The Conspiracy Theorist's History of Gold

Last year, Rep. Ron Paul (R-Texas) speculated that there might not be any gold in the vaults of the New York Federal Reserve and Fort Knox. Last month, the Utah Legislature passed a bill establishing gold and silver as legal tender, thumbing its nose at the Fed in the process. In this climate of concern (legitimate and otherwise) regarding the role of central bankers and the value of the greenback, the conspiracy theorist's history of gold is long overdue. Here it is.

An edited history of gold in the U.S.
For each event, I start with the official history, before revealing their true nature:

1792: The Coinage Act creates a silver-gold standard, and sets the value of the U.S. dollar at 24.75 grains of fine gold and 371.25 grains of fine silver.

Finest piece of monetary legislation ever passed; the cornerstone of sound money and fiscal probity. Good times.

1837: The weight of gold in the U.S. dollar is reduced to 23.22 grains; the U.S. dollar is now valued at $20.67 per ounce.

What's this? The government is already debasing the dollar a mere 45 years after establashing its initial value? Nothing good can come of this.

1913: The Federal Reserve Act establishes the Federal Reserve. Federal Reserve Notes are backed by gold ... up to 40%.

Disaster. The Federal Reserve is born from the unholy coupling of the financial and government elites. The Fed was modeled on a proposal drawn up by Sen. Nelson Aldrich and a group of prominent bankers during a secret meeting on Jekyll Island, Ga., in 1910. The plutocracy has sounded the death knell for the dollar.

[Note: A secret meeting on Jekyll Island? A Hollywood screenwriter could scarcely have written a better script to excite the imagination of conspiracy buffs. Nevertheless, all these facts are true.]

1933: In response to the banking panic, President Franklin Roosevelt ends private ownership of all forms of gold.

The Fed and New York banks orchestrate a banking panic designed to force Roosevelt to establish a government monopoly over the gold market.

1934: The Gold Reserve Act hands the government permanent ownership of all monetary gold and ends the minting of gold coins. President Roosevelt debases the dollar, settting the price of gold at $35 per ounce.

The government and the Fed consolidate their power as gold monopolists. Not content to own all the gold, the financiers convince Roosevelt to debase the dollar in order to beggar the American working class.

1942: Roosevelt shutters all U.S. gold mines by presidential edict.

Roosevelt cuts off the gold supply in order to create scarcity and drive up the value of the holdings the government stole just eight years earlier.

1945: Gold-backing of Federal Reserve Notes lowered by 25.5%.

The Fed jump-starts its Monopoly money machine.

1974: American citizens are allowed to own gold again.

An obvious ruse to track down true patriots. Don't buy your gold from official sources!

1987: Creation of the World Gold Council to promote the end uses of gold. Current members include Yamana Gold (NYSE: AUY  ) , Coeur d' Alene Mines (NYSE: CDE  ) , Golden Star Resources (AMEX: GSS  ) , Eldorado Gold (NYSE: EGO  ) , and Agnico-Eagle Mines (NYSE: AEM  ) .

False flag operation to distract the public from the real masters of the gold market: central bankers, financiers, and the Knights Templar.

2004: Launch of SPDR Gold Shares (NYSE: GLD  ) , the first gold exchange-traded fund.

These fancy financial products amount to nothing more than paper gold. The SPDR Gold Shares' custodian is HSBC -- one of the largest banks in the world. That ought to tell you all you need to know: It's like handing the bankers the keys to your gold vault.

Is Ron Paul a contrarian indicator?
When politicians start agitating for a return to the gold standard, could it be a contrarian indicator that we are near a top in gold? Not really, but it could be indicative of the feedback loops that fuel bubbles: Rapid price increases draw greater interest from all quarters.

In 1981, Treasury Secretary Donald Regan announced the creation of a Gold Commission "to make recommendations with regard to the policy of the U.S. government concerning the role of gold in domestic and international monetary systems." The following year, the commission released its report recommending no new role for gold. Over the 10-year period from the date on which the commission was established in law, gold declined more than 40% in nominal terms.

