Gold is hot. Record-breaking prices and demand for gold bullion have thrust the yellow metal back into the media spotlight.
With renewed attention to gold, discussions and fears have resurfaced over government confiscation. Do an internet news search for the term “gold confiscation” and you’ll find many recent articles exploring the subject.
Many of these articles claim the U.S. government could confiscate gold bullion from citizens like it did in 1933. But there are a lot of misconceptions about what really happened in 1933.
The truth is, while it’s within the realm of possibility the government could in fact confiscate gold bullion, it’s extremely unlikely that would happen for many reasons, as I’ll explain in a moment. Moreover, the 1933 executive order to would likely have little-to-no bearing on such a decision today.
First, let’s talk about the background of Executive Order 6102, signed on April 5, 1933, by President Franklin D. Roosevelt.
What is EO 6102?
Executive Order 6102 states:
All persons are hereby required to deliver on or before May 1, 1933, to a Federal Reserve Bank or a branch or agency thereof or to any member bank of the Federal Reserve System all gold coin, gold bullion, and gold certificates now owned by them or coming into their ownership on or before April 28, 1933 [with some exceptions]…
Whoever willfully violates any provision of this Executive Order or of these regulations or of any rule, regulation, or license issued thereunder may be fined not more than $10,000, or, if a natural person, may be imprisoned for not more than 10 years, or both; and any officer, director, or agent of any corporation who knowingly participates in any such violation may be punished by a like fine, imprisonment, or both.
In short, U.S. citizens were required to deliver any gold coins or bullion to a bank or face a fine of up to $10,000 (about $250,000 inflation-adjusted) and/or up to 10 years in prison. As I noted, though, there were exceptions that included gold jewelry and collectible gold coins. The government wasn’t forcing people to turn in their wedding rings.
So why did FDR sign this order?
EO 6102 was actually an amendment to the Emergency Banking Relief Act, signed a month prior in March 1933. That act aimed “to provide for the safer and more effective operation of the National Banking System and the Federal Reserve System, to preserve for the people the full benefits of the currency provided for by the Congress through the National Banking System and the Federal Reserve System.” It stated:
Whenever in the judgment of the Secretary of the Treasury such action is necessary to protect the currency system of the United States, the Secretary of the Treasury, in his discretion, may require any or all individuals, partnerships, associations, and corporations to pay and deliver to the Treasurer of the United States any or all gold coin, gold bullion, and gold certificates.
EO 6102 required U.S. citizens to deliver their gold bullion to banks. But here’s where there’s a lot of misunderstanding…
The order required U.S. citizens to exchange their gold bullion for cash at a bank. It didn’t require people to turn in their gold without compensation.
In other words, EO 6102 wasn’t a forced surrender of gold. It was a forced exchange of gold for U.S. dollars. At the time, the U.S. dollar and gold were set at a fixed exchange rate of $20.67 to 1 ounce of gold. So for every ounce of gold turned in, the bank would give you $20.67.
The word “confiscation” implies the government forced people to turn in their gold bullion without compensation. That didn’t really happen. It was more of a coercion. But not without reason.
The government’s stated purpose for EO 6102 was to protect the Federal Reserve System and U.S. dollar. That’s nothing unexpected back then or today. The banking and financial systems are the most important institutions of the nation.
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But monetary policy was much different in 1933. As I just mentioned, back then the U.S. dollar was on a gold standard set at a fixed exchange rate of $20.67 to 1 ounce of gold. That meant the Fed could only print $20.67 for every ounce of gold it owned.
In other words, the more gold the Federal Reserved owned, the more U.S. dollars it could print. This is how EO 6102 was intended to stabilize the banking system: Give the Fed more gold so it could create more money to put into the economy, thus increasing liquidity during the Great Depression and help stabilize the currency. And at the end of the day, that’s what Executive Order 6102 was all about — the Fed having more gold so it could print more dollars. And that’s clear from what happened following 6102.
Two months later in June 1933, the government increased the fixed rate of gold from $20.67 per ounce to $35.00 per ounce. So in short, the government monetized citizens’ gold bullion and then adjusted the fixed rate higher, all to allow the Fed to print more money.
But that was 1933. The U.S. dollar is no longer on the gold standard. If the government wants the Fed to print more money at any moment, it can make that happen at any time. So confiscating or forcing people to sell their gold to the government wouldn’t do anything to help liquidity or the dollar in the way it helped in 1933. In fact, such a confiscation would most likely only serve to hurt the U.S. dollar.
Just imagine for a moment what would happen if Donald Trump announced the U.S. government would be requiring gold owners to turn in their bullion…
That announcement would only serve to increase gold’s appeal. I imagine the value of gold would spike immediately following such an announcement. I mean, what happens when you tell people they can’t have something?
Even though the U.S. dollar and gold have been officially uncoupled for 50 years, the two still have an unofficial inverse relationship. So increasing demand for gold decreases demand for the U.S. dollar. That’s exactly the opposite of what the Fed and the government want. So in short, confiscating gold would probably blow up in their faces resulting in a weaker dollar.
Then there’s the issue of compliance. I don’t know how many gold bugs you know, but I know a lot. And not a single one of those guys are big fans of the government to begin with. They’re not going to just march right on down to the bank and turn in their gold. They’re going to put up a fight. And that isn’t a fight that’s even really worth it to the government.
Estimates suggest only about 1%–2% of the entire U.S. population owns any kind of gold bullion. And most of those people own one coin their grandfather gave them.
Besides, there would again be exceptions. The government wasn’t taking wedding rings back in 1933. They wouldn’t be taking them today. Gold bugs would still be able to legally own gold, just not in coin or bar form. I promise you, they’d figure something out.
And then there’s enforcement. It would be next to impossible for the government to accurately know how much gold bullion an individual actually owns in the first place. Sure, it may be able to track credit card transactions. But it would never know about cash transactions. The government may be able to show that you bought gold with a credit card. But it would have no way of proving you didn’t already sell it for cash.
And it’s not going to go door to door looking for gold bullion. How do I know that? Because there are a million things that are way more illegal to own now that the government isn’t looking for door to door. How many times has Uncle Sam came knocking on your door asking to look around the place for heroin? I hope none.
Still, it’s not impossible for the government to seize gold, or any other asset for that matter. Through eminent domain, the government has the power to take private property and convert it into public use, granted proper compensation is provided. And it does. Most of the time this means forcing a landowner to sell his property to the government for road construction or other public infrastructure. Applying eminent domain for something like gold bullion would be highly, highly unlikely.
Besides, which political party has the will to even suggest confiscating gold from citizens? It’s definitely not the Republicans. The Republicans are as likely to confiscate gold as they are to confiscate guns. And it’s definitely not the anti-establisment Democrats. Pro-big banking doesn’t fit into the liberal ideologies.
There’s no political will to mess with private gold ownership. People won’t be compliant, and forced exchange would be difficult, if not impossible, to enforce. It’s probably not worth it for the government or the Fed anyway. And there’s a good chance gold confiscation blows up in their faces. So I don’t see the government confiscating your gold anytime soon.
Until next time,
As an editor at Energy and Capital, Luke’s analysis and market research reach hundreds of thousands of investors every day. Luke is also a contributing editor of Angel Publishing’s Bull and Bust Report newsletter. There, he helps investors in leveraging the future supply-demand imbalance that he believes could be key to a cyclical upswing in the hard asset markets. For more on Luke, go to his editor’s page.