Panic, Prosperity, and Progress: Five Centuries of History and the Markets

CHAPTER 15

Precious Metals and the Destruction of a Billionaire

The stunning bull market in precious metals in the late 1970s, followed by its swift collapse, has a fascinating and remarkable history. The roots of the event date back to the dark days of the Great Depression, when President Roosevelt issued Executive Order 6102, which outlawed the “hoarding” (that is, the ownership in almost any form) of gold by any person or other entity within the United States.

Prior to this order, gold was intricately intertwined in the nation’s currency. U.S. dollars were convertible into gold on demand, and this convertibility had helped constrict the velocity of money severely. Roosevelt recognized that inflating the money supply was essential to turning the economy around, so he took the extraordinary step of criminalizing private ownership of gold as one of the steps to decouple the precious metal from the nation’s currency.

The president signed the order on April 5, 1933, only weeks after his first term in office began, and it gave the nation’s citizens until May 1 to turn in all their gold in exchange for $20.67 per ounce in cash. This seems like an extraordinarily low price today, but in inflated-adjusted dollars, it equals about $400 per ounce. Some exceptions were made to the order: those who used gold as a component of a professional service (such as artists, dentists, and jewelers) could buy and use gold, and rare, collectible coins were spared the melt-down process that other coins ...