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Don’t Dismiss the Possibility of Gold Confiscation

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Casey Reseach
Published : June 06th, 2013
1827 words - Reading time : 4 - 7 minutes
( 12 votes, 3.7/5 ) , 4 commentaries
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Category : Gold and Silver

If you hold precious metals in your portfolio, there is a good chance you fear hyperinflation and the crash of fiat currencies.

You probably distrust governments in general and believe they are self-serving and have no interest in your economic well-being. It is likely that your holdings in gold are your lifeline – your hope to get you through these times while holding on to your wealth.

But have you ever given any thought to the possibility of having this lifeline confiscated by the authorities?

In my conversations with friends and associates, I have often raised this question. The typical responses:

"They'd never do that."

"I'll deal with that if and when it happens."

"I just wouldn't give it to them."

I consider these "wishful thinking" responses.

It's an interesting thought that the greatest threat to gold and silver investment might not be the possibility of losing on the speculation, but the government taking it away from you. It's a thought that I've found few want to even think about, let alone discuss.

If you fall into this camp, you're in good company. Some of the forecasters whom I respect most highly also treat it either as unlikely or at best, "something we may need to look at in the future." To date, in conversing with top advisors worldwide, the two primary reasons they believe gold will not be confiscated are:

  1. "Confiscation would mean the government acknowledges the reality of the value of gold."

Yes, this is quite so. They would be changing their official view… which, of course, they do all the time. But I submit that all that they need to do is put the proper spin on it.

  1. "They would meet greater resistance than they did back in '33."

I expect that this is also true, but that a plan will be put in place to deal with that resistance.

We'll address both of these assertions in more detail shortly, but first, a bit of history.

In 1933, Franklin Roosevelt came into office and immediately created the Emergency Banking Act, which demanded that all those who held gold (other than personal jewelry) turn it in to approved banks. Holders were given less than a month to do this. The government then paid them $20.67 per ounce – the going rate at the time. Following confiscation, the government declared that the new value of gold was $35.00. In essence, they arbitrarily increased the value of their newly purchased asset by 69%. (This alone is reason enough to confiscate.)

Today, the US government is in much worse shape than it was in 1933, and it has much more to lose. The US dollar is the default currency of the world, but it's on the ropes, which means the US economic power over the rest of the world is on the ropes.

I think that readers will agree that they will do anything to keep from losing this all-important power.

The US government has essentially run out of options. At some point, the fiat currencies of the First World will collapse, and some other form of payment will be necessary. Yes, the IMF is hoping to create a new default currency, but that, too, is to be a fiat currency. If any country were to produce a gold-backed currency in sufficient supply, that currency would likely become the desired currency worldwide. Fractional backing would be expected.

As most readers will know, the Chinese, Indians, Russians, and others see the opportunity and are building up their gold reserves quickly and substantially. If these countries were to agree to introduce a new gold-backed currency, there can be little doubt that they would succeed in changing the balance of world trade.

That said, the US government is watching these countries just as we are, and they are aware of the threat of gold to them.

The US government ostensibly has approximately 8,200 tonnes of gold in Fort Knox, although this may well be partially or completely missing. Additionally, it ostensibly holds a further 5,000 tonnes of gold in the cellar of the New York Federal Reserve building. Again, there is no certainty that it is there. In general, the authorities don't seem to like independent audits.

In fact, there are rumors that the above vaults are nearly or completely empty and that the above quoted figures exist only on paper rather than in physical form. While there is no way to know this for sure, it's not out of the question.

Either way, if the US and the EU could come up with a large volume of gold quickly, they could issue a gold-backed currency themselves. It's a simple equation: The more gold they have = the more backed notes they can produce = the more power they continue to hold. By seizing upon the private supply of their citizens, they would increase their holdings substantially in short order.

Either that or they could just give up their dominance of world trade and power… What would you guess their choice would be?

It is entirely possible that the US government (and very likely the EU) has already made a decision to confiscate. They may have carefully laid out the plan and have set implementation to coincide with a specific gold price.

