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The Complete History of Gold Confiscation

Have you heard of the gold confiscation of 1933? If you haven’t you’re not alone. The complete history of gold confiscation is by far one of the most controversial issues when referring to the gold sector. It is a subject which makes the hairs on the back of one’s neck stand on edge. Those who are gold-oriented treat this part of our economic history with trepidation and go as far as to look within themselves and wonder who they should place their trust and life-savings in: history or the government. This reflective dilemma is an utmost concern and is the most distinguished obstacle between those who purchase gold as a safety measure against economic calamity and those who are swayed in this vigil of the U.S. dollar’s downfall we are currently experiencing.

What exactly caused gold to be confiscated? Could it happen again? We must keep in mind that history is a cycle, yet no one…absolutely no one…can foretell what could or would or should happen. Analytically speaking, though, one can make an educated conjecture to clear up some doubt as to the matter of the government confiscating privately-owned gold based on the causes, the actual appropriation, and the probabilities of it occurring once again.

Causes

I.                   Stock Market Collapse (1929)

As a rule of thumb, Black Thursday (October 24, 1929) and Black Tuesday (October 29, 1929) are the dates associated with the beginning of the stock market crash of 1929. Approximately a month and a half prior to Black Thursday (September 3, 1929) the Dow Jones Industrial Average attained a 381.2 ceiling. A month and a half later, on Thursday, October 14, the high declined 21% (falling 33 points just on this day) leaving the market at 299.5. As one can only imagine…panic ensued.

But, why did it collapse? A brief explanation follows:

There was an undertaking by influential individuals as well as the media to halt market speculators. It was very much accepted in 1929 to attribute the ‘boom’ on speculators. When John Maynard Keynes found out about the crash of October 24 he responded in the New York Evening Post (25 October 1929) that “The extraordinary speculation on Wall Street in past months has driven up the rate of interest to an unprecedented level.” Similarly, President Herbert Hoover blamed the Federal Reserve Board  as rising stock market prices led up to the crash as a speculative bubble. Consequently, the general opinion was that stock prices were far above where they should be.

Conventional stocks escalated in value by 120 percent in 4 years from 1925 to the 3rd quarter of 1929. This was a 21.8% growth. Even though this was a great increase, it still could not be sufficient enough to warrant it as an effect of pure speculation. The 1920s was a period of economic bloom and the stock market just matched this financial fortune.

Another factor was the enormous development of investment trusts, public utility, holding companies, and quantity of margin buying which incited the possession of public utility and stocks, which provoked higher prices, as well.

By November 13, 1929, the market was at 199 and by the time the crash had concluded in 1932, subsequent to a never before experienced large economic depression, stocks had surrendered virtually 90% of their value. A chain of events ensued…the crash helped originate the depression of the thirties and, in turn, the depression helped to lengthen the period of low stock prices, thus confirming to the general public that the prices had been out of sorts and too steep.

II.                The Great Depression (1929-1933)

The Great Depression was the worst economic depression of the 20th century. In the majority of countries, it began in 1930 and continued until the late 1930s or middle 1940s. It is a period in which we refer to demonstrate how low and how far the world’s financial woes can go.

It commenced in the United States following the fall in stock prices that began more or less on September 4, 1929 and came to be known around the world with the stock market crash of October 29, 1929. Affluent as well as poor countries received the impact equally.

International trade decreased by more than 50% as well as personal income and tax revenue. Profits and prices also descended. This all occurred mostly because of the Smoot-Hawley Tariff. Simultaneously, unemployment in the United Sates ascended to 25% while in other countries it surmounted to 33%. Heavy industry cities were especially struck hard with construction essentially ceased all over. Crop prices in rural and farming areas plunged by about 60%.

