is an important issue that strategic investors need to have a view on –
the circumstances in which you are most likely to need your wealth safe haven
is also when the risk of a Government wanting to take it away from you may be
the highest. All of the discussion on this matter is US-centric and I do not
recall ever seeing any commentary on the possibility of confiscation in other
countries. It is a pertinent question because a fair number of Americans
store their gold offshore on the simple basis that if the US Government did
it once, they will do it again.
Having said that, it would be my contention that all countries have a
confiscation risk on the basis that we are dealing with politicians after all
– QED. The confiscation issue is therefore one of relative risk: which
country is less likely to resort to gold confiscation. Being Australian, I
can only focus on the likelihood of the Australian (Federal) Government
confiscating gold. I would welcome discussion of this issue by locals in other
countries, particularly the UK and Switzerland, given the large amounts of
gold held in those countries.
The confiscation question was often raised by the clients I spoke to while
working in the Perth Mint’s Depository. I should note that most of the USD
1.5 billion worth of precious metals stored by the Depository is held by
foreigners. In fact, 45% of the Mint’s Depository clients are American.
While some of this analysis will be specific to Australia, there will also be
a fair amount that is generic to any country so hopefully this will be of use
to those without gold in Australia as well.
Governments confiscate gold because they need to strengthen their reserves,
which is a nice way of saying no one will accept their currency and they need
something of value to trade for the things the country needs. This statement
raises two factors to consider. Firstly, how strong is the economy of the
country, how resilient is it likely to be in the face of a deteriorating and
hostile world economic environment? Secondly, how self sufficient is the
My simple answer to these two questions is to note that Australia is a
commodity currency. We export a lot of raw material commodity stuff and food
that other countries want. Sure, like many western countries, we have a
reduced manufacturing capability but we can always build up that capability,
whereas some countries cannot just make iron ore appear out of their ground.
I therefore consider Australia relatively lower risk on this factor. We can
be self sufficient. Sure we might have to do without plasma wide screen TVs,
but at least we can feed ourselves.
A related issue is what gold holdings will the Government look to control
when it decides it needs the asset of last resort. My view is that they are
not going to bother with knocking on people’s doors to confiscate
private holdings when Australia’s mines can churn out between 200 to
300 tonnes per year. The real threat is the control of mine output (i.e.
buying gold at the “official price”) or nationalisation of mines
as this is where the real dollars are.
At lot of the commentary on US confiscation speculates on the likely legal
form the confiscation will take, such as will numismatic coins be exempt and
so on. If laws have to be passed, then opposition may be possible or at least
there would be some delay within which you can prepare.
In this respect Australia has a relatively higher risk because Australian law
already has a mechanism in place to require delivery of gold to the Reserve
Bank of Australia (RBA) - Part IV of the Banking Act 1959. There is no need
for the Government of the day to have to rush new legislation through that
may attract public comment or opposition. All that is required is the
Governor General to proclaim that Part IV shall come into operation. The ease
with which this can occur is a negative mark for Australia. A small
consolation is that we have certainty as to the legal form this confiscation
As a side note for those not versed in Australian constitutional law, the
Governor General is a figurehead role and is not elected. They are appointed
by the Government of the day and, by convention, act on the instruction of
the Government and Parliament. Most Australians would be aware, however, that
the words “by convention” are crucial, as on 11 November 1975 the
Governor General dismissed the Government of the day. It is therefore
theoretically possible that the Governor General could bring Part IV into
force against the wishes of the Government if he/she thought that it was
“expedient so to do, for the protection of the currency or of the
public credit of the Commonwealth” (Section 40(2)). Having said that, I
would consider such a scenario unlikely on the basis that doing so would
require the cooperation of the public service and result in radical changes
in the operation of the gold industry. As the Governor General does not have
any control over the public service or any public mandate, they would need
the cooperation of the Government of the day if the proclamation was to have
any practical effect.
Before you rush to deliver your gold to the RBA, note that Part IV is
currently “suspended”. My blog of 04 August details the suspension by way of a
transcription of a press release by the Treasurer on 30 January 1976.
It is worth noting that the Act only refers to gold, not silver. I guess this
is because gold is more compact, in value per weight/volume terms, and thus
is easier to transport between countries in settlement of transactions. For
example, one tonne of gold is equivalent to 75 tonnes of silver (at least at
today’s prices). This is positive for silver, and one can imagine that
in a gold confiscation scenario that people will flock to silver for
wealth/inflation protection if they cannot achieve it with gold. It is
therefore likely that the silver price will move rapidly upward relative to
So let’s look at our enemy in detail:
– you will not be allowed to export or take gold out of the country.
