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If you've spent enough time in the gold
community, you might be under the impression that the most imminent threat to
the average American isn't terrorism or unemployment, but rather gold
confiscation. Starting with the fact that FDR confiscated gold during the
last Great Depression, and continuing to the quite accurate forecast that we
are headed into an even Greater Depression, unscrupulous coin dealers have
been pushing investors to buy expensive "numismatic" or
"collectible" coins that they claim would be protected from
government seizure. The only problems are that the original motive for
confiscation no longer applies and the "protection" offered by
major coin dealers wouldn't actually help you keep your gold.
THE TYRANT'S
ORDER
In 1933,
President Roosevelt issued Executive Order 6102, prohibiting the private
holding of gold and requiring US citizens to turn over their gold bullion or
face a $10,000 fine ($167,700 in today's dollars) or 10 years imprisonment.
For private citizens, the order listed
the following exemption:
Gold coin and gold certificates in an
amount not exceeding in the aggregate $100 [about 5 troy ounces at that
time] belonging to any one person; and gold
coins having a recognized special value to collectors of rare and unusual
coins.
Seizing on
this "rare and unusual" language, many coin dealers try to convince
unsuspecting customers that regular bullion coins are not safe, and that it
is worthwhile to pay extra for "numismatic" or
"collectible" coins that would be exempt from a Roosevelt-style
confiscation.
CALL THE
MYTHBUSTERS
The reality is that almost all coins sold as "numismatic" or
"collectible" by our competitors are really quite ordinary coins
sold at high mark-ups to make these dealers extra profits. If we were in
1933, these coins would absolutely not fall under the definition of
"rare and unusual."
True numismatics are
extremely rare or one-of-a-kind coins that collectors purchase for their
historical and aesthetic qualities. These coins might retail for $100,000,
while only containing $1,400 worth of gold. Most dealers charge a huge
premium, so the coin may have to appreciate 30-50% before the buyer can even
hope to make a profit. It is a speculative endeavor, and one that is
likely to get even riskier as the US descends further into economic
depression.
True numismatic coins, like pieces of
high art, do well in good times, when people are getting richer and adding to
their collections. In bad times, collectors are forced to sell because they
need cash. With many collectors in the same boat, prices plunge. Even if the
value of the gold in the coin rises, the gold content is only a small
fraction of the coin's value. Since premiums are contracting, the value of
the coin falls. So, if you are buying gold due to fear of an economic
collapse, you should buy bullion, not numismatics.
WHY WAS GOLD CONFISCATED?
In 1933, when Roosevelt issued his infamous order, the United States was
still on a gold standard, meaning every 20.67 paper dollars could have been
"redeemed by the bearer on demand" for a troy ounce of gold. Since
Roosevelt had many public works projects to finance and also may have wanted
to quietly lower real wages to drive employment, he confiscated gold and then
devalued the exchange rate to $35/oz (at this point, the only people who
could "exchange" were foreign governments). Thus, Americans
instantly saw a 40% drop in value for the dollars they held, and the government's
profit was sequestered in something called the Exchange Stabilization Fund,
which could be used by the President at whim without Congressional approval.
Pretty nifty trick, huh?
It's important to note that confiscation
was necessary to Roosevelt's plan because we were under a gold standard.
Gold at that time was widely held throughout the population. If Roosevelt had
devalued the dollar without confiscation, then whatever savings Americans
held in gold would have been immune from this hidden tax. Furthermore, many
Americans likely would have redeemed whatever paper dollars they held in fear
of another devaluation. This could have wrecked the dollar's viability as a
currency.
These rationales no longer apply. In the
aftermath of Roosevelt and Nixon's dismantling of the gold standard, gold is
no longer currency. Most Americans hold their savings in dollars and it is
the only legal tender (which means it must be accepted in payment of all
debts). Thus, President Obama and his buddy Bernanke don't need to confiscate
gold to devalue the dollar and finance excessive spending. In fact, the Fed
has more than doubled the monetary base since the financial crisis started.
WHAT, ME WORRY?
The only reason to fear confiscation is in the case that the federal
government is in default and needs the gold in order to pay off its
creditors. But if it comes to Washington simply stealing our assets at whim,
then why would gold be the only target? At that point, real estate, stock and
bond certificates, and vehicles would be much easier to seize. Gold has been
prized throughout history for its high value-to-weight, making it easy to
conceal and trade under tough political conditions. Consider: you could store
enough gold to care for a small family for six months (approx. 9 ounces) on
the inside of a belt buckle.
Remember, if Washington chooses the
confiscation route, we're talking about a situation of pure pandemonium. When
governments begin abrogating property rights in that fashion, the entire market
mechanism ceases to function. We saw this in the Great Depression as Hoover
and then Roosevelt relentlessly attacked private property and contracts.
If the situation really gets this bad,
you aren't going to trust some government agent with the intelligence of your
average TSA officer to judge whether your coins are "numismatic"
enough to be exempt from confiscation. The best protection in this case
would be to have your gold stored safely at home or off-shore (not in a
safety deposit box at a bank, where it is more likely to be seized).
Even in the
heat of Roosevelt's confiscation scheme, government troops did not break into
people's homes. The singular (failed) prosecution under the order took place
when a New York lawyer tried to withdraw 5,000 troy ounces from Chase Bank.
Ironically, all the gold actually collected by the Treasury was willfully
surrendered in a wave of misguided patriotism, while many
"law-breakers" simply kept their gold - which is why some old coins
escaped the Treasury's furnaces and are still around today.
SHOP SMART
The bottom line is that unscrupulous
dealers use the threat of confiscation as a scare tactic to get you to buy
gold coins at mark-ups well above the spot value of the metal they contain.
While investors buy physical gold for many reasons - lack of counter-party
risk, financial privacy, portability, et cetera - it is principally a store
of value, a way to protect your wealth from the relentless devaluation of
fiat currencies. Your goal as a buyer is to get the most gold possible for
your money, from a dealer you trust. The dealer should make the process
transparent and easy to understand, and deliver a genuine product at the
agreed-upon price.
As a matter of business ethics and fair dealing to our customers, I decided
early on that Euro Pacific Precious Metals would not offer
numismatic coins. To put it simply, I think they are a poor investment
option.
Peter Schiff is CEO of Euro Pacific Precious Metals. Having
spent years encouraging his brokerage clients to buy physical gold, he grew
concerned about the growing number of unscrupulous dealers that tried to
"up-sell" customers to rare or collectible coins with high markups. Peter Schiff's gold coin buying philosophy is to buy for the coin's metal value, not its
claimed "numismatic" value. He decided to open his own firm to
sell investment-grade bullion products at competitive prices. Euro Pacific
only sells reputable, well-known coins that trade on the open market, such as
American Gold Eagles, Canadian Maple Leafs, and Australian Kangaroos. To find out more, please visit www.europacmetals.com or call us at (888) GOLD-160.
Peter D. Schiff
President/Chief Global Strategist
Euro Pacific Capital, Inc.
20271 Acacia Street, #200 Newport Beach,
CA 92660
Toll-free: 888-377-3722 / Direct:
203-972-9300 Fax: 949-863-7100
www.europac.net
pschiff@europac.net
Peter Schiff is
president of Euro Pacific Capital and host of The Peter Schiff Show.
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