santa Fe Railway, the largest remaining ingot bond issuer, dutifully made 2% semiannual interest payments in gold coin. But in 1933, Congress struck the gold clause and restricted the bonds' interest and principal payments to cash.

Now those bondholders want to get back on the gold standard. Their suit argues that 1974 legislation allowing Americans to once again hold gold nullifies the earlier law. If the gold bugs win, a 14-karat $1,000 bond would be redeemable for about $25,000 at today's metal prices.

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