– you have to deliver gold you hold at the time of the proclamation or
any that subsequently comes into your possession within one month. Only
exemptions are gold used as part of your profession or trade or coins less
than $50 in total value. The section mentions “prescribed amount”
but $50 is mentioned in the attachment to the press release. Note that the
section refers to the “gold content”, not “face
value”. In practice this means legal tender coins or numismatic coins
offer no protection and given the small value, is effectively full confiscation.
The US 1933 confiscation had an exemption for gold holdings below $100 (see this article by Roland Watson for more details. Mr Watson
notes that the 1933 confiscation was not confiscation as such, but a
prohibition against hoarding. He also speculates that the exemption was a way
of getting the average wage earner on board, as it did not confiscate their
small holdings, only the "evil hoarders".
– gold so delivered is the RBA’s, period. Any interest that
someone has in it is extinguished. RBA must pay for it and will pay the
deliverer. If you had an interest in that gold, you have to get your money
off the deliverer. What this means is that a custodian must deliver gold held
on behalf of others, and it will only get money in return, which is all it
can return to you.
– this has very interesting wording. First off it says the price is the
price as fixed by the RBA. This doesn’t sound too good, as it allows
for the RBA to set a really crappy price. However it says “... or, at
the option of the person delivering the gold, such amount as is determined in
an action for compensation ...” In practice this means that you will
get the market value, as if the RBA’s price is too low there is a case
If you think that getting market price doesn’t sound too bad, it is
worth remembering that in the US after confiscation the official price of
gold was increased, thereby denying the previous holders the benefit of that
increase in value. While there is no official fixed price anymore, some posit
that the same will be achieved by central banks first manipulating the price
lower then confiscating it at this “free market” price.
In any case this is a bit irrelevant because you only end up with paper money
and if you wanted that you would not have bought gold in the first place.
– this says that you are not allowed to buy or sell gold, unless
authorised by the RBA. The interesting thing about unallocated is that the
gold has already been bought and thus it may be legal for the Mint to allow
clients to collect their unallocated gold on the assumption that as good
citizens they are requesting it so they can dutifully hand it over to the
RBA, of course. This will depend upon the interpretation of “or
otherwise obtain gold” within the context of the section, which is
titled “limitation of sale and purchase of gold”.
– essentially restatement of s42(1)(b), OK to have gold you are working
on if that is your job. I take this to mean jewellers and other manufacturers
are exempt by default.
– OK to hold wrought gold. As “wrought” means “made
in a skilful or decorative way” I take this section to mean jewellery
is exempt. I think this is potentially a significant loophole as those denied
bars and coins would create demand for other forms of jewellery that could
also be “tradable” that creative jewellers (or a creative Mint)
would undoubtedly meet.
– the RBA can exempt anyone from any or all of these sections.
In summary, Part IV is very extensive. You can’t buy, hold or sell gold
unless it is a legitimate part of your trade or in the form of jewellery.
However, the phrasing of the law is all around physical as it mentions
“delivery” of gold in your “possession” Combining
this with section 46 raises an interesting speculation on interpretation of
the law and its consequences for metal held with the Perth Mint.
Under section 46, given the Mint’s role in refining gold that the
Government wants and also supplying industry with industrial forms of gold, I
think it can be assumed that it would get an exemption from having to deliver
its working stocks of gold. Note that this metal is what backs the
unallocated precious metal liabilities of Depository clients, so the
conclusion is that unallocated metal would not be confiscated. In support of
this, unallocated metal liabilities are not “physical” so would
fall outside the law as they cannot be “delivered” to the RBA. Certainly
the Government may close this loophole, but in the extreme environment we are
considering this oversight may be missed by the bureaucrats as they scramble
to negotiate with an antagonistic mining industry on how the new system will
work and getting real physical gold into the hands of the RBA.
My experience with the implementation of the Goods and Services Tax (GST)
some years ago supports my position that unallocated will be left alone, at
least initially. In discussions with tax officials the whole concept of
unallocated, location swaps and such was considered suspiciously, as some
bogus “construct” to hide the real transaction going on. As such
they focused on physical metal movements and when title passed. I am
confident that the bureaucrats responsible for implementing Part IV will
similarly see industry “jargon” as a cover up and instead prefer
to take what they will see as a clear-cut approach: do you have a legitimate
business reason to hold gold, if not hand it over.
