It’s fascinating to consider how, in just 52 years, the United States government did a total about-face from confiscating and prohibiting gold ownership to actively promoting it through the development and production of U.S. American Eagle Gold Coins. This dramatic shift began in 1933 when Franklin D. Roosevelt, by executive order, made gold ownership a federal crime, punishable by fines of up to $10,000 and/or up to ten years imprisonment. The criminalization of gold was only reversed decades later by President Gerald Ford, effective December 31, 1974. Then, on December 17, 1985, President Ronald Reagan signed the Gold Bullion Coin Act of 1985, authorizing the U.S. Mint to issue American Eagle legal tender gold coinage.
Twenty years before the 1933 criminalization of gold, a few influential banking insiders secretly met for the infamous “duck hunting” trip to Jekyll Island, where the plans for the federal reserve system were formulated. J.P. Morgan, arguably the most powerful banker of the era, lobbied for a central banking system to provide liquidity, coined as “elastic currency,” for fueling banking growth and profitability.
The roster included a virtual “who’s who” in early 20th-century finance. J.P. Morgan partner, Henry P. Davison, took part at Jekyll Island, greatly influencing the development of the Federal Reserve’s structure. Frank A. Vanderlip, president of the National City Bank of New York, now Citibank, also participated. Benjamin Strong, a close associate of J.P. Morgan, became the first governor of the Federal Reserve Bank of New York, playing a crucial role in the Fed’s early years. Nelson W. Aldrich, a Senator and father-in-law to John D. Rockefeller Jr., was a key figure pushing forward what was heralded as banking reform.
The Federal Reserve Act of 1913 was supposedly passed to foster economic stability, but in actuality gave an agency the power to print money with its inherent problems of monetary expansionism and the cause of inflationary cycles. The first Federal Reserve Notes were $10 bills released on November 16, 1914, followed soon thereafter by $5 bills. Although the Act required bills to be backed by at least 40% gold reserves, true gold standard money was the nemesis of the new flexible currency having zero true inherent value. In fact, the government revoked that partial reserve requirement in 1933.
Federal Reserve Notes were not as valuable as gold certificate currency, coinage, or bullion, and individuals were not inclined to jeopardize their wealth in the Notes, naturally demanding gold as their savings. FDR ‘solved’ that preference and its challenge to fiat currency by outright criminalizing real money, gold.
The United States introduced the American Gold Eagles for several reasons, the predominant factors of which were gold demand, sovereign competition, politics, and the anti-apartheid movement.
Gold Demand
After the 41-year prohibition on gold, during which Americans were forced to surrender their gold coins, bullion, and gold-backed certificate currency, America developed as a top gold-buying market, especially after the inflation crisis of the 1970s.
Sovereign Competition
Coinage has long been associated with nationalistic pride, power and patriotism. South Africa, Canada and China began issuing gold bullion coinage in 1967, 1979 and 1982, respectively. The United States, along with Australia, began to issue bullion coins in 1986, followed by the UK and Austria in 1987 and 1989.
Good Ol’ Politics
Public Law 99-185, the “Gold Bullion Coin Act of 1985,” was also enacted to promote domestic jobs and the US economy by requiring the gold to be mined domestically for all practical purposes. In the early 1980s, the principles of Reaganism were in full swing.
The Anti-Apartheid Movement
During the 1970s, global awareness of (and opposition to) the Apartheid regime in South Africa grew rapidly, with Nelson Mandela emerging as a key figure in the fight for reform. By the early 1980s, many Western nations began boycotting South African goods to increase pressure for change. This boycott extended to the Krugerrand, a South African gold coin that, at the time, dominated 90% of the global gold bullion coin market. The Anti-Apartheid Movement led to a decline in Krugerrand sales, creating an opportunity for other nations to introduce their own gold bullion coins and grab market share.
In the United States, Congress passed the Anti-Apartheid Act of 1978, featuring provisions to discourage Americans from buying Krugerrands. Pressure on South Africa intensified when the European Economic Community agreed to a widespread boycott in 1985, which included a ban on Krugerrand imports. Following this, Congress passed the Comprehensive Anti-Apartheid Act of 1986, making it illegal to import Krugerrands into the U.S., further clearing the path for the American Gold Eagle and other sovereign gold coins to gain prominence in the bullion market.
Mid-1980s Golden Timing
With the Krugerrand in steep decline, the American Gold Eagle was well positioned to quickly excel in market share and succeed as a top choice for bullion coin investing. As global investors sought alternatives to the Krugerrand, the American Gold Eagle emerged not only as a symbol of U.S. strength in the gold market but also as a favored asset for those seeking security and stability diversification with their investments.
To discuss how Gold Eagles may fit your individual investing needs, contact a Monex Account Representative for details and alternative programs such as a Precious Metals IRA Account.
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