No country has a more complicated relationship with gold than the US. From controversial Gold Reserve Act to the seismic Nixon Shock, America's history of gold isn’t as bright and shiny as you might think.
We’re taking a closer look at key moments when the US government dramatically influenced the role of gold in the economy–and the lessons investors might learn from them.
In the beginning, there was the De Facto Gold Standard
In 1834, the US adopted its unofficial gold standard. The value of gold was fixed at $20.67 per ounce, guaranteed by the US government. Anyone could exchange their dollars for gold (and vice-versa).
To break that down: If an ounce of gold was worth $20.67, just over $1 would have bought you 1/20 ounce of gold. In September 2024, an ounce of gold was worth approximately $2,600. To buy 1/20 ounce of gold at that rate, you’d need around $130.
Some background on gold value
Due to the Coinage Act of 1792, the US created a system where silver and gold were used as legal tender. Based on current values, 16 ounces of silver were equivalent to one ounce of gold (16:1). This ratio was used to keep people from hoarding either metal or melting them down if the market fluctuated.
This ratio blatantly overvalued gold. This meant that Americans tended to keep their silver for other uses or trade it for gold. That pushed more gold into circulation and silver out.
There were plenty of reasons that Americans pushed for the De Facto Gold Standard, but economic manipulation was the biggest one. Because legal paper currency could be printed infinitely, the Federal Bank would theoretically cause inflation without any repercussions.
Just like fractional gold investments today, a de facto gold standard gave Americans confidence in money being worth something real. Simply put: Gold had intrinsic value and paper notes didn’t.
Fun fact: “Hard-money enthusiasts” dismantled the Second Bank of the United States in 1836. There wouldn’t be another until the National Bank Act of 1863.
Gold certificates from the Civil War Era
During the late 1860s, the economy was in a slump and gold was incredibly scarce–even though gold had been stockpiled for times like these. The federal government couldn’t increase its paper tender without increasing its gold reserves (a common theme we'll see in coming decades).
In November 1865, citizens were encouraged to deposit their physical gold at the Treasury and receive a certificate of deposit for that exact value. Not only did federal gold certificates represent proof of ownership of the gold stored at the US Treasury, but they could also be used as legal tender. They were easier to store than physical metal, making them incredibly popular with merchants and bankers.
In a nutshell: US gold certificate bills were paper IOUs for real gold.
How gold certificates worked
A specific amount of gold could be exchanged for paper currency. If you had $10 worth of gold, you could exchange it for a $10 gold certificate. Since they were legal tender, you could also use gold certificates in place of regular currency (though most of these transactions were between the government and banks).
Because gold was more stable than the dollar, institutions weren’t worried about wildly fluctuating markets. If one bank owed a certain amount of gold, these gold documents could be transferred more safely and efficiently than bullion.
Switching to these gold documents helped financial institutions pay their debts and operational costs more efficiently.
To avoid confusion, there are a few types of gold certificates investors might refer to:
- Federal certificates were issued by US financial institutions and used as legal tender until 1934.
- Some investors refer to “certificates of authenticity” as gold certificates. You might see these placed on gold bullion to provide another layer of authentication.
- In recent years, private mints have started producing literal gold bills. Though they may look similar, they are not certificates.
The US Gold Standard Act of 1900
Remember the de facto gold standard? Well, in 1900, the Gold Standard Act officially established the US as a gold-standard country. The Federal Reserve once again had enough gold in its reserves to support the US dollar, and one troy ounce maintained its value at $20.67.
Thanks to the 1913 Federal Reserve Act, The Fed only needed to back 40% of its paper notes with physical gold. That lax approach came back to bite the government in the coming decades.
FDR's controversial Gold Reserve Act of 1934
From the late 1800s through the 1930s, most nations were conducting trade with physical gold. After a series of chain reactions and eventual bank failures, The Great Depression hit international economies hard. The public was spooked and began hoarding gold and other valuables. To try and maintain a balance, the UK left their gold-backed economy in 1931–with other nations close behind.
