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US Gold Confiscation

Why did the United States government confiscate gold in 1933...?

FROM MAY 1st 1933
until 21st Sept. 1973, US citizens could not hold gold as a protection against the falling value of paper money, which also lost its gold backing at the same time, writes Julian Phillips of the

Foreign central banks could continue to exchange for Gold Bullion the US Dollars that came into their possession (known in finance as Eurodollars for many decades) and did so particularly when the Dollar was devalued and then floated against the Gold Price in 1971.

The 'why' of it all is critical to our understanding of the global monetary system today. There were two distinct phases to the process that began in 1933.

At that time, the Great Depression was coming to an end. Hitler came to power in Germany and turned on the growth taps, with the war machine driving it out of depression ahead of the Second World War. It became clear to all that monetary turmoil was to continue. More money was needed to start and to fuel growth in the US despite the fact that the traditional way of growing money (against real growth in the economy) would hold the world back for a considerable period of years to come.

With money tied to gold and the US needing to fuel its money supply, it appeared reasonable to increase the government's stock of gold forcefully and dramatically. The first step was this order confiscating gold. All but rare Gold Coins were handed over to the government under the threat of a $10,000 fine or 10 years in prison. These threats were persuasive enough.

A mix of the need for an even larger increase in the money supply and the gathering war clouds persuaded the US government to go further still and revalue gold by a full 75%. Remember, it was still gold that was money – plus the I.O.U.'s issued against it. The US Dollar as we have now is not any form of I.O.U., it can only be changed for another Dollar and has no backing whatsoever. But in the early-to-mid 1930s, any expansion of the money supply had to be against an increasing stock of gold.

In the event of war it was clear to the Allies that the US would be the best place to hold their gold too. (One war tactic is to forge your enemy's money and cause a monetary breakdown in his ranks .) So in 1935, and with the Dollar measured by gold – rather than gold measured by the currency – the Dollar was devalued from $20 per one ounce of gold down to $35 per one ounce of gold. Remember too that this came in a world of fixed exchange rates only. No exchange rates floated, or were devalued or revalued. It would take another 35 years before this changed!

So the expansion in the US money supply that this shift caused, combined with the war preparations, created huge US growth and brought back the days of prosperity to the States, who became suppliers of goods to the world from then on for the next 35 year and more.

This had an international effect because, whether through ignorance or willing compliance, foreign governments did not devalue their currencies against gold at the same time. A gold dealer could therefore Buy Gold at the old price of $20 outside the US, and then sell it to the US for $35 an ounce. Gold up and left the developed world and headed to Fort Knox very quickly, making the bullion bankers very happy indeed.

That's how the United States managed to acquire over 26,000 tonnes of gold ahead of the outbreak of war in Europe in 1939.

The post-war monetary system – called the Bretton Woods system – still had gold in the background behind all currencies, since they were redeemable for Dollars and the US Dollar was ultimately exchangeable for gold. But US individuals were not allowed to enjoy this security. European could and did enjoy access to gold and gold bonds (such as the Rente Pinot and the Rente Giscard in France) and still do. But it was not until 1973 that US citizens could own gold privately again.

The fact that a ban has happened before makes it possible it could happen again. It is wise to make sure, we believe, that you are not vulnerable to such an act as domestic seizure of gold in future.

JULIAN PHILLIPS – one half of the highly respected team at – began his career in the financial markets back in 1970, when he left the British Army after serving as an Officer in the Light Infantry in Malaya, Mauritius, and Belfast.

First he worked in Timber Management and then joined the London Stock Exchange, qualifying as a member and specializing from the beginning in currencies, gold and the "Dollar Premium". On moving to South Africa, Julian was appointed a macro-economist for the Electricity Supply Commission – guiding currency decisions on the multi-billion foreign Loan Portfolio – before joining Chase Manhattan and the UK Merchant Bank, Hill Samuel, in Johannesburg.

There he specialized in gold, before moving to Capetown, where he established the Fund Management department of the Board of Executors. Julian returned to the "Gold World" over two years ago, contributing his exceptional experience and insights to Global Watch: The Gold Forecaster.

Legal Notice/Disclaimer: This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Gold Forecaster/Julian D.W. Phillips have based this document on information obtained from sources they believe to be reliable but which it has not independently verified; they make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Gold Forecaster/Julian D.W. Phillips only and are subject to change without notice. They assume no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, they assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information, provided within this report.

See full archive of Julian Phillips.

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