Gold Confiscation

At the time of President Franklin D. Roosevelt’s inauguration on March 4, 1933, the United States was experiencing the most disastrous economic period of all time. The President commenced his inaugural address by condemning bankers, profit chasers, and capitalistic insolence and held them responsible for the economic downfall. The next day (March 5, 1933) he met with Congress and together they concluded that the solution must first give relief to the banking sector if the United States stood a chance of surviving the disaster. The law: “An Act to Provide Relief In The existing National Emergency in Banking, And for Other Purposes” was passed. For those who were ignorant of the real purpose supported it…and since not many people understood it…they endorsed it. The general public obviously knew that there was a national crisis and if the President had enacted a law to remedy the financial sector, then they should be trusted notwithstanding the fact that the government, too, was to blame. And so began one of the greatest violations in history. Executive Order 6102 was signed by the President on April 5th and a few months later it was revoked and superseded by Executive Order 6260 on August 28, 1933. What did these laws put into effect? They made it a criminal act for any citizen looking to safeguard his wealth by merely holding physical gold coins or bullion which was legitimately, plentifully, and unreservedly in circulation. The penalties were a $10,000 fine and/or 10 years imprisonment!

Interestingly enough, the government brought to a halt one of the only things that would have ensured economic survival for American citizens intelligent enough to hoard a fraction of their wealth in gold during one of the most difficult economic periods in the United States. Holding on to their gold would have, at once, nearly turned their purchasing power into twice as much. The one thing they could have hung on to that would have made a difference was taken away. The reality is their money would have doubled just a few months later if they had been permitted to retain it. The Gold Reserve Act of 1934 (January 30, 1934) would have turned their gold around because it revalued gold against the U.S. dollar. It went from $20.67 USD per ounce to $35.00 per ounce. In fact, everyone is aware that gold is the absolute standard. In the end, the devaluation of the dollar ensued. Had the general public had their gold, they would have been able to receive 35 paper dollars for a 20 dollar gold coin. We can’t even begin to imagine how this could have turned these fateful events around.

The actual confiscation was not as we might envision, though. Government officials did not knock down the doors of private citizens probing and appropriating gold without reimbursement. Federal Reserve notes were given on a dollar for dollar basis in exchange for gold coins. In other words, if the individual handed in a $10 dollar gold coin, then he was reimbursed with paper money worth ten dollars. Gold bullion, on the other hand, was appraised for its purity (fineness) and exchanged at $20.67 per ounce. This number was what the government believed one ounce of gold was valued at in dollars…a little fishy, huh? However, it was the gold-dollar exchange rate of the established, supposed gold standard. Buying and selling gold in other than general coin form was more complicated because it needed a more meticulous appraisal process which was more time consuming. There was interference between the time the citizen turned it in and payment was given. Some pieces of the puzzle are lacking but do not forget, with legislation executed quickly after that, all agents of the U.S. Secret Service as well as U. S. Customs Officers were exclusively empowered to confiscate gold if it breached the Gold Reserve Act of 1934. The ones that made it securely to overseas bank vaults were the ones that escaped the talons of the law.

Regardless, it was quite clear to those who were financially insightful that this was a terribly bad trade but not really comprehended by the general public. The abuse that had occurred was oblivious to them. The law obligated all citizens to give the government almost all US and foreign gold coins, bullion (bars, nuggets, dust, etc) and gold certificates by way of the banks within a short time subsequent to the issue of the order. Private Citizens were able to request gold certificates or legal tender notes from banks in exchange for their gold coins. If the notes were clearly marked as gold certificates then they had to be relinquished. The paper “gold claim” is somewhat strange; it simply symbolized a claim on physical gold bullion. The government merely could have issued orders to the banking system to avoid exchanging the paper for gold coins if presented after the notorious May 1, 1933 date. The paper could have lingered with its nominal value throughout the United States.

Some deviations existed as well especially for those professionals who used gold in the normal course of their business such as artisans, jewelers, dentists, etc. They could receive special licenses from the Secretary of the Treasury via the Federal Reserve banks. They were permitted moderate quantities on their premises. They could not have a stockpile of gold in their offices. Each US citizen could lawfully maintain a full amount of $100.00 face value of US gold coins or US Gold Certificates. In other words, a family of four could have kept $400.00 face value of coins. Financial institutions could continue to deal in it with other banks for international settlement with additional controls and regulation, and put it in storage it for others. The well-to-do financiers could still maneuver it in practically every way. The mining, refining, and exporting industries went on as if nothing was going on around them. The only ones affected were the average citizens.