In any case, as I describe here, there are some serious indicators that suggest gold is overpriced at current levels. I'm not a big fan of owning gold. Gold miners, on the other hand, make a lot more sense to me. Resident gold expert Christopher Barker has identified an undiscovered thoroughbred in that sector.

Interested in adding a gold miner to your portfolio? This tiny gold stock is digging up massive profits.

Fool contributor Alex Dumortier, CFA, has no beneficial interest in any of the stocks mentioned in this article. You can follow him on Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (24) | Recommend This Article (29)

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  • Report this Comment On April 14, 2011, at 4:08 PM, Jbay76 wrote:

    knights templar...really?

  • Report this Comment On April 14, 2011, at 4:13 PM, TMFAleph1 wrote:

    Or maybe it was the Illuminati, or Skull & Bones, or...

  • Report this Comment On April 14, 2011, at 4:14 PM, TMFAleph1 wrote:

    ...the Bilderberg Group, or the Council on Foreign Relations, or the Freemasons, or...

  • Report this Comment On April 14, 2011, at 5:29 PM, Jbay76 wrote:

    I am quite positive that the Freemasons were once the templar knights...all the KT theories circle around that linkage

  • Report this Comment On April 14, 2011, at 5:52 PM, xetn wrote:

    What a completely stupid article.

  • Report this Comment On April 14, 2011, at 5:58 PM, Acesnyper wrote:

    I'm almost let down it didn't sink to the point of humor and accuse Ray Charles.

  • Report this Comment On April 14, 2011, at 6:34 PM, orasis wrote:

    Why would you not want to hold gold?

    For the long term it is perhaps the most solid investment on Earth, since civilization began gold has had a value and now, in modern times, that value has increased due to it's use in technological products.

    As for your article, what nonsense. To accuse people of being conspiracy theorists even though most of what they have said is in fact true.

    So if truth is fiction, does fiction then become truth?

    As for the Knights Templars thingie - I've never heard a person from this camp claim they run gold with the central bankers - What I have heard is that the KT's had technically created the first central banking system by issuing internationally (to an extent) cheques.

    That is actually true they, the Knights Templars, did invent the first real form of the cheque.

    For an economics guy you're rather unlearned about the history of the subject.

    So again, besides your 'comments' - is anything false in this article? Nope.

  • Report this Comment On April 14, 2011, at 8:10 PM, rfaramir wrote:

    Hard to believe you left out 1971 Nixon closing the gold window (the redeemability of FRNs by foreign banks in gold).

    Note that the changed valuation of the dollar (between 1792 and 1837) in terms of gold was NOT matched by a revaluation in terms of silver. Thus the dollar was NOT really devalued, but the changed valuation of gold and silver relative to each other was merely acknowledged. The market value of gold had gone up. That's the problem of a bi-metallic standard, you're always having to adjust the official ratios, and while the ratios are out of whack, one form of currency or the other is driven out of use by undervaluation.

    Pick one commodity or the other for your monetary unit (and one 'weight'--actually mass would be more proper). And drop all legal tender laws. Let people use the currency they think is best, voluntarily.

  • Report this Comment On April 14, 2011, at 9:28 PM, extremist wrote:

    Bullish on gold miners but not on gold? That's sort of like being pro-gun but anti-ammo.

  • Report this Comment On April 14, 2011, at 10:27 PM, TMFAleph1 wrote:

    @extremist

    I'm not bullish on gold miners per se; it's just that I am more comfortable with the notion of owning stocks relative owning a precious metal. I do not know if gold miners are a good buy at this time. If you're interested in these stocks, look for articles by Christopher Barker, who covers the sector.

