The chart below, which is a time series showing the total "Gold Held by the US Treasury and the Federal Reserve" (which for all intents and purposes are interchangeable), demonstrates vividly the moment when the US government enacted Executive Order 6102, aka the "forbidding the Hoarding of Gold Coin, Gold Bullion, and Gold Certificates within the continental United States" order which criminalized the possession of monetary gold "by any individual, partnership, association or corporation." But not the government of course. Spot the moment after which gold confiscation by the US government (also known as USD devaluation) from its citizens was legalized.
The actual April 5, 1933 order, which in the coming years will make a repeat appearance with absolute certainty, is below.
What was the point of Executive Order 6102? It was two fold.
- First, in order to make the confiscation legitimate, the US government required the delivery of all gold coin, bullion, and certificates to be concluded by May 1, 1933 in exchange for $20.67/ounce. Several months later, the new, official gold exchange price (which however was merely the government's bid as nobody could actually buy gold at this price) became $35.00, which remained until 1971 when the last trace of the dollar's pseudo convertibility into gold was wiped out by Nixon. In effect, what FDR did was to devalue the USD by 70% overnight.
- Second, not only did the government remove the incentive for ordinary citizens to hold gold by establishing price and criminal controls over possession, it also changed the rules in the middle of the game allowing it to build up a massive gold hoard of over 8000 tons today which is maintained at Fort Knox, and is, to the best of our knowledge, unauditable by any mere mortal. Critically, it made the US government the sole source and monopoly agent of gold purchases, using reserve fiat currency it could print with impunity, beginning in 1933 and continuing through 1974 when the limitation on gold ownership was repealed after President Gerald Ford signed a bill legalizing private ownership of gold coins, bars and certificates by an act of Congress codified in Pub.L. 93-373, which went into effect December 31, 1974. In summary, the US government, which is now the largest official holder of physical gold in the world, had 40 years of uncontested zero cost gold accumulation in which it could build a gold inventory that was second to none.
As for the process the government had in place to deal with those who refused to voluntarily hand over their gold quietly, curiously there was only one case of prosecution, which however should make it very clear that holding gold in "authorized" bank safes is about the dumbest thing one can do the next time the US government decides to devalue the dollar, and change the rules.
The circumstances of the case were that a New York attorney, Frederick Barber Campbell, had on deposit at Chase National over 5,000 troy ounces (160 kg) of gold. When Campbell attempted to withdraw the gold Chase refused and Campbell sued Chase. A federal prosecutor then indicted Campbell on the following day (September 27, 1933) for failing to surrender his gold. Ultimately, the prosecution of Campbell failed, but the authority of the federal government to seize gold was upheld, and Campbell's gold was confiscated.
The fact that the custodial bank of the 5000 ounces of gold is the bank that would subsequently become JPMorgan is not lost on us.
Finally, to those who have some gold ETF certificates in a brokerage account, which by law are the possession by DTCC's Cede & Co. - a bank owned institution - we wish the best of luck to anyone hoping to preserve of even recover any of the invested wealth in such instruments.
And remember: when in doubt, recall Bernanke's immortal words: "gold is not money."