Gold Confiscation – Why it won’t happen again

This blog post is by blogger JP Koning. BullionStar does not endorse or oppose the opinions presented but encourages a healthy debate.

On April 5, 1933 a strange announcement appeared in U.S. newspapers. Thanks to Executive Order 6102, anyone living in the United States – citizen or foreigner – was required to turn in all gold bullion, gold coins, and gold certificates to the government before May 1, 1933. The same went for businesses and corporations.

This wasn’t an all-out confiscation of gold. Although people were obliged to bring their gold in, the government promised to pay the official price of $20.67 for each ounce submitted. However, violators could be imprisoned for up to ten years.

Executive Order 6102 included a few exceptions. Jewellery, industrial holdings such as dentist’s inventories of gold, and rare collectors coins were all exempt. Furthermore, the public could still own a token amount of the yellow metal (or gold certificates), up to $100. But for the most part, it was now illegal to hold gold in America.

These days, people who own gold often wonder if they might be subject to a repeat of April 5, 1933. Could a democratic government once again force its citizenry to give up their Gold Eagles and Krugerrands? Might people be required to sell their gold ETF units for dollars, or give up bullion stored in vaults for euros?

To properly appraise this risk, we need to understand why the US government did what it did. The simplest theory is that governments are inherently confiscatory. And so the April 1933 event could be replicated any day.

I disagree. The better explanation for why 1933 occurred spotlights the government’s special role as monetary authority. Viewed in this light, Executive Order 6102 was the government’s way of adjusting the monetary system, at the time a gold standard, to cope with extreme economic events. Since we are no longer on a gold standard, a repeat of April 1933 is unlikely.

The gold pivot

Prior to the Great Depression the world was on a gold standard. Every currency in the world was either defined as a certain amount of physical gold or pegged to another currency that had a gold definition, usually the U.S. dollar or the British pound.

As such, the market for gold was different from every other market. When the demand to hold copper increased, for instance, all that happened was that the price of copper rose. The same went for cars or houses or lettuce. But when the demand to hold gold increased, millions of other prices had to fall. Put differently, the global economy’s massive array of prices pivoted around one very special market, the gold market.

As unemployment exploded and prices collapsed through 1930 and 1931, nations such as Canada, Japan, Australia, the UK, and Sweden began to suspend their commitments to the gold pivot. They did this by ending their promise to convert their currencies into gold or gold-linked currencies. By severing the link between the gold market and prices, they hoped to dull some of the economic damage.

So when U.S. President Franklin Delano Roosevelt’s announced in April 1933 that all gold held in the U.S. now had to be brought to the government, he was following a path already set by a long line of governments before him. Like his predecessors, he was trying to hack away at the gold market’s role as pivot.

Read the entire article here https://www.bullionstar.com/blogs/jp-koning/gold-confiscation-could-it-happen-again/