FDR’s controversial Gold Reserve Act of 1934 was implemented in the hopes of stabilizing the economy by:
- nullifying creditors’ ability to demand payment in gold
- raising the price of gold to $35 per ounce (from $20.67)
- removing the Federal Reserve’s ability to exchange US dollars for gold
- encouraging the Federal Reserve to boost the supply of legal tender
- banning private citizens from holding gold certificates
- only allowing gold notes to be used between Federal Reserve banks and the Treasury
The President now had the power to change the price of gold. One ounce jumped from $20.67 (where it had been since 1879) to $35.00 per ounce (until The Nixon Shock of 1971).
Gold was no longer a currency: It became a commodity.
When did the US confiscate gold?
Even though the US had (and continues to have) the largest gold reserve in the world, the threat of devaluation caused federal panic.
Aside from jewelry and collectibles, “hoarders” with more than $100 in gold could receive up to ten years in prison and hefty fines. A number of individuals were successfully tried in court. So, why exactly did the US government ban citizens from owning gold?
The reason given by the government: Private citizens who hoarded gold and silver bullion were hurting the economy. Obviously, they were the reasons that the economy was struggling (not stock market speculation, Europe returning to the gold market, the Smoot-Hawley Tariff, or bank failures).
By law, the Federal Reserve required 40% gold backing to produce dollars. It was running out of gold and new money couldn’t be created without it. That tied the government’s hands: There simply wasn’t enough gold to support more dollars.
Fun fact: Due to thousands of bank failures, the US Treasury also obtained tens of thousands of safety deposit boxes.
Little-known fact: the US once targeted silver
In 1965, all US silver coins were 90% pure, and President Lyndon B. Johnson’s Coinage Act aimed to eliminate "hoarding" behavior.” At least LBJ didn’t have anyone arrested for keeping their silver.
What happened after the US Gold Reserve Act?
By raising the price per ounce, gold’s value increased in the US. Since the dollar was backed by gold, the government was able to print more money to stimulate the economy. Boosting the dollar supply helped:
- Lower the price of US goods
- Make them more enticing to foreign buyers
- Increase exports
- Increase foreign investors selling gold to the US
- Boost domestic spending habits
Do US gold certificates still exist?
You can buy gold certificates, but they’re simply collectibles: They’re only worth what other people will pay for them. If you’re in possession of a pre-1934 gold certificate, the value will be dictated by its rarity, face value, condition, and demand.
When did it become legal to own gold in the US again?
In 1964, private citizens could legally hold US gold certificates (though they were defunct by then). Until 1975, private citizens couldn’t buy or sell gold bullion without a license.
Bretton Woods' international impact
During WWII, 44 allied nations convened for a 1944 conference. The goal was to find a solution that improved currency exchange and optimized a global trading system.
Owing to the United States’ booming economy, the Bretton Woods Agreement established the dollar as the dominant reserve currency. The dollar was pegged to gold at $35 per ounce and allies pegged their currencies to the dollar. Participating countries paid their international balances in dollars, then US dollars were convertible to gold at the fixed rate.
By 1958, these foreign currencies were officially convertible to gold–and seemingly everyone was happy to get their hands on USD. After all, major currencies were defined by the dollar.
Benefits of the Bretton Woods System
Though Bretton Woods lasted fewer than 30 years, it provided stability to the US and its trade partners during the postwar era. But each benefit also brought major roadblocks and drawbacks.
- This system helped create the International Monetary Fund, which still provides loans to dysfunctional governments at their 11th hour. Though it’s helped countless governments avoid collapse and restore national debt rankings, some skeptics point to specific conditions that IMF attaches to said loans. These have been known to hinder economic growth over shorter periods.
- Philosophically, Bretton Woods ushered in a new economic era by bringing 44 countries together to solve their financial crises. It helped to strengthen the overall world economy and maximize international trade profit.
Why did Bretton Woods fail?
While post-war economies in Europe and Asia were booming, the US saw rising inflation due to the Vietnam War and domestic spending. Imports grew faster than exports, and an outflow of dollars had some foreign governments doubting the US’ ability to convert dollars into reserve gold.
On paper, gold backed the US money supply, as well as its allies. But the reality was rearing its head by the late 1960s. US gold reserves had fallen below $10bn while foreign claims to this gold had reached $50bn.
That means there were nearly 5x more dollars in circulation than gold in US reserves. These investors were understandably concerned that the US wouldn’t be able to fulfill its obligations for gold at $35/ounce, so they rapidly began to exchange their dollars.
