Safety Buying Gold Today: Would the 1933 Government Gold "Raid" Affect Your Purchasing of Gold?
The Truth About Gold Coin Confiscation
In March, 1933 America was slowly sinking into the Great Depression, one that would affect millions of people across the country. The government, and in fact the citizens, believed that the situation would be handled by printing more paper money. However, a good majority of the public understood that this situation would lead to inflation and cause rapid devaluation of paper money. As a result, many rushed to exchange all their cash for gold.
At the time, paper money was backed by gold, and the government, unknown to the public, had not maintained a sufficient reserve of gold. Under sudden pressure to back up their cash reserves with gold and the falling American economy, the government suddenly realized a dearth of gold exchanges coming from the treasury vaults. To prevent any further collapse of the banking system and American economy as a whole, an executive decree was released ordering all citizens to turn in gold that they were holding. The gold was to be placed in the Federal Reserve Bank. A vault exists below the Fed in New York City, New York. The decree also prevented citizens from buying gold.
What Roosevelt's Executive Order Outlined
The executive order under President Roosevelt dated April 5th 1933 stated that effectively all privately owned gold should be turned in to "a Federal Reserve bank or branch or agency thereof or to any member bank of the Federal Reserve System." There were four exceptions to this confiscation. One exception allowed citizens to own up to only $100 in gold coins.
The decree pointed out two key ideas. The first point was to have the public return all gold certificates, coins and bullion on or before May 1st, 1933 in exchange for $20.67 per ounce. This price was later increased to $35 per ounce, and that remained the price until 1971 when Nixon cancelled the effect of the decree. The consequence of Roosevelt's order was a devaluation of the dollar by 41 percent.
Second, the government managed to amass a huge deposit of gold that amounts to over 56 metric tonnes equivalent to 1.8 million ounces which was shipped to Fort Knox in 1937. Hence, not only did it privatize gold hoarding for itself but it also made it a criminal offense for citizens to do so. In return, its gold reserves soared making it the largest gold depository in the world. Until the signing of a bill by President Ford in 1974 that legalized individual gold holdings, citizens could not hold on to any kind of gold. It was automatically the property of the government. Even though it was technically property of the government, safety deposit boxes, contrary to popular belief, were not raided by the federal government. In a few more recent cases, people who purchased gold before 1933 and who died leaving the gold to heirs have had it confiscated. When an individual passed away, the banks holding the safety deposit box audited it, and on finding such gold pieces contacted the government. The courts determined that gold not turned into the Federal Reserve in 1933 was property of the government.
Fort Knox aka The Vault
Where did all the "old" U.S. Coins confiscated go?
The gold was originally the responsibility of the Federal Reserve. In 1937, all of the gold confiscated was sent to Fort Knox, constructed in 1936. This is the largest deposit of gold coins and bullion known to mankind as of this date. This reserve is left not audited- some believe for a number of reasons including that the government would like to manipulate this information as it pleases. Outside of government circles, nobody really knows.
What standing law is there now about confiscation of Gold?
Following the legalization of personal gold holdings by President Ford and Nixon in the 1970s, the general public in the US can purchase and/or hoard gold. However, the presidential order of 1933 showed how inconsequential such an investment really is. If the government wishes, it can once again pass such an order eliminating the value of gold and further devaluing the US dollar. It is claimed that much of the gold of savvy investors was quickly shipped overseas to foreign banks for safe-keeping.
Furthermore, in a case from 2011 when a gold jeweler's heir discovered ten $20 gold coins from the Roosevelt era in his family safety deposit that was seized by the U.S. government, it was ruled that since these coins were illegally hoarded under the 1933 gold confiscation order, they could not be deemed to be of a personal possession. They were determined to be the property of the U.S. government. Hence, even today, if anyone is found in possession of gold that can be linked with the Roosevelt era through the 1970s, he/she must return it to the US government as it is lawfully their property. One key idea to keep in mind is that Gerald Ford rescinded the executive order of President Roosevelt, but the legislation that Roosevelt added his executive order to (Trading With the Enemy Act of 1917), is still enforceable. The executive order is something that can easily be used by presidents in time of crises to modify or add to acts already in existence.
Has the U.S. Treasury made money off of the confiscation of coins which it paid $32 an oz. for?
To answer this question one has to look at the confiscation from two different angles. First, when the order was passed, the banking system of America was hugely dependent on the gold standard, as was most of the world.. This meant that the reserves were backed by U.S. currency and the dollar currency was backed by gold. Hence, to try to remove the economic problems of the Great Depression, the government decided to channel more currency into the hands of the public by taking back more gold. In a way, they did make money from gold. Initially, they paid $20.67 per ounce and later made it $35 per ounce.
1.This payment money was mostly fresh money created to meet increasing demands.
2. Over the years the gold has appreciated greatly vis-a-vis fiat (currency based solely on the good faith and credit of the United States).
Myths or Mysteries Surrounding The Gold Seizure of 1933?
Estimates of the amount of gold confiscated have been all over the place. These estimates range from 56 metric tons up to 500 metric tons. This latter number of ounces was reported in some newspapers in 1933. The estimate mentioned in the fifth paragraph above of 1.8 million troy ounces (56 metric tons) has been determined, supposedly, by using Treasury department information. One of the reasons folks call for a current audit of the Federal Reserve and Fort Knox is because of this mystery. Another reason is to get the total amount of gold accounted for today in the United States Bullion Depository (Ft. Knox). Claims have recently been brought, perhaps spurred by panic or, and, in some cases, contempt for government, declaring that the U.S. government has no gold.
Reconciling Precious Metal and Currency Today-
Approximately $1.14 trillion of U.S. money was in circulation as of October 31, 2012. $1.1 trillion was in Federal Reserve notes. The rest would be coin.*Wikipedia
Given the spot price of gold on June 17, 2012 ( $1,618.82 an ounce), the government reported gold in Fort Knox is worth $238.290 billion.*Wikipedia
Assuming the validity of these numbers, it is clear to see that the nominal value of the currency in circulation is much more than the value of the gold in the depository.
A popular notion that gold buyers have is that if they purchase antique or exempted gold coins and bullion they can better safeguard their investment even in the case of a presidential seize order. As we have noted, a new executive order can be promulgated if viewed as necessary. Whether there would ever be a new confiscation order is the big question. It is interesting to note that given this questionable belief, many dealers add in a 15% or even higher premium.
Under the 1933 act, objects of art, antiques, and certain classes of gold were exempt from confiscation. However, who is to determine what art, antiques, or classes of gold are? The only way that the government would benefit from confiscation is if the hoarding of gold and its use for money got out of control. I think it is fair to say that the distribution of gold would then be so vast and the value of gold throughout the world would be so high that fiat currencies would collapse. Essentially, gold and silver would become money and the government would have lost a great deal of power, if not all.
Do you think a 1933 style executive order barring the ownership of gold in the U.S. is likely to occur again?
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This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.
© 2012 John R Wilsdon