    Alex Dumortier

  • Report this Comment On April 15, 2011, at 12:34 AM, AirForceFool wrote:

    Great piece... very Foolish imho. I personally think that gold is overpriced, but that with the way we're printing money that it's going to keep running... Silver... now that's another matter... :P

    Chris

  • Report this Comment On April 15, 2011, at 1:10 AM, TMFAleph1 wrote:

    <<For the long term it is perhaps the most solid investment on Earth,..>>

    Gold is not, in any sense of the term, an investment. It is a store of value over the VERY long term, with an expected real return of zero. In terms of timeframe that is relevant to most investors, it is a speculation, but it is never an investment.

    Alex Dumortier

  • Report this Comment On April 15, 2011, at 1:45 AM, whereaminow wrote:

    Alex,

    Any person who seeks out the truth is initially a conspiracy theorist. Or are we to believe that everything initially reported is true? If many things that are initially reported turn out to be false, how do we find out that they were false? Usually, one person or a small group of people work tirelessly to uncover the truth. Hence, they are conspiracy theorists, as the truth has not yet been revealed.

    Are these people that we should mock? Or are these people that we should admire for their courage in the face of public opinion so easily swayed by the initial report?

    David in Qatar

  • Report this Comment On April 15, 2011, at 2:09 AM, TMFAleph1 wrote:

    David,

    Some conspiracy theories turn out to be true, but the overwhelming majority of them are utter nonsense.

    Besides, conspiracy theorists are rarely interested in uncovering the truth, they are too busy trying to build elaborate mistruths by piecing together unrelated fragments of evidence into some sort of pattern.

    Don't confuse someone who is properly seeking knowledge and a conspiracy theorist -- these are two opposite breeds. The truth-seeker relies on skepticism and logic, both of which the conspiracy theorist lacks.

    Admiration is the last thing a rational person should have for a conspiracy theorist.

    Alex Dumortier

  • Report this Comment On April 15, 2011, at 2:13 AM, TMFAleph1 wrote:

    David,

    Don't put 9/11 truthers on the same pedestal as Copernicus, Galilei or Darwin; that's the worst sort of amalgamation.

    Alex Dumortier

  • Report this Comment On April 15, 2011, at 2:23 AM, whereaminow wrote:

    Alex,

    When was this post about 9/11 truthers? That's quite a backpedal isn't it? I thought this post was about savers.

    As for conspiracy theories, here's one that lasted 30 years before coming to light: the largest propaganda campaign in world history up to that time was conducted by the British government to ensure American involvement in World War I. It took 30 years for the full scope of this secret activity to come to light. Anyone who attempted to uncover this truth was a conspiracy theorist or Anglophobe and probably considered as low by his peers as a 9/11 truther is considered by you.

    David in Qatar

  • Report this Comment On April 15, 2011, at 2:45 AM, whereaminow wrote:

    Alex,

    I didn't see that you had written two comments. Egads, the first is even more nuts than the second.

    The number of conspiracy theories that are "utter b.s." is dwarfed by the number of professionally reported stories that turn out to be false. You are clearly fixated on 9/11 truthers. That's one conspiracy theory. You can scour the Internet and pull up about a dozen more that anyone really follows.

    On the other hand, nearly every reported story is reported falsely at first. Some are completely false, some only get the date and time correct, some miss a key detail. But almost every one is false.

    The bigger the story, oddly enough, the more it is probably false. Take Columbine for example. Did you ever read Columbine:10 Years Later? It turns out that almost every detail reported about Columbine initially was false, and these myths persist today. Why is that?

    So if you'd like, we can go back and forth. You throw out your most hated conspiracy theories, and I'll counter with professionally reported stories that turned out to be "utter b.s."

    We'll see who runs out of stories first. I could fill half the Internet. You might three dozen. Good luck.

    David in Qatar

  • Report this Comment On April 15, 2011, at 3:01 AM, silverjmz wrote:

    "1837: The weight of gold in the U.S. dollar is reduced to 23.22 grains; the U.S. dollar is now valued at $20.67 per ounce.

    What's this? The government is already debasing the dollar a mere 45 years after establashing its initial value? Nothing good can come of this"

    Um, actually, this article might be better titled "The Historically Illiterate Guide to Projecting Conspiracy Theories onto Those Who May Know More than You Do".

