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Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
(We recommend this as work of authority.)
In accordance with the Gold Reserve Act of 1934 and Presidential
Proclamation of January 31, 1934, pursuant thereto, the entire monetary
gold stock of the U.S. was vested in the Treasury of the United States,
including some $3.5 billion held by the Federal Reserve banks.
Monetary gold, therefore, has been nationalized since that time.
1968, when the two-tier price system for gold was internationally agreed
to by the seven active member nations of the Gold Pool (Belgium, West
Germany, Italy, the Netherlands, Switzerland, United Kingdom, and the
U.S.), private buyers in the U.S. (for industry and the arts) could obtain
their gold from the U.S. Treasury at the monetary price of $35 per ounce
(plus 0.33% and regular MINT charges).
After March, 1968, such supply by the U.S. Treasury and by the
other referenced nations to the private gold markets ceased, and nonmonetary
uses were filled through the free gold markets (London and Zurich) and
licensed dealers (there were some 1,400 firms licensed by the U.S. Treasury
to deal in gold).
93-373 ended the ban on private ownership of gold by U.S. citizens as
of December 31, 1974. Previously,
Congress had amended the Gold Reserve Act of 1934 by P.L. 93-110, September
21, 1973, which permitted private citizens to hold gold when the President
found that the elimination of regulations on private ownership of gold
would not adversely affect the U.S. international monetary position.
with P.L. 93-373, the Board of Governors of the Federal Reserve System
authorized the presidents of the district Federal Reserve banks to send
a letter to their member state banks regarding banking prudence in gold-related
transactions. Text of the
letter, as authorized December 4, 1974, was as follows.
93-373 provides that on December 31, 1974, the ban on private ownership
of gold will end. After that,
United States citizens may own gold and trade in it as they might any
other commodity. National
banks possess statutory authority to buy and sell "exchange, coin,
and bullion," and some state laws contain similar provisions with
respect to state-chartered banks.
The Office of the Comptroller of the Currency has determined that
gold will not be acceptable as bullion unless it has a fineness of 0.900
past 41 years, United States citizens have been able to hold gold only
under U.S. Treasury license. During
this period, private individuals and banks have had negligible experience
with gold. Gold is not
legal tender. Rather, it
is a highly speculative commodity, subject to widely fluctuating prices.
In the light of these circumstances, state member banks will
wish to proceed cautiously, should they decide to provide gold-related
services to customers.
Reserve System believes that the following information will be useful
to state member banks in the event that they decide to participate in
gold transactions. Similar
information is being issued by other federal banking agencies with respect
to banks under their jurisdiction.
If a bank
does decide to engage in gold-related activities, it ordinarily would
be preferable for it to act only on a consignment basis or otherwise
inherent in gold transactions is such that any state member bank considering
acting as principal with respect to gold transactions should give advance
notice to the Federal Reserve bank of its district.
The advance notice should contain information relative to experience
of personnel, services to be provided, anticipated inventories and positions,
safekeeping facilities, insurance coverages, audit procedures, and anticipated
impact on earnings.
not engage in the business of issuing receipts for gold without considering
the implications of securities laws; and any gold for which a bank issues
any form of receipt must be physically held on hand at all times and
under strict safeguards. Moreover,
obligations payable in gold or its equivalent are still unenforceable
(Public Resolution of June 5, 1933, 31 U.S.C. 463).
any commodity loan, it is anticipated that banks will carefully consider
such matters as adequacy of margins on loans collateralized by gold,
precautions to assure authenticity and safe custody of gold held as
collateral and total risk exposure from gold-related loans.
Moreover, gold-related loans should be considered nonproductive
credits unless extended for commercial or industrial purposes.
If a bank
should decide to offer gold for sale, it should carefully avoid excessive
or misleading promotions which could lead to unrealized expectations
by bank clients and adversely affect public confidence in a particular
bank or the banking system.
will pay strict attention to the relevant accounting practices of banks
and recordkeeping for accounts of customers.
Any gold owned should be shown on financial statements under
"other assets," and any hedging futures contracts should be
shown as a memorandum item. It
would be anticipated that a bank would revalue accounts at least monthly
to reflect current market values.
examinations of state member banks, examiners will review closely a
bank's total involvement in gold-related transactions to assure that
individual banks and the banking system are not exposed to undue risk.
Among other considerations, examiners will be concerned with
management's expertise in this area, risk undertaken in relation to
the bank's equity capital, and the needs of customers.
An undue concentration of gold loans, as with any imprudent involvement
in gold transactions, could constitute an unsafe or unsound banking
practice subject to action under the cease-and-desist provisions of
the Financial Institutions Supervisory Act of 1966.
Our examiners are instructed to be vigorous in countering any
manifestations of bank speculation in gold.
same time, the Board of Governors of the Federal Reserve System made
available to member banks a statement, in the form of a series of questions
and answers, regarding the treatment of gold by the Federal Reserve
banks. The statement indicated
that gold may not be used to satisfy reserve requirements because the
Federal Reserve Act provides that only vault cash – consisting of U.S.
currency and coin – and Reserve bank balances may be so counted. In addition, it indicated that the Reserve banks will neither
perform services related to gold transactions by member banks nor accept
gold as collateral for advances to such banks.
As of 1981,
the Comptroller's Handbook for
National Bank Examiners (Sec. 403.1) pointed out that although P.L.
93-373 removed the ban on private ownership of gold by United States
citizens, the statute did not provide for a total elimination of prior
law on gold transactions. The
National Bank Act provides that national banks may exercise their powers
"by buying and selling exchange, coin and bullion."
Consequently, banks may deal only in gold that qualifies as coin
or bullion. The term "coin"
means coins minted by a government or exact restrikes, minted at a later
date by or under the authority of the issuing government. The term "bullion" refers only to gold and silver.
Platinum, or any other precious metal, is not considered degree
of purity. The Office of
the Comptroller of the Currency has determined that, for national banks,
gold of 0.900 fineness or better is acceptable as bullion.
In most cases banks handle gold of 0.995 or 0.9995 purity, and
any gold of less than 0.900 purity will be considered an alloy in which
national banks will not be permitted to deal.
National banks should have available, for inspection by national
bank examiners, evidence of the purity of the bullion they have in inventory.
U.S. citizens have been permitted to own gold since December 31, 1974,
they still are bound by the Joint Resolution of June 5, 1933 (31 U.S.C.
463). That resolution declares
that contract clauses under which obligations are payable only in gold
or in an amount of money measured by the value of gold are against public
policy and are unenforceable.
The restrictions contained in the BANKING ACT OF 1933 that prohibit
investment in or underwriting of securities also are applicable to securities
of companies involved with gold.
to the Gold Reserve Act of 1934, monetary gold reserves of the U.S.
shall be maintained in bullion form, the standard monetary size being
400 ounces (troy). Gold
bars, however, come in a variety of commercial sizes, including the
kilogram size (used by the jewelry trades) and 1,200-ounce (troy) size
poured at the mine.
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