By Patrick A. Heller
Commentary on Precious Metals Prepared for CoinWeek.com
In my constant complaints about the US government, its trading partners, and allies suppressing gold prices, I have never accused them of acting illegally. That is because all of this chicanery is legal. Here’s why.
The Gold Reserve Act enacted January 30, 1934 supplanted President Roosevelt’s 1933 Executive Order 6102 which made it illegal for Americans to own gold or gold certificates anywhere in the world, with some exceptions for jewelry and collector coins. (By the way, these laws made American gold ownership more illegal than owning heroin as heroin owned by a US citizen outside the US did not break an American law.)
Among other provisions of this Act, the US government officially revalued gold from $20.67 per ounce to $35.00 per ounce. It also made gold clauses in contracts illegal.
Finally, the Act also directed the creation of the Exchange Stabilization Fund (ESF), which occurred on January 31, 1934. In April, the US Treasury transferred $2 billion of its $2.8 billion profit from the revaluation of gold into the ESF. The Act authorized the ESF to use its assets to deal in gold and foreign exchange for purposes of stabilizing the value of the US dollar. The ESF was designated as a part of the executive branch that would not be subject to legislative oversight.
When Special Drawing Rights, a special paper reserve currency, were created by the International Monetary Fund in 1969, the ESF was designated as the holder of these assets. The ESF was then allowed to issue special Drawing Rights Certificates to the Federal Reserve in order to monetize their dollar value.
Thus, the ESF is authorized to trade gold to secretly help stabilize the value of the US dollar. Therefore, the Fund’s activities can only be inferred by observing market trends.
The ESF does issue periodic reports. Go to http://www.treasury.gov/resource-center/international/ESF/Documents/Trunc%20+%20Notes.pdf to view the Exchange Stabilization Fund’s March 31, 2012 financial statement. It shows total assets of just under $104 billion, of which $55 billion are Special Drawing Rights, $23 billion are US government securities, $14 billion are denominated in Euros, and $11 billion are denominated in yen.
So, I can complain about the way the US government manipulates the gold market. I can point out that the US government is harming Americans by such activity. I can even explain how suppression of gold’s price is pushing the US economy closer to chaos and to the collapse of the dollar. But, I cannot allege that such actions are illegal. There. Does that make you feel better?
Patrick A. Heller owns Liberty Coin Service and Premier Coins & Collectibles in Lansing, Michigan and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at Numismaster (http://www.numismaster.com under “News & Articles). His award-winning radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com.