For this reason, and of some irony considering that a number of
client’s consider allocated “safer” than unallocated, there
is no potential for ambiguity with allocated metal. It is physical and has to
be delivered, no matter that it is someone else’s metal as section 43
As a counterpoint, if people are not allowed to hold gold then the Perth
Mint’s operations will be radically reduced as there will be no need
for coins or bars (except 400oz bars) and it may be hard to justify holding
as much physical backing the unallocated as they currently do. While the Mint
may be able to branch out into 24ct jewellery or other product lines to take
up the slack, it is doubtful this could be on the same scale as the coin and
In summary, the best that can be said is that there is no doubt that
allocated/custodial holdings are confiscatable but that unallocated is a grey
By “management” I mean how will the senior management of your
custodian (which for most people means the Perth Mint) react to the
confiscation. For example, in respect of the unallocated question, will the
Mint roll over and voluntarily hand over unallocated metal (or the
“paper” claims), or will they not bring it to the attention of
This is a difficult question to answer and one can only look to the material
published by your custodian to infer what their “philosophy” is
or how strongly they feel about gold’s role and protecting your rights.
One factor unique to West Australia that needs to be considered in respect of
gold held in that state is the highly probable emergence of the idea of self
governance or secession from the Commonwealth should the Federal Government
confiscate gold. One thing that struck me when I moved from Sydney to Perth
was the “them and us” attitude of West Australians, evidenced in
their use of “the Eastern States” to refer to the rest of
Australia. I have no doubt that enacting Part IV will be seen by many West
Australians as confiscation of “their” gold by the Federal
Government and not in the interests of the state.
If you consider this farfetched, read the following Wikipedia page http://en.wikipedia.org/wiki/Secessionism_in_Western_Australia. This
2005 TV interview, with veteran state MP Norman
Moore, a former Court Government minister, is a neat summary of the feelings
of some West Australians:
REBECCA CARMODY: As this issue has cropped up, I’ve heard politicians
of both persuasions talking about secession. Would Western Australia be
better off just to simply break apart?
NORMAN MOORE: Absolutely. I have no doubt that Western Australia would be one
of the most successful countries in the world if it was a separate country.
REBECCA CARMODY: Is this something we should be seriously contemplating?
NORMAN MOORE: Yes, we should be talking about it. We should be talking about
it very thoroughly and in a very mature way. Let’s look at what the
consequences are for Western Australia if it was a separate country. We have
enormous resources. We’ve got a tremendous potential future as separate
country if we were to secede. To achieve that would be very difficult indeed
because you actually require a constitutional amendment, I understand, which
would probably not be supported by the other States because they get 30 per
cent of their revenue from Western Australia.
REBECCA CARMODY: You don’t think it is likely to happen, but it is a
fallback position for Western Australia.
NORMAN MOORE: There was always a unilateral declaration of independence which
has been used in other parts of world. I suspect it wouldn’t happen in
Western Australia. I think that Western Australians need to start talking
about a future as a seceded separate nation. At the end of the day, under a
centralist system in Canberra, Western Australia will always be the biggest
loser. We are a long way away - out of sight, out of mind. Federal
politicians simply rely on Western Australia to produce a huge amount of
wealth, but, beyond that, they would not know much about what goes on here at
Consider also this Vista Public Lecture by Hon Richard Court AC, former
Premier of Western Australia "How will the Federation look in 2020" where
he says “I am not advocating secession, but if you read 'The Case for
Secession' which is very thick and 'The Case Against Secession' which is very
thin that was prepared in the 1930’s, the case for secession today will
be even stronger if this financial imbalance is allowed to continue.”
It also has a short history of Western Australia's attitude to Federation and
notes that "in 1932 the Western Australian Government decided to hold a
referendum on seceding from the Federation on the grounds of unfair financial
treatment. This referendum was held on 8th April 1933 and it was 2-1 majority
in favour of secession from the Commonwealth" but it was rejected only "because
the United Kingdom Parliament could – as a matter of Constitution
priority – only dissolve the Commonwealth at the request, and with the
consent, of the Commonwealth. That consent had not been provided."
While secessionist sentiments are currently in the minority, it is my view
that confiscation would fan the feelings of being “ripped off”.
The sort of dire economic circumstances that would induce the Federal
Government to confiscate may also be the extreme circumstances in which the
State Government, with the likely support of everyone involved in the gold
mining industry, would consider it in the best interest of the state to
secede. I would further speculate that with significant amounts of gold in
the ground, and an operating Mint, there is a good chance that the country of
Western Australia would consider a gold backed currency – in times when
currencies are failing the only way for a new country to establish the worth
of its money would be to back it with gold.
What if Western Australia did not want to secede or there was not enough
public support to do so, but still wanted to stop gold confiscation by the
Federal Government. One possibility is for the State to make gold coins legal
tender. They would therefore cease to be just gold and become currency.