So how would this unfold? Let's imagine a fairly extreme scenario and ask ourselves if it could be pulled off effectively:

  • The evening news programs announce that the economic recovery is being hampered by wealthy private investors who, by hoarding gold, are skewing the value of the dollar and threatening the middle and poorer classes. The little man is being made to suffer while the rich get richer. A press campaign to equate gold ownership with greed ensues.
  • The government announces the Second Emergency Banking Act, advising the public that "the first EBA was instituted by FDR to solve this same problem during the Great Depression. This act was instrumental in helping the little man 'recover.'" (As the average man on the street doesn't know his history nor how wrong this statement is, he'll believe it. Besides, the announcement has a "feel-good" message, and that's all that matters.)
  • Possessors of gold, who make up a small minority of the population, would become pariahs. It won't matter that the guy who owns two gold Maple Leafs is not exactly a greedy, rich man. No one will wish to be seen as resisting confiscation. Neither will they wish to go to prison for resisting, no matter how remote the possibility.
  • The US pays for the gold in US dollars, which are rapidly headed south. Yes, the Fed will need to print more fiat dollars in order to pay them off, but this suits their purpose, as it inflates the dollar even more. Those who have turned in their gold will do whatever they can to unload the US dollars as quickly as possible and will need to find another investment at a time when there are very few trustworthy investments other than gold. The stock market would likely rise, showing the public how the gold confiscation program is "working."
  • One last scary possibility: The government demands that gold is turned in immediately and that settlement will occur following confiscation. After confiscation, it announces that, as there has been such a large number of cases of rich people ripping off the little man, processing them all could take months, possibly even a year or more. A further announcement states that some investors have made an unreasonable profit on the backs of the poor and that they should not be granted this profit. This profit must be returned to the people. (You can almost hear the cheers of the people.) Then it sets about making assessments. The bureaucrats find that most investors do not have formal, acceptable receipts for every coin in their possession. So if you paid $1,200 for a Krugerrand a couple of years ago, you get paid $1,200. If you bought it at $250 in 1999, you get paid $250. But if you have no receipt in an acceptable form, you get a "fair," median payment, say, $500, regardless of when you bought it.
  • Appeals: Each investor will be allowed up to one year to appeal the decision of the Treasury as to what is owed him. Of course, the investor knows that the dollar is sinking rapidly and that he would be wise to shut up and take what he is being offered.

Again, this hypothetical scenario is an extreme one. The reader is left to consider just how likely or unlikely this scenario is and what that would mean to his wealth.

But bear this in mind: If the above scenario were to take place soon, the average citizen would have mixed feelings. They would be glad that the "evil rich" had been taken down a peg, but they would worry about the idea of the government taking things by force, because they might be next. It would therefore be in the government's interests to implement confiscation only after the coming panic sets in – after the next crash in the market, after it becomes plain to the average citizen that this really is a depression and he really is in big trouble. Then he will be only too glad to see the "greedy rich" go down, and he won't care about the details.

As terrible as the thought is, it seems unlikely to me that the government will not confiscate gold, as they have little to lose and so much to gain.

Those who own gold would prefer to think that this cannot happen, but they have quite a lot riding on that hope and precious little evidence to support it.

It is entirely possible that this scenario will not take place, just as it is possible that confiscation will not take place. The purpose of this article is to spark some serious discussion – both for and against the possibility.

Investors are, by their very nature, planners. It may take a community of investors to develop a legal plan to deal with the above eventuality. Time to get started.

The government can't easily confiscate what's outside its own borders, which is why it's working night and day to make it as difficult as possible for you to protect your assets abroad. This sad reality means that you need to take action before it's too late. Your first step? Learn how to start internationally diversifying your wealth – and your life. From investing in international markets and opening offshore bank accounts to setting up an offshore LLC or annuity, Going Global 2013 will tell you how and where to expatriate your wealth. It also presents solid, up-to-date information on internationalizing your life, from getting a second passport to choosing a good place to live.

Don't allow yourself to be milked by your home government any more. Get started on internationalizing your life today... while it's still possible.

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Jeff Thomas is British and resides in the Caribbean. The son of an economist and historian, he learned early to be distrustful of governments as a general principle. Although he spent his career creating and developing businesses, for eight years, he penned a weekly newspaper column on the theme of limiting government. He began his study of economics around 1990, learning initially from Sir John Templeton, then Harry Schulz and Doug Casey and later others of an Austrian persuasion. In 1999 he began his predictions for a second Great Depression and has since focused his attention on its ramifications and how it would affect the world.
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Yes, the possibility of confiscation is there (Govts done it once) but not everyone has the options mentioned in the article. What do the rest of us do? Hide our gold, deny we have it, then sell or barter it off little by little on the black market?
I have looked and not been able to find how long after executive order 6102 were citizens legally able to start holding gold bullion again. Can someone help me with the answer to this question?
Dec. 31, 1974 is the answer to your question.

