DEFINITION of 'Gold Reserve Act Of 1934'

The Gold Reserve Act of 1934 is an act that took away title to all gold and gold certificates that were held by the Federal Reserve Bank. The Gold Reserve Act of 1934 made the trade and possession of gold a criminal offense for the citizens of the United States. Sole title of this gold was given to the U.S. Treasury. It was not until 1975 that Americans could again own or trade gold.

BREAKING DOWN 'Gold Reserve Act Of 1934'

The Gold Reserve Act of 1934 gave the government a vast amount of unconstitutional powers. This allowed it to peg the value of the U.S. dollar to the value of gold while being able to adjust it on the go, which ultimately resulted in rapid dollar devaluation. During these years, there was a concurrent affect from other countries rushing in to buy a large amount of gold, as the U.S. dollar was still a strong currency.

The act also fixed the weight of the dollar at 15.715 grains of nine-tenths fine gold. It changed the nominal price of gold from $20.67 per troy ounce to $35. By doing this, the Treasury saw the value of their gold holdings increase by $2.81 billion overnight. By making sure that possessing or trading gold was a criminal offense, the government was able to validate this law and make it more easily enforced throughout the country.

Roosevelt Legislation and the Aftermath

The Gold Reserve Act of 1934 was one of two important laws that affected the monetary system throughout the United States. This legislation gave executive power to take all gold that was privately owned straight to the U.S. Treasury, along with the added manipulation of both currency and commodity. This also took away all gold from the Federal government in the reserves, instead replacing it with Gold Certificates. These certificates did not represent a value of gold, but were more for the purpose of allowing a traceable trail back to the seizure of the gold.

The nationalization of gold should have been illegal, as it went against laws established by the Constitution. The government was allowed to cross the line, and in the meantime, compromised property rights and set a slippery precedent for dealing with these problems in the future. The law at the time did succeed in meeting its goal, which was to raise the GDP in the United States by manipulating the currency. This law did not stand the test of time, as various pieces of legislation got rid of it throughout the next 40 years.

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