Section 115 of the Australian Constitution states "A
State shall not coin money, nor make anything but gold and silver coin a
legal tender in payment of debts." I interpret this as a State shall not
coin money, period, but can make (with "make" as make law, not
"manufacture") gold and silver coin legal tender.
Now if a State cannot make coins, how does the Perth Mint get away with it.
It does so by going to the Treasurer and getting approval to do so under the Currency Act 1965. With the Mint's
gold and silver coins, as well as sovereigns, already out there could not a
State pass a law to make those gold and silver coins legal tender at their
market value, not face value? Interestingly, there is no definition of
"coin" so maybe sovereigns and Eagles and Maples could be included,
although coin usually means "legal tender" otherwise it is a
According to this Wikipedia entry, "Section
51(xii) of the Australian Constitution gives the Commonwealth Parliament the
right to legislate with respect to “currency, coinage, and legal
tender.” with Section 51 powers able to be legislated on by the states,
although Commonwealth law will prevail in cases of inconsistency. Section 115
effectively makes the concurrent power in section 51(xii) exclusive to the
Commonwealth. Despite this, coins of the Australian pound were not introduced
until 1910. From 1901 to 1910 the states could not issue tender and the
Commonwealth had not issued tender, so private currency was used as the
common medium of exchange whilst the British pound sterling was the national
unit of account."
This then raises the question of whether Western Australia making those
existing gold and silver coins legal tender would "inconsistent"
with Commonwealth law.
Part V of Reserve Bank Act 1959 states that
banks or persons (but no mention of States) shall not issue bills or notes
intended for circulation as money but otherwise makes no restrictions on any
other legal tender.
I have looked at the Currency Act 1965 and cannot find any section
prohibiting a State from declaring gold and silver coins legal tender.
Section 22 prohibits persons from making coins. Section 16 says that "a
tender of payment of money is a legal tender if it is made in coins that are
made and issued under this Act", which the Perth Mint's coins are.
See also the Reserve Bank of Australia's comments on legal tender.
Therefore I see no inconsistency with Commonwealth law if a State passes a
law making existing gold and silver coins (at their market value) legal
tender. However, there is a catch. Section 23 states that "the Governor‑General
may, by Proclamation, call in any coins issued under this Act or the repealed
Acts before a date specified in the Proclamation."
So if the West Australian Government attempted to make the Mint's coins legal
tender to stop the Commonwealth's moves to confiscate gold, the Commonwealth
could just call those coins in.
Now while this investigation seems to have achieved nothing, it does raise
one useful point - Section 23 is effectively another confiscation mechanism,
but with the implication that it can be used not just to recall gold coins
but also any Perth Mint silver coins. Note also that any proof/collectible
coins issued by the Perth Mint are also done so under the Currency Act 1965
so numismatic coins clearly have no protection. Therefore, while coins have
advantages when moving between countries due to their legal tender status, that
legal tender status puts them at risk of confiscation, so one should prefer
bars to coins if one is concerned about confiscation.
Also, as one reader has pointed out, the "calling in" could be done
at the face value of the coins, which would not normally be much of an issue
with base metal circulating currency but obviously a problem for gold and
silver coins because the face value is much lower than the market value.
It would be interesting if US law had a similar call in provision regarding
its legal tender, as this would put to bed the idea that numismatic coins
would be protected from a US confiscation. This article by CMI, which is the most comprehensive
I can find on US confiscation, does not mention it but nevertheless concludes
that numismatic coins provide no extra protection over bullion coins or bars.
Let Sleeping Dogs Lie?
In closing, I do not feel it is inevitable that confiscation will occur in
Australia, or specifically Western Australia. I hope I have shown that the
potential political situation is much more fluid. However, we do have dormant
legislation that can be brought into existence without any need for debate in
Parliament, which I do not consider a good thing. The question I leave you
with is should we leave the sleeping dog or agitate for Part IV to be
Asking for it to be removed may draw attention to its existence and provoke a
review of it and possible change to remove any loopholes, although this would
have the benefit of revealing the Government’s attitude to gold,
allowing for individuals to prepare. Leaving it means we know what we will
have to deal when/if it happens (this assumes you feel there are actionable
loopholes) and in the meantime not draw any more attention to gold ownership.
by Bron Suchecki
Bron Suchecki has
worked in the precious metals markets since 1994, when he joined the Perth Mint as an Administration Officer in their Sydney retail outlet. In 1998 he moved to
Perth to work in the then fledgling Depository division. He has held a number
of roles since then in the treasury, risk and governance areas of the Mint.
All posts are Bron's personal opinion and not endorsed by the Perth Mint in any way.