Review of the American Gold Reserve

• The United States official gold reserve is currently managed by the Department of the Treasury's Office of Foreign Assets Control (OFAC).
• Created in 1934, the reserve was established as part of the Gold Reserve Act of 1934.
• The act called for the United States to hold 25% of its gold reserves in Federal Reserve Banks and 75% of the reserves in a centrally located depository.

The U.S. government's official gold reserve is currently managed by the Department of the Treasury's Office of Foreign Assets Control (OFAC). Created in 1934, the reserve was established as part of the Gold Reserve Act of 1934. The act called for the United States to hold 25% of its gold reserves in Federal Reserve Banks and 75% of the reserves in a centrally located depository. The depository, known as the United States Bullion Depository, is located in Fort Knox, Kentucky.

Background

In 1934, President Franklin D. Roosevelt (FDR) proclaimed the Gold Reserve Act, which withdrew $20 billion in paper money from circulation and converted it into gold. This act was known as the Gold Reserve Act of 1934. FDR was concerned that the growing international obligations of the United States would place too much pressure on the dollar.
To ease this pressure, he issued an executive order in 1934, which stated gold reserves should be held by the United States Treasury. This executive order required the Federal Reserve to purchase gold and maintain 40% of the value of the Federal Reserve's gold on hand at any time.
In 1961, President Dwight D. Eisenhower signed the American Gold Bullion Act, which removed all restrictions on the ownership of gold in the United States. The act also repealed the 1934 act, which allowed the Treasury to hold gold.

Company Structure

In January 1934, President Franklin D. Roosevelt signed Executive Order 6102, which placed all U.S. gold in the hands of the U.S. Treasury. The Treasury Department then formed a new agency, the United States Gold Bureau.
The Gold Bureau was charged with purchasing gold from the private sector, and with selling gold to foreign central banks, which needed to buy gold in order to back the currencies of their countries.

Ownership

Congress approved legislation that allowed the United States to create the American Gold Reserve in 1934. The gold reserve was owned by private individuals, corporations, and banks. These entities were allowed to buy gold from the United States Treasury in exchange for dollars. The gold reserve was managed by the United States Department of the Treasury.
The gold reserve's establishment was part of a larger plan to safeguard America's gold reserves. In 1933, President Franklin D. Roosevelt established the National Recovery Administration (NRA). This organization sought to stop recessions by negotiating and enforcing labor contracts.
The gold reserve was authorized by the Federal Reserve Act of 1935. The gold reserve was liquidated in 1971 when the United States officially abandoned the gold standard.

Regulatory Issues

The World War I era saw a number of government actions aimed at controlling gold. Regulations passed in 1917 and 1918 required that all gold held by a U.S. citizen be deposited with the Treasury Department's Gold Reserve.
This move effectively ended private ownership of gold bullion and restricted it to U.S. military needs. In 1927, the Treasury began selling gold for $20.67 per ounce, and in 1934, President Franklin D. Roosevelt banned private ownership of gold outright.
The Gold Reserve Act, which authorized the withdrawal of gold from the Treasury to meet military needs, remained in effect until 1974.

Business Operations

Bullion management encompasses all aspects of managing a company's gold holdings. It may include bullion acquisition, bullion acquisition storage, and bullion management.
The Treasury Department assigned the Federal Reserve Bank of New York (FRBNY) the role of custodian of the gold reserves. The FRBNY's vaults are the largest vaulting facility in the world. The FRBNY is also responsible for the audit and daily valuation of the gold reserves. The Treasury Department audits the FRBNY's records and statements and publishes these reports annually.
Gold reserves are held in various sizes and shapes. The Treasury Department uses gold bars, gold ingots, and gold coins. Gold coins are sealed in capsules to protect them against damage. The Treasury Department only uses gold coins that are .995 fine or better.
Gold bars vary in size and shape. The Treasury Department's gold bars vary in size from 5 to 400 troy ounces.

Legal Issues

On April 27, 1934, President Franklin D. Roosevelt signed Executive Order 6102, which prohibited private ownership of gold. Roosevelt viewed gold as a money substitute that served as a store of value and a medium of exchange. He believed gold was a threat to his New Deal programs.
In 1933, Roosevelt established the Federal Banking Agency, which managed the sale of gold to commercial banks. Under Roosevelt's plan, gold was to be sold at a set price of $20.67 per ounce. When Roosevelt's plan failed, the Federal Banking Agency created the Treasury Department's Gold Reserve. The Gold Reserve was tasked with selling gold to banks and individuals at $20.67 an ounce.

How It All Came Together

The gold standard meant that a nation's currency was tied to the amount of gold it had in its reserves. In 1900, the United States was the world's largest producer of gold. The U.S. had accumulated $5 billion (98 million ounces) of gold in its reserves.
The country was hit by the Great Depression in the 1930s, and President Franklin D. Roosevelt, in an effort to create a stable currency, took the United States off the gold standard in 1933.

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The Bottom Line

After World War I, the United States sought to impose a gold standard on its trade partners, forcing Germany to abandon the gold standard. Germany was not the only country to default on its debt, and in 1933, President Franklin Roosevelt defaulted on U.S. debt.