The 30th anniversary of Richard Nixon’s closing of the gold window was hardly mentioned in the financial press.
In one article posted on August 12 at Miningweb.com, a mining trade publication, Nixon’s dastardly act is described by writer Tim Wood: The Executive Order “unplugged the U.S. dollar from its gold life support,” bringing about "the longest period a gold standard has been absent from the international system.”
In effect, Nixon’s dictatorial Executive Order cancelled the dollar/gold exchange rate established 27 years earlier, when foreign central banks were allowed to claim an ounce of American gold for US$35. By his single stroke, Tricky Dick cut any relationship the US dollar had to gold.
Mr. Wood pines for those good old days when (allegedly) the Fed respected gold: “A central bank exists for no other (or better) reason than to keep the national unit of account stable.”
I’m a bit surprised Mr. Wood didn’t apply even a bit of his tortured nostalgia to the earthshaking event that occurred on April 5, 1933, when gold was demonetized, and Americans lost the right to hold “real” money.
I’m sympathetic with Mr. Wood’s depressed state, but there’s another date in gold’s history that should be celebrated: January 1, 1975, when all restrictions on owning gold were lifted.
Why no mention of April 5, 1933, and January 1, 1975?
I have a theory: Mr. Wood’s reverence for gold is pragmatic. He is more concerned with enlightening central bankers and reminding them of their proper relationship to gold than the freedom of the individual.
If this sounds like the wisdom of Jude Wanniski, you are correct. Mr. Wood gives full credit to Wanniski and the other supply siders for his views on gold.
Mr. Wanniski is one of my heroes, and there is no more courageous commentator on the passing scene. He buckles to no pressure, but I disagree with his recommended path to a gold standard. The Fed cannot be trusted. But that debate is for another time.
For now, I thank Mr. Wood and, indirectly, Mr. Wanniski, for prompting me to reflect on my 40 years plus as a gold dealer.
If ever there was a day of infamy, April 5, 1933, qualifies. For the first time, gold was demonetized and Americans were forced to surrender their gold coins to the government. You received a $20 bill in exchange for your $20 gold coin. Later that year, gold was revalued from $20.67 per ounce to $35. The citizen was first plundered, then humiliated, by the monster Roosevelt.
On January 1, 1975, the beleaguered US citizen had a bit of freedom restored when the draconian laws denying Americans the right to own and trade gold were eliminated. No, a gold standard was not restored, but January 1, 1975, was a day freedom lovers celebrate.
Back to 1971: Nixon’s action was more than symbolic. It had real impact. And to conservatives of the day, the anguish caused by the closing of the gold window was dwarfed by the shock of wage and price controls simultaneously imposed by Executive Order. (Some contend that several key Southern Californian Nixon supporters never forgave him for that betrayal, and quietly swung their financial support to Ronald Reagan.)
In 1971, Nixon was preparing for his reelection campaign. He was tidying up potentially troublesome areas. Consumer and wholesale price indices were bubbling up although the increases were miniscule as compared with inflation rates nine years later. Nixon’s brain trust believed controls would be politically palatable, and could head off future price increases long enough to ensure his reelection.
The closing of the gold window meant little to most Americans as citizens had been legally barred from holding the precious metal since 1933.
As part of his reelection campaign, Nixon also wanted to punish French president Charles DeGaulle. In compliance to federal direction, the US media caricaturized the elegant, aloof French hero as unappreciative. After all, American conscripts had saved the French from the Hun in two world wars. This comic opera general was greedily using American dollars to plunder our gold reserves. Putting this ingrate in his place would resonate well with US voters.
Where was the dissent? Well, there wasn’t much.
The equity markets had little interest in the closing of the gold window, but wage and price controls set the stock market off to record-high percentile increases the day following the announcement. Only a few old-fashioned economists, like Murray Rothbard and Hans Senholz, shook their heads in disbelief. The failed ghost of controls had arisen once more.
