Have you heard of Roosevelt’s Emergency Banking Act on April 5th 1933? This was the date on which the American president declared that it was illegal for US citizens to own gold and ordered them to return their coins, ingots and gold certificates to the federal reserve banks before May 1st 1933 at a price of 20.67 USD per ounce. Immediately devaluing the dollar by 40 percent; and setting the price of gold at $35.00 per ounce. At a single stroke, Roosevelt increased the government’s gold assets, stabilized the monetary system and increased wholesale prices by more than 33 percent. However, he also inflicted losses of 40 percent on gold owners and stripped them of the gold that they saved to insure their financial futures.
Government Confiscation of Gold.
1933 was the year when the great depression had led to a severe shortage of gold. Anxious Americans, demanding gold, had reduced the Federal Reserve’s gold supply almost to the legal minimum, creating additional fears of an impending monetary crisis. The 1933 Emergency Banking Relief Act was approved to ‘provide relief from the national emergency for the banking sector and for other purposes. On March 6 of 1933, the President set in motion a chain of events that ended the international gold standard once and for all. First, he closed the nation’s banks and prohibited them from paying out or exporting gold coins and bullion, using emergency powers granted by the Trading with the Enemy Act that had been enacted during World War I.
Times were very good for many Americans in the mid- to late-1920s. The stock market had grown exponentially and by 1929 had skyrocketed into an emotional frenzy of greed. In 1929, the frenzy stopped. Black Tuesday set off the stock market crash, which led to the Great Depression.
By 1933, the demoralized nation looked to Washington, D.C. and President Franklin D. Roosevelt for salvation. Roosevelt confiscated circulating gold coins owned by American citizens (all but $100 worth per individual) and then took the nation off the gold standard.
Almost all Americans were required to turn in their gold coins at face value under penalty of large fines and/or jail sentences. There were only a few exceptions, one being:
“gold coins having a recognized special value to collectors of rare and unusual coins.”
You can view the actual Executive Order and read the terms of confiscation by clicking on the picture to your left. After the gold was received, the government melted the majority of the coins. The government then raised gold’s value by nearly 75%. Rare coin collectors, as exempted by the confiscation actually profited from the confiscation, melting, and price revaluation in two important ways. Their coins gained value due to the:
- Huge increase of the gold bullion value of their coins – the $20 Saint-Gaudens gold piece, for example, contains nearly a full ounce of pure gold.
- Massive official melting of the confiscated gold coins. This melting made the limited number of surviving coins in collections much scarcer and more valuable.
These government actions helped President Roosevelt and Congress inflate the U.S. economy during the mid- and late-1930s. These actions also led to a loss of a number of important freedoms for the American people – freedoms from long-term inflation, expanding government, gold confiscation (except collectors), and government intrusion into their private financial matters.
From 1933 forward, private possession and ownership of gold was illegal for U.S. citizens.
Any refusal to return one’s gold was punishable by a fine of 10,000 $ and 10 years in prison. These exceptional measures were aimed at preventing the general public from storing gold. The solution was simple: make it illegal to directly own gold.
Even more significantly, American citizens lost the substantial benefit of having a dollar as good as gold when Roosevelt took the United States off the gold standard. Owning gold coins has protected savers from inflation, devaluation, and intrusive government for thousands of years. The events of the 1930s and the decades that followed prove the importance of owning scarce and desirable gold coins.
For protection and potential profit, wise Americans keep a portion of their long-term savings in the form of scarce and desirable coins. In 1934, Roosevelt proclaimed the confiscation of the gold held by the banks (Gold Reserve Act: in exchange for gold certificates that could not be exchanged for gold!)
This law remained active in the USA until 1975, a few years after the dollar’s value had stopped being linked to that of gold.
All of this failed to prevent Americans buying and selling gold on the black market especially gold in the form of nuggets which the law had forgotten. Of course, there were also all those Americans who knew all about gold and stored it in vaults in Switzerland: the reserves of wealth are immobile but the value that this wealth represents (currency) circulates.
Although private ownership of gold in the United States was legalized on August 15, 1974, the power to confiscate gold remains in the hands of the President. The President still retains the right, under the Emergency Banking Relief Act, to “investigate, regulate or prohibit… the importing, exporting, hoarding, melting or earmarking of gold” in times of a declared national emergency.
The time to act is before, not after, a crisis occurs. If you wait until gold confiscation, currency exchange controls or any other emergency measures are taken it will be too late.
As an investor, what should you do? Put some of your savings in the ultimate crisis hedge – numismatic coins. In the event of a crisis, it would be better to own numismatic gold than bullion