Restoration Long Shot

Back in the days when fiat money rated more respect, betting on a restoration of the gold standard was compared by gold skeptics to betting on repayment of Czarist bonds. The Czarist-bond analogy may still be used by people unimpressed with predictions of $5,000 gold based on the M1/gold ratio.

If a gold standard in the future is dubious, then how more so is a bet that gold bonds issued in the past can be redeemed for gold?

In the United States, there's no chance at all with respect to domestically-issued bonds. But, investor Fouad Al-Zayat is betting that the U.S. Supreme Court will legitimize claims on German gold bonds sold in the United States.

What makes the issue debatable is the fact that those bonds were issued by the Weimar government as well as certain German corporations during that time. They were repudiated by the Nazi goverment, which (needless to say) is treated as illegitimate. On the theory that the post-Nazi government was a restored Weimar goverment, Al-Zayet is arguing that he's owed payment on the bonds - in gold.

Al-Zayat, 69, began buying the debt more than a decade ago in a bet that Germany is still on the hook for bonds issued near the end of the Weimar Republic, and that their value has soared because it’s tied to the price of gold. Mortimer Off Shore Services Ltd., a Nicosia, Cyprus-based company started by Al-Zayat and now run by his son and son-in-law, has spent millions of dollars on the investment and pursuing the claim in court, according to its attorney, Peder Garske.

“It’s not like they just happened to find these bonds in their attic or something like that,” said Garske, who declined to say how much the company spent acquiring the securities. “Through their contacts and through their own research, they concluded that these particular bonds were valid and considered by Germany to be valid and valuable. That’s why they acquired them.”

Jeffrey Harris, an attorney representing Germany in two cases filed by Mortimer Off Shore, said the company isn’t entitled to redeem the bonds. The government won a victory in the six-year legal battle in July when a federal appeals court in New York said the company didn’t follow procedures designed to screen out ineligible bonds, and that U.S. courts lacked jurisdiction over debt issued in territories that became part of East Germany after World War II.

The chances of the Supreme Court even hearing the case is small. But, if Al-Zayat gets his hearings and wins, the $1,000 face value bonds will be worth about $5 million each when principla and unpaid interest are taken into account.

Mortimer Off Shore’s attorneys calculate that each $1,000 bond represents about 3,663.25 troy ounces of gold. When multiplied by the metal’s current price of about $1,365 an ounce, the firm estimates each of the 1,611 bonds held by the company, including unpaid interest and principal, is worth $5 million, or a total of $8 billion.

The attorney for the German government is planning to argue that the bonds are covered by the gold-clause strike-down. Should things get to that stage with the Supreme Court agreeing, Al-Zayat's bonds will be worth about $5.48 million total.


Needless to say, this is indeed a long shot - but it's a gamble that captures the imagination. That said, old bonds in scripophily shops, flea markets and eBay are typicaly cancelled and worth nothing.