When the U.S. Seized Gold (And Could It Happen Again?)

It’s a nightmare scenario for any physical collector of gold – the federal government enacting its sovereign claims on the precious metal and seizing all privately owned stashes of it in the U.S. – and it’s happened before. But why did the U.S. seize all of the gold in its territory, and could it actually happen again? To find out, let’s turn back the clock to see how the country’s approach toward gold has developed over time.

The Early Days: A Whirlwind Romance

Gold has been entwined with the U.S. since the country’s earliest days, with the records of the first discoveries of deposits made in the 1600s. Official production of the precious metal began in 1804 at a mine in North Carolina, followed by additional Appalachian mines in the 1820s and 30s.  “Gold rushes”, along with other precious metals, drove much of America’s early pioneer expansion, including into what was at the time Mexican territory.

In 1834, the U.S. informally adopted the gold standard, tying the value of U.S. money to the value of gold. Shortly after, tensions hit a zenith between the U.S. and Mexico, resulting in a war that would see Mexico cede a great deal of territory to the U.S.  This territory happened to have tremendous deposits of gold.

Gold deposits in the US

Source: Databayou

For the next century – until 1933 – the government fixed the value of gold at $20.67 an ounce.

In 1900, the U.S. officially adopted the gold standard with the passage of the Gold Standard Act, and in 1913 the Federal Reserve was established as the country’s central bank. Under these guidelines, which were intended to grant stability to the U.S. dollar, the government had to hold at least 40% of the value of the currency it issued in gold (at a rate of $20.67 an ounce).

Seizing the Gold

That worked pretty well until 1933, when the Great Depression prompted U.S. citizens and companies alike to make a run on the banks with a goal of converting their dollars into gold. Vast amounts of gold flooded out of the federal reserve as a result.

In response, the Emergency Bank Act was passed, authorizing the federal government to seize gold from citizens as needed and to take control over the internal and external movements of gold.

President Franklin Delano Roosevelt signs the emergency banking act

President Roosevelt signs the Emergency Banking Act, while surrounded by congressional leaders. Public domain image via Library of Congress

Shortly thereafter, President Franklin Roosevelt temporarily suspended the gold standard, preventing financial institutions from exchanging paper currency for gold and preventing it from being exported.

The Emergency Bank Act, in turn, enabled the passage of Executive Order 6102, which effectively enabled the government to seize the gold of U.S. citizens. It reads, in part: “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…”

Citizens owning gold were given the government’s standard of $20.67 an ounce for everything they turned in. Exceptions were allowed, but only for small amounts of gold used in industry or artistic pursuits, or gold bullion or certifications valued at less than $100.

In 1934, the Gold Reserve Act restored the gold standard, but kept the measures from the Emergency Bank Act intact – in other words, the government retained the power to control the flow of gold and to seize it from private holders. The same year, it increased its valuation of gold to $35 an ounce, prompting a mass sell off as the public – still reeling from the Great Depression – scrambled to sell what it had left. At this point, the U.S. had officially cornered the gold market.

A Messy Breakup

By the end of the Second World War, the U.S. had an astounding 75% of the world’s monetary gold. That began to change quickly during the reconstruction period that followed in Europe as reserves went to allies in need, and by the 1960s, inflation dwindled it even further. Britain’s demand to be paid in gold in 1971 sealed the deal for President Richard Nixon, and that year, it was official: the U.S. was off the gold standard.

It was a dramatic shift. The U.S. dollar, for its part, officially became a liquid fiat currency, meaning the U.S. government had free reign in setting its value. Printing more money for projects (and wars) became an option, as did the creation of mass public debt. The dollar was no longer checked by the value or supply of gold.

Public pressure about not being able to buy or sell gold while being completely dependent on the U.S. government to not tank the value of the dollar mounted until President Gerald Ford passed an act in 1974 that enabled gold to be traded again. The value of gold went up 385% over the next six years as a result.

Great news for gold, in other words – and, true to form, its value has only increased since – but not great for the U.S. dollar, the value of which has only gone down under the government’s direction.

Could the U.S. Government Seize Gold Again?

In short: yes, the U.S. government absolutely could seize the gold of its citizens again.  (Or firearms, or gas stoves or anything else it wanted.)  The real question to ask, however, is would it?  In a practical sense, the U.S. government probably doesn’t have much incentive or need to seize gold.

At present, the current estimated holdings of gold among private holders in the U.S. would only provide the federal government with three weeks of funding. The fact of the matter is that the U.S. federal government costs an enormous amount of money to run – with a budget for FY 2023 of $6.13 trillion, or more than $17 billion a day.

In other words, it simply would not be worth it for the U.S. to enact a seizure of gold for such a small return on the undoubtedly monumental effort such a task would require.  So without any financial motive for wanting the gold, the only reason might be to put an end to the private market of gold.  Perhaps in some unlikely scenario, that could be some strategy for increasing the value of the dollar, should some politician get the idea that by limiting the public’s access to gold, they’d have no choice but to invest in and rely on the dollar.  Of course that premise is absurd, but that’s never stopped Washington from doing something.  People have plenty of other commodities and currencies to use even if gold were to be abolished, such as other precious metals or even cryptocurrency.  The fate of the U.S. dollar is inevitable, and even the most outlandish of ideas are unlikely to breathe new life into it.

It’s also important to remember that the U.S. has no real need to seize the gold in its territory. Since the dollar is no longer tied to the gold standard, the government can set the value of the dollar at any level it wants. The need to seize and control the gold, in other words, does not exist.  It was perhaps important for the government at the time, when its own currency was interchangeable with gold, but today this dependency no longer exists.

Fortunately, private holders of gold in the U.S. can rest assured that it is not necessary nor practical – and is therefore extremely unlikely – for the government to stage a repeat of seizing the gold as it did during the Great Depression.  There isn’t much reason for it to happen again, especially now that the U.S. dollar is no longer tied directly to gold.