In a nutshell: The US was the linchpin to Bretton Woods. Without scrutiny or oversight, it was issuing paper currency at an unstable rate to keep gold at $35 per ounce.
The Nixon Shock of 1971
By 1970, the US economy was sluggish with negative growth. During the post-Vietnam War era, the Nixon administration’s to-do list involved reducing inflation and lowering unemployment.
The most pressing issue, however, was fighting speculative behavior.
Why did the US abandon the Gold Standard?
If investor countries demanded their gold from the US (as was their right), they’d be in hot water. The US needed a way to quickly devalue the US dollar, but there was a complication: It was tied to gold’s value.
Nixon’s solution was to suspend the dollar’s convertibility into gold entirely.
The repercussions of the Nixon Shock
It wasn't just gold that took a hit:
- 90-day wage, price, & shareholder dividend freezes
- Raising the price of gold to $38 per ounce (from $35)
- Repealed 7% excise tax on cars
- 10% surcharge on imports subject to duties (to encourage US trade partners to raise their currency values)
- Government spending cuts
This secret Camp David deal shocked the world, devaluing the US dollar by 8.57%. The US then intentionally pressured its biggest trade partners to revalue their currencies by 12.5%.
That’s right: It forced US trade partners to strengthen their currencies in order to make American exports cheaper. As Treasury Secretary John Connally stated to the G10 countries: “The dollar is our currency, but it’s your problem.”
Let's review:
- The US created the Bretton Woods Agreement to increase global cooperation and boost the dollar.
- The US took a bunch of foreign money and overextended itself.
- The US couldn’t pay out, so it forced loyal investors to take a hit.
What replaced the Gold Standard?
Nixon’s cabinet claimed to have paused the Bretton Woods-style system until adequate reforms could be made, but serious attempts were ultimately unsuccessful. Within two years, most major currencies shifted toward floating exchange rates. By 1976, the Jamaica Accords were the final nail in the Bretton Woods coffin.
Was the Nixon Shock a good idea?
Most expert agree that the Nixon Shock was directly responsible for the 70s recession, fiat currencies, and floating exchange rates. Though the US avoided defaulting on its obligations, it was happy to abandon agreements and rock the global economy when repayments were inconvenient.
What is the US dollar backed by now?
The dollar became fiat in 1971, meaning that it was no longer backed by any physical commodity.
The US dollar is printed by the US Treasury and backed by the US government (not a physical commodity like gold). Instead, its value is derived from trust and confidence that people have in the US government and economy. The Federal Reserve aims to further maintain stability and growth by controlling the money supply and setting interest rates.
Could the US ever confiscate my gold?
The chances of the government confiscating your gold are pretty slim. A political party would be unelectable after creating investor panic and completely destabilizing the US economy by trying to wrangle private citizens’ gold.
That said, while 1934’s Gold Reserve Act feels more like a one-off situation, it’s theoretically possible. Experts agree that it would most likely happen during extreme circumstances (like war or economic depression). The President could also regulate their seizure of assets under the International Emergency Economic Powers Act (IEEPA), but that also seems improbable.
Still, many investors find comfort in holding tangible investments (and we think that's a smart move, too).
Physical, fractional gold is a stable way to invest
Based on the US’ past financial decisions, physical gold investors are likely onto something.
Plenty of private companies – like MetalMark – are branching out into fractional gold. We’re all about smart gold investments that hold long-term value without government intervention.
1. Low barrier to entry
You don’t need thousands of dollars to start buying gold today. Gold stacking with dollar-cost averaging is a great way to diversify your investment portfolio without the storage, insurance, and oversight concerns.
2. Long-term investment
Gold has one of the strongest retainers of value, even during periods of high inflation. 24k gold investments offer great long-term returns, high liquidity across markets, and endless popularity.
3. Lightweight & transportable
Just like gold certificates of the early 20th century, a 24k gold bill is easy to store around your home, safety deposit boxes, and inside wallets.
MetalMark: a hedge to hold and behold
The chances of government interference might be slim, but physical gold ownership offers a level of security that fiat currencies can’t guarantee.
Whether you’re invest in golden bills or golden canvases, holding a small amount of precious metals can go a long way toward preserving your wealth.