It is rather far-fetched to believe that the US will again confiscate gold. In '33 when FDR did it, gold was the backing for the dollar. It has not been backed by gold for nearly 42 years. Nor would the Americans ever voluntarily choose to have a gold backed dollar again. That would be economic suicide on a grand scale. If America could get their hands on 20,000 long tons of gold and each ounce was worth $2,000, China could present about 1/3 of the Treasuries they hold for redemption and leave America with not a single speck of gold dust left at West Point (not Fort Knox or the NY Fed). And China only holds a bit over $3T of the $17T in paper thus far issued.

A far more likely scenario for asset confiscation (and one used by governments previously) would be for the government to mandate that your pension plan invest in T-Bills exclusively. There is so much more wealth held in pension plans than in gold; the only apt comparison that comes readily to mind would be to compare the size of elephants with mice. Such a move would shore up the badly damaged Treasury market (making it possible for the government to keep on running endless budget deficits) and would avert a run on the dollar by foreign creditors.

Confiscating gold makes no sense in this environment. It would make about as much sense to confiscate iron, coal, copper or any other commodity you can name that does not spoil. For a nation with little or no debt, a gold standard could be a good thing. But for a nation with massive debt, having your money backed by gold guarantees a line up at the Fed's gold window. It was precisely this situation that caused Nixon to remove the gold backing of the dollar in 1971.

If you want a clue as to just how likely the author believes in the possibility he raised in this article actually arising, be aware that the report he is pimping will cost you $99, not 2 grams of gold or 4 ounces of silver. He only accepts cash.
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Thanks for answering my question! I do happen to disagree with you on the confiscation part. Even now, our govt is confiscating worthless fiat money by means of inflation. So, if the govt would steal worthless fiat, that leaves no doubt in my mind that if it came down to it, they will be knocking on your door for your gold too.
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While you are perfectly free to disagree with me, your reasoning lacks a certain clarity. You are quite correct about inflation insofar as it diminishes the purchasing power of whatever cash you hold. But that has not helped to enrich the government in any conceivable fashion. It is not like the purchasing power you lose goes into their pocket. One can only make that claim if the dollar was depreciating against other currencies, which it is not, for that would make it less painful for them to continue servicing their mountain of debt....As for fiat money being worthless; if you really and truly believe that, i would be happy to take it off your hands. Heck, i would gladly pay the postage if that would help....As well, let me point out that all national and supranational currencies are of necessity fiat. That goes for paper money, sea shells, gold or anything else ever used to represent money. Fiat simply means by decree and as money is a mental construct, pretty much anything that does not spoil quickly can be used to represent it.

As for the government coming for your gold, it is unlikely in the extreme. It is a well established fact that America cannot go back to a gold standard without drastically devaluing the dollar and i'm not talking some rinky-dink devaluation such as took place in 1933 (about 66%). They would have to devalue the dollar by at least 2,000%. Such a devaluation would lead to foreigners lining up to exchange their almost worthless paper for whatever gold they can get, leaving America with no gold to back their dollar. It would also lead to the sort of civic unrest being witnessed in Syria, as 100s of millions of Americans would be left poorer than the poorest person in sub Saharan Africa. Furthermore, doing so would be a complete abandonment of the one and only thing that the government gives a hoot about and that would be keeping the bond holders happy. Unhappy bond holders would never again buy US debt and without a functioning bond market, America would be so badly screwed that words cannot describe it. For America, it makes way more sense to force pension funds to invest in T-bills. People may not be happy about it, but they would not take up arms against the government as a result and the bond holders would be quite content with that.

So then, as America cannot go back to a gold standard, they have no more reason to come for your gold than they have motive to come for your diamonds and pearls. The only thing of value to them that you have is paper money and they have been getting ever more aggressive in coming for that with raised taxes, new taxes, new and or increased user fees and laws making it harder for you to place your money in a location where it will be safe from them.

What gold bugs do not understand (and it is kind of ironic) is what gold actually is. Gold is not money. It used to be and may again in the future be money. But it is now no more money than are sea shells. Gold is a hedge against government, period. As governments have become terrible stewards of our national currencies, being hedged is prudent.
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Thanks for answering my question! I do happen to disagree with you on the confiscation part. Even now, our govt is confiscating worthless fiat money by means of inflation. So, if the govt would steal worthless fiat, that leaves no doubt in my mind t  Read more
samking73 - 6/10/2013 at 5:19 PM GMT
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