This month I thought it would be fun to talk about a little-known yet significant event in silver’s relatively recent history. By recent, I mean the last 90 years.
Remember, silver’s been used as money in some form for over 5,000 years. So, anything in the last century is like…yesterday.
You may already know about U.S. President Roosevelt’s Executive Order 6102. As a refresher, I’ll bring you up to speed.
In 1933 the U.S. money supply was limited by the “gold standard” – while the economy was mired in a severe depression. The Federal Reserve Act of 1913 required the U.S. dollar (Federal Reserve Notes) be 40% backed by gold. But by the late 1920s, the U.S. Federal Reserve was already bumping up against its credit limit. Most economists and financial historians now believe this limit exacerbated the October 1929 stock market crash – and the ruinous Great Depression that followed. At the time, the gold price was fixed at $20.67 per ounce. So, on April 5, 1933, President Franklin D. Roosevelt signed Executive Order 6102 into law.
The order outlawed the ‘hoarding’ of gold coins, gold bullion, and gold certificates within the continental United States. The rationale was that it was delaying economic growth and worsening the depression. In other words, the government made it largely illegal for people to own physical gold.
Citizens were required to turn in all but a small number of their gold coins, bullion and certificates to the Federal Reserve by May 1, 1933, in return for $20.67 per ounce. They were still allowed to own up to $100 in gold coins, or about five troy ounces. Collectible (numismatic) coins and gold used in industry, profession or art, such as by dentists, jewelers and artists, was exempt.
On Jan. 30, 1934, the Gold Reserve Act mandated that all gold and gold certificates held by the Federal Reserve were to be transferred and titled to the U.S. Treasury and barred the Treasury and other financial institutions from exchanging dollar bills for physical gold.
President Roosevelt then immediately raised the fixed legal price of gold from $20.67 to $35, effectively devaluing the dollar by 69%. This act instantly wiped out nearly 70% of Americans’ dollar-denominated savings. It paved the way for a large increase in the money supply, and therefore inflation, in the hopes of lifting the nation out of its deflationary depression. It also incentivized the world’s gold miners to increase production while foreigners exported their gold to the United States, helping to further increase the nation’s reserves.
Much less known, however, is President Roosevelt’s 1934 Executive Order 6814.
It’s an order that I refer to as ”The Great Silver Heist.”
While Executive Order 6102 focused on gold, Order 6814 nationalized all privately owned silver bullion and domestically mined silver.
Privately owned silver bullion had to be turned in to U.S. Mints and was purchased at 50 cents per ounce, while the government paid 64 cents an ounce for domestically mined silver.
Americans turned in 109 million ounces within the 90-day deadline. The order specifically excluded nationalizing 90% silver (content) coins because the goal was to use the acquired silver to increase coinage in circulation - part of the money supply.
When the president made gold ownership illegal and devalued the dollar by 69%, the United States was suddenly on a de facto silver standard – until 1944.
That’s when the Bretton Woods Agreement established the dollar as the world’s gold-backed reserve currency. And that brought an end to the silver standard in America.
But even the U.S. gold standard would last only 27 years, when President Nixon ended the US dollar’s convertibility to gold.
Could this happen today? Possibly, but unlikely. Silver is not used in our money, and so is much less widely owned than back then. There would be little benefit from doing so. That’s why I don’t see this as a real risk going forward. But it is an interesting bit of history for investors in physical silver.
Peter Krauth is a former portfolio adviser and a 20-year veteran of the resource market, with special expertise in precious metals, mining and energy stocks. He is editor of two newsletters to help investors profit from metal market opportunities: Silver Stock Investor, www.silverstockinvestor.com and Gold Resource Investor, www.goldresourceinvestor.com. In those letters Peter writes about what he is buying and selling; he takes no pay from companies for coverage. Peter has contributed numerous articles to Kitco.com, BNN Bloomberg, the Financial Post, Seeking Alpha, Streetwise Reports, Investing.com, TalkMarkets and Barchart, and he holds a Master of Business Administration from McGill University.
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