Another deviation to the norm was if the individual had a coin that was recognized as having some nominal numismatic or coin-collector type allure. More so than not it was relieved from confiscation if it was rare or unusual and typically was sold/traded for a calculable premium over the net gold value. This was unclear and subject to analysis. Today our collector’s coins were the more common ones back then to have met the criteria for exclusion of the law. Unfortunately, most of them were liquefied…

Likelihood of Occurring Anew

When we speak of what occurred almost 8 decades ago, it’s normal to wonder if it could occur again. I mean, if history is a cycle as it has been proven, then should we invest in something that could be taken away from us again? If the government finds itself in the same economic situation as in 1933, will they turn to gold to aid them? The decision they make, whether untrustworthy or corrupt, will prevail. If the government is obligated again to sustain the US dollar in a reliable manner this may be the influential element. This whole picture gets clearer when one looks at the GATA proponents claim that most of the American citizen’s gold has been sold or leased to curb the price for the past two decades. It’s more than likely that the price has been legally smothered for a long time. The subjective manner as well as the volatile way in which the market is fluctuating is proof that something was altered. It is only the economically and politically unpretentious who do not foresee the possibility of gold being confiscated once again.

Many masters in the field have discussed the way in which gold could be reinstated to its proper position as the unquestionable standard by which all national currencies are appraised. Funny how the only issue in question will most likely be just how valueless any given currency is relative to gold and what ratio of paper to reserves will be internationally accepted. The world will still be independent enough to debase their currency for any present day contingency.

In the end, gold will unmask the absurdity of the situation and swiftly conclude just how many of those paper charlatans you have to trade for an ounce of the precious metal. It’s already in the process and the probable method used to once again sustain the dollar will be the return of the Federal Reserve Gold Certificate Ratio. Uncle Sam will call for lots of gold to put into practice a practical resolution even if the price of gold skyrockets due to the trillions of hopeless little dollars in circulation. Just think about it for a moment. With any luck, the government will legally obtain the required gold reserves from the accessible market to sustain their stockpile.

The gold sector encompasses financially knowledgeable citizens who just might be content with separating themselves from their real gold at much higher prices in exchange for paper that might essentially be worth something again, at least for some time. Regrettably, this is more apt to materialize only subsequent to the immediate disapproval and termination of the International Monetary Fund despite the alarming return of the Islamic Gold Dinar. It’s not such a crazy assumption. The Gold Dinar and the Silver Dirham are advancing with such a wrath that they will defeat those that take too lightly its probability of triumph. It’s basically a done deal because their basis for achievement has been both previously positioned and confirmed. It is the heart of what the dollar used to be…without it, it will vanish. Gold is the heart.

On the other side of this controversy is that it would be an error to echo the irrationality of our 32nd President. It would not be the American thing to do. It would be unscrupulous and wrong. The general public can legally hold gold in their IRA and can buy and hold all the gold they want so long as they are in accordance with the laws when they acquire it as well as the tax rules when receiving any returns. Investors in the United States have access to Gold ETF’s and it would be quite a pretense for the United States to be relentlessly executing democracy and free-trade by imposition to every nation of the world while, simultaneously, suppressing the free will of its own citizens who are very conscious that gold and silver are the only authentic and legal money of the United States of America.

It is obvious that no one can foretell what the government will do during another terrible financial crisis as the 1930s but if the most intense financial situation unfolds which would be a total disintegration and repudiation of the dollar by our foreign creditors then every former court ruling, law or custom can be changed in the blink of an eye. Hopefully, it will not happen. The fact remains that it is possible so one must discuss the reality of it as well as the corresponding contingencies that surround the complete history of gold confiscation.

To talk to a gold coin specialist and to answer any additional questions you may have about gold confiscation call 1-800-394-3337.

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