And by 1971 most Americans had little first-hand memory of gold. The Depression and WW II were indelibly imprinted on their psyches and if they thought about gold at all, it was as a murky link to the hard times of the 1930s. Silver was a different story. The dimes, quarters, and half dollars minted almost continually from 1796 through 1964 were 90% silver. Most folks simply took it for granted that the coinage was silver.
Not one in a thousand reflected that one dollar’s face value in silver coins contained 72 parts of a pure ounce and that at $1.29 an ounce, the price fixed by the Treasury Department, the intrinsic value was precisely one dollar. This magnificent reality went unnoticed.
That all came to an end several months after JFK’s death in 1963.The new “LBJ” non-silver, 10 and 25-cent sandwich coinage appeared on the scene amidst a barrage of propaganda.
The experts said the “sandwiches” would circulate side-by-side with the silver coins for eternity. Speculator-hoarders would find slim profit in pulling the silver coinage from circulation. This obvious deceit provided me with early evidence that public opinion was being manipulated and the manipulators knew the truth.
Shortly thereafter the US Treasury announced that August 16, 1968, would be the last day to redeem the $1, $5 and $10 silver certificates. In effect, the government had created an expiring option, and as the days passed, silver’s time as money was passing as well. The silver coinage quickly disappeared, of course.
Your local coin shop was the place where you purchased or sold silver coinage, or liquidated your silver certificates. This activity honed the coin industry for the onslaught that was to soon follow in the gold market.
In 1962 US Treasury Department policy toward gold ownership was little changed since 1933. Gold for jewelry was legal. Gold coins dated 1932 and older could be legally held, but ONLY if physically in the US and as collectibles, not investments. All gold imports were forbidden, except by special license which was rarely granted.
So, a US $20 St. Gaudens gold piece was available in Switzerland for US $50, but, due to a shortage of supply in the US, it was worth $60 plus.
Hmmm…US gold coins minted prior to 1933 were legal if already here? You couldn’t legally bring them in. But, if you were able to get them here, there was a nice profit. Interesting. Sounds like an invitation to the bootlegger.
My company, Camino Coin, was founded in 1959. Although our primary business was numismatics, we soon were deeply involved in buying and selling precious metals. In Europe, these services were provided by banks.
US government policy was harsh, and the gold coin bootleggers reign existed through the early 1960s. The process was simple: the bootlegger purchased the US gold coins in Europe where most of them had resided since 1933, and had them shipped to Canada. So far, everything was legal. Getting the gold safely across the border was the problem.
Treasury Department enforcement against the smugglers was sporadic. Most of the gold coins arrived safely, but occasionally the feds would “send a message to the coin community” by making midnight raids and confiscating gold as if they were dealing with dangerous drugs.
In one instance, I saw the process close up. A smuggler carried gold coins from Canada to the state of Washington, packaged them, and mailed the parcel from a Seattle post office to a US dealer. (This fellow was selling them to me.) When the dealer’s sister sought to pick them up at her California post office, the Secret Service confiscated the coins.
The dealer, desperate to recover his merchandise, argued that since the coins were mailed from Seattle, they were physically in the US, thereby not subject to confiscation. The government held that these coins were never “here,” but rather in transit from Canada, hence, contraband. The case finally went to a US Circuit Court and the government prevailed.
Near the end of JFK’s presidency, the Treasury Department modified its restrictions on gold coins minted 1932 and earlier. US and foreign coinage could now be legally imported by Americans. This led to an avalanche of European gold coins like the British Sovereign, the French and Swiss 20 Franc, and all the American gold coins coming into the US.
In 1973, with the government in disarray, and a president near impeachment, a small but energetic movement to eliminate all remaining restrictions on gold ownership won a shocking victory and for the first time in over 40 years, Americans could freely own and trade gold without restriction.
The late, great coin dealer and conference entrepreneur James U. Blanchard III was the main force behind the struggle.
For the first time since 1932 gold coins, bars, and gold certificates could be freely imported. Items that, prior to January 1, 1974, were almost as dangerous to handle as heroin were part of everyday commerce.
But it took a while for a dealer to hold a Krugerrand or a Credit Suisse gold kilo bar in his hand without looking over his shoulder to see if a Secret Service agent was lurking in the shadows.