What Are Goldbacks? How This Gold-Backed Currency Works

Goldbacks are a spendable, inflation-resistant gold currency, designed to protect purchasing power by incorporating real gold. It is a tangible asset designed to resemble vintage dollar bills.

Physically, the chief difference between these currencies is their composition. The dollar is made from a blend of cotton and paper. Goldbacks contain small, precisely measured pieces of 24-karat gold encased in a protective polymer.

Many investors like the idea of spendable precious metals, but are unclear whether this asset can actually benefit their portfolio. We'll delve into how goldbacks work, their pros and cons, and whether they are a smart investment in this guide. Read on to find the answers you need!

What Are Goldbacks and How Do They Work?

As we've already explained, goldbacks are a physical currency featuring small amounts of fine gold. Unlike gold bullion, which usually contains at least one troy ounce of gold, these bills hold a fractional amount of gold. The gold content ranges from 1/1000 to 1/10 troy ounce.

Goldbacks come in the following denominations:

• 1
• 5
• 10
• 25
• 50
• 100

There is also a 1/2 denomination for smaller transactions. The value of these bills is based on the current spot price of gold. Since the spot price of gold changes by the minute, the value of these bills fluctuates.

As you might expect, these bills are not considered legal tender by the federal government. However, various states do allow their use in daily transactions. Those states include:

• Utah
• Nevada
• New Hampshire
• Wyoming
• South Dakota
• Florida
• Arizona
• Oklahoma

However, no business in these states is required to accept goldbacks as a form of payment. In this way, goldbacks are similar to cryptocurrency. Any exchange of this payment is completely voluntary between the purchaser and the business.

There are two primary ways to acquire goldbacks. The first is to purchase them through dealers licensed by the Goldback company. The second is to exchange traditional currency for them at participating locations.

How Do Goldbacks Compare to Gold Bullion?

There are a few primary differences between goldbacks and gold bullion. Perhaps the biggest difference lies in their gold content. Gold bullion is measured in troy ounces; to be considered bullion, gold must have at least one troy ounce of gold with 22 karat purity.

In contrast, goldbacks necessarily have less than one troy ounce of gold in their composition. So, you may wonder, what sets goldbacks apart from gold fractional coins?

This question gets to the heart of the difference between bullion/fractional coins and goldbacks. Both gold bullion and their fractional offshoots are intended to be used as a store of value to hedge against inflation. They are an investment commodity meant to diversify an investment portfolio.

In contrast, goldbacks purport to be a return to a previous era in American currency. Their appeal lies in being a decentralized, tangible currency capable of daily use. This purpose affects every aspect of their design, including their portability, which far surpasses bullion portability.

Drawbacks of the Goldback

Goldbacks can be an exciting opportunity for sound money enthusiasts. It allows them an opportunity to barter using a major innovation in precious metal currency.

However, there are several drawbacks that investors should be aware of before they purchase goldbacks. This is especially true when comparing them to traditional gold bullion.

High Premiums

Goldbacks often carry a premium of 100% or more over the spot price of gold. The polymer and artistic designs that make goldbacks so distinguished are very expensive to craft, requiring intensive labor.

As a result, buyers pay roughly double the value of the gold content. This premium makes the asset very inefficient for wealth accumulation compared to traditional gold bullion.

Limited Acceptance (Not Legal Tender)

Another issue with goldbacks is that they are not government-issued and do not hold legal tender status. That may be a part of their appeal within the sound money market. However, it also means that their range of use is severely limited.

At this time, goldbacks are primarily accepted by a small network of businesses in specific western states. In contrast, investors across the United States can acquire gold bullion with relative ease.

One reason for this is that it is easy to acquire gold bullion that is legal tender. The Gold American Eagle holds this status. While the Gold Eagle is not particularly good for everyday transactions, its legal tender status makes it easier to acquire. We'll explore that a little more in the next section.

Lower Liquidity/Resale Value

One reason that legal tender status helps gold bullion is that it boosts the commodity's liquidity. Liquidity is yet another massive advantage of gold bullion.

Legal tender status is not the only thing that boosts gold bullion's liquidity. The real advantage that gold bullion has over goldbacks is the strength of its market.

The gold market is very robust, as is much of the broader precious metals market. There is a high demand for precious metals, which culminated in incredible gold value in January 2026, when the spot price hit $5,500.

In contrast, because goldbacks have such high premiums and limited use, the demand for them is not as high. These assets are only usable in a handful of states, making them less desired by the broader American investor market.

Additionally, American gold bullion is a globally desired asset. The American Gold Eagle and Gold Buffalo are world-renowned items. There is not such a global market for goldbacks, nor are they designed to build that market.

Specialized Storage and Care

Something that goldbacks and bullion have in common is that they both require specialized storage. Although goldbacks have a durable polymer coating, they require proper handling to prevent damage to the gold layer in the bill.

The following factors can affect the value of a goldback:

• Creasing
• Folding
• High humidity

Counterfeiting Concerns

Goldbacks are designed with advanced security features using the company's patented Aurum® process. However, some investors have concerns regarding the goldback's security.

The small, fractional gold content makes them less regulated than government-minted coins. As a result, there is possibly more potential for counterfeiting goldbacks than there are for gold bullion.

Should You Buy Goldbacks?

As you can see, there are several drawbacks to buying goldbacks. So, does that mean you should not buy goldbacks?

The answer to this question really depends on what you're looking for. If you want an alternative investment that can also be used as currency, goldbacks are a unique asset that can fit both needs.

If you are a sound money enthusiast who likes decentralized currency and wants a tangible asset, as opposed to a digital asset like cryptocurrency, goldbacks might be ideal.

Even if you do not live in a state that uses goldbacks, you can still buy goldback bundles as a means of portfolio diversification. In these cases, investors may prefer goldbacks for their value as a collectible. It can also be more affordable to buy goldback bundles instead of troy ounce gold bullion.

However, traditional investors may prefer gold bullion for several reasons. Gold bullion is more liquid, has lower premiums, and can be divisible. It is also a much better commodity for long-term investment, as opposed to goldbacks, which primarily focus on small transactions and trade.

Where Can You Buy Goldbacks?

The Goldback company licenses many precious metals exchanges to sell goldback denominations. Often, you can find goldback series for each of the states that permit the use of goldbacks.

If you want to buy goldbacks, start your search by looking for reputable precious metals exchanges. You can find many of these by looking at their rankings on the Better Business Bureau or by checking their reputations within the precious metals world.

From there, check out what goldback series these exchanges provide. Compare their prices with those of other exchanges to ensure you're getting a market viable price.

Once you've found a reputable exchange and a product whose price fits your budget, place your order! You'll be ready to diversify your portfolio and your currency.