The Gold Reserve Act of 1934 was a landmark piece of legislation that changed the way Americans viewed gold. It meant that the American people could no longer have gold, with the exception of jewelry and collector's coins. Following the passage of the Gold Reserve Act, several people were accused of violating clauses restricting the ownership and trade of gold. In general terms, gold is the antithesis of fiat currencies and is considered a hedge against inflation. There were some exemptions that included customary use in industry, profession or art, a provision covering artists, jewelers, dentists, markers, etc.
Many gold owners were understandably unhappy with the gold seizure, and some fought it in court. Ultimately, however, the government could not be stopped and gold ownership remained illegal in the United States until the 1970s. Rather than speculate on whether or not this could happen again, it's better to consider the facts. Below is a timeline that explains exactly what happened and how today's investors should react and what they can do to make sure they are prepared, should it happen again. In 1933, President Franklin Delano Roosevelt issued Executive Order 6102 (reprinted below). This order prohibited the hoarding of gold coins, gold bullion and gold certificates by individuals.
The government confiscated gold from the public years ago. The American Eagles gold became one of the best-known gold coins. It is true that numismatic collector-type coins were excluded in the confiscation of 1933. Whether or not they will be excluded again in any future confiscation is completely unknown. There is a logical thought process to exclude collector coins, in the sense that the government was trying to gain monetary control of gold bars. The government had no interest in rare and unusual coins of special value to collectors. However, what the government has done in the past is not necessarily indicative of what it will do in the future.
A well-known hedge fund manager has warned that governments can ban private ownership of gold. He explained that central banks may try to demonetize gold, making it illegal for individuals to own it, as the authorities lose control of inflation amid the economic crisis led by the coronavirus. In 1966, to stop the fall of the pound, the UK government banned citizens from owning more than four gold or silver coins and blocked private imports of gold. This measure was necessary as President Ford signed into law a bill legalizing private ownership of gold coins, gold bars and certificates by an Act of Congress codified in Pub. Two months later, a joint congressional resolution repealed gold clauses in many public and private obligations requiring the debtor to return to the creditor in gold dollars of the same peso and fine as those borrowed. And ever since gold ownership was legalized again in the early 1970s, investors have been wary about another potential ban on private ownership of gold.
The important distinction about this gold ban is that it happened when Britain was not on a gold standard. Whether or not this could happen again is unknown but investors should be aware that governments have taken such measures before. A new set of Treasury regulations was issued providing for civil penalties of confiscation of all gold and imposition of fines equal to twice the value of seized gold. President Roosevelt encouraged citizens to 'voluntarily donate their gold rings, necklaces and other forms of gold to the government'. That price remained in effect until August 15, 1971 when President Richard Nixon announced that the United States would no longer convert dollars into gold at a fixed value. In conclusion: The confiscation happened.
It was repealed but it could happen again in the future. Investors should be aware that governments have taken such measures before and be prepared for any potential future bans on private ownership of gold.