    You see, just before 1837, in a small town outside of Charlotte, NC, a little boy playing hooky from church or school stumbled across a great, big, shiny nugget of gold. When locals checked it out, they discovered the first indigenous deposit of gold known in North America, which became the Reed Gold Mine,

    http://en.wikipedia.org/wiki/Charlotte_Mint

    http://en.wikipedia.org/wiki/Reed_Gold_Mine

    http://www.charlottegoldcoins.com/info_nc.php

    The Reed Mine meant that gold no longer had to be imported to serve as currency, so there was lots, lots more of it available domestically. When you have more of something, according to the law of supply of demand, it gets cheaper. With a new mint in Charlotte turning out coins, there were lots more dollars to circulate, you moron.

    The California Gold Rush of 1849 put a dampener on the Charlotte mine, but the mint there stayed in operation until the year 1861. I don't even dare ask such a poor researcher of basic, grade school-level American history what the heck happened in 1861 that might have shut it down...

  • Report this Comment On April 15, 2011, at 1:15 PM, AirForceFool wrote:

    A bit harsh silverjmz:

    I don't even dare ask such a poor researcher of basic, grade school-level American history what the heck happened in 1861 that might have shut it down...

    Pretty sure the story of the Reed Mine isn't taught in most grade schools... it certainly wasn't in mine (pun intended).

    Chris

  • Report this Comment On April 15, 2011, at 1:23 PM, AirForceFool wrote:

    "In 1861, NC entered the Confederacy and the new government took control of the Charlotte mint. The mint produced about a 1000 $5 gold coins for the Confederacy (the last coins it ever made) but the mint was closed in 1862..."

    http://www.reedmine.com/ (Teacher's Guide).

    Chris

  • Report this Comment On April 18, 2011, at 2:03 PM, rfaramir wrote:

    Also, silverjmz, the effect of discovering a native gold source would have the opposite effect: more gold available means more gold per (silver) dollar. I.e., they would have increased the amount of gold in a dollar, not decreased it.

    If I recall correctly (not that I was there, I mean what I've read/heard), it was the Latin American silver mines that were being very productive (Mexican or Bolivian I think), increasing the available silver and thus necessitating the revaluation. Since the gold content of a dollar was adjusted, you can see that we were effectively on a silver standard at the time. More silver means that the ratio of silver to gold was going up (from 15:1 to 16:1 I think), but the existing Spanish dolars were staying the same size and Americans were using them as currency, so rather than increasing their legal size, which would be very confusing (not to mention perverse to tell the Spanish how to mint their coins), they lowered the amount of gold each dollar would fetch.

  • Report this Comment On April 21, 2011, at 8:00 AM, dbtheonly wrote:

    M. Dumortier,

    I know you were focused on gold, but the gold/silver debates of the 1870s are interesting, both as historical activities, & as relevant to today.

    There is a commenter here, xeten I believe, who constantly argues against "fiat money". I've been ever so tempted to tell him that "You shall not crucify mankind upon your Cross of Gold". Everything old is new again.

    The simple fact is that a gold currency can not supply enough "money" to maintain prices for an ever increasing supply of goods & services available to purchase. A deflationary panic is built into the system.

  • Report this Comment On April 22, 2011, at 2:40 PM, RLoder wrote:

    Nice article, I think many missed the point and humor that historically the backing of currency by gold/silver has been grandually reduced over time ending in zero.

    Most people don't understand money supply. If you can't answer this question: How did trillions in US dollars come into existance now when none existed 300 years ago?

    You should watch the History of Money series of videos on youtube and you will realize anyone who thinks going back to the gold standard is profoundly ignorant:

    http://youtu.be/D0IJCGuNtqk

  • Report this Comment On April 22, 2011, at 5:39 PM, mike2153 wrote:

    I can't tell if this was supposed to be a serious article or not. It sounds like it's coming from some conspiracy theory survivalist getting ready to hunker down in a bunker with a shot gun, case of spam and ingots of gold.

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