Several analysts and
respected members of the gold community have stated that the confiscation of
gold is unlikely because the conditions that precipitated it in 1933
don’t exist anymore. We agree wholeheartedly with that view. But we
feel that the confiscation of gold is extremely
likely for very different reasons.
For the last 40+ year, the
world has used un-backed paper money and attempted to discredit gold. This
system is entirely reliant on the confidence people have in governments and
the central banks that issue money the money (at will). Over the 40 years of
this experiment, gold has gone from $35 to $1,715, a rise of nearly 50 times.
Since 2007 we’ve seen banking crises across the developed world leaving
bankers borrowing money from central banks and lending it back to them,
rather than lend it out into the general economies or in some cases to each
Before we continue, we
would like to stress one point that gold investors must be made aware of.
This is not simply an academic discussion. If we are wrong, you will continue to own your gold with it under
your full control. If we are right and you haven’t acted prudently to
protect against confiscation, you will lose your gold. It’s all about
risks and rewards.
With gold being of a value
far in excess of its price in the monetary system –as seen in its use
as collateral via the Bank of International Settlements currency/gold swaps
of the last few years— and with gold soon to become a level 1 asset on
bank balance sheets, the demand for physical gold from the banking system as
well as from emerging world central banks is set to rise tremendously and
soon. The Basel III discussions allow for this to happen any time between 1
January 2013 and 1 January 2015. If gold is re-rated to a level I asset, as
is proposed by Basel III (U.S. bankers are in on the discussions) then there
is not enough readily-available gold to provide both the central banks of the
world and the banking system with sufficient for gold to play this role.
That’s why your gold
may be confiscated.
The consequential impact
on the gold price is overwhelming. We’re moving into dangerous
financial waters in this regard which reminds us that ‘gold is money in
extreme times’, as Alan Greenspan said. But how? Investors hold gold in
the correct belief that it will rise as the monetary system decays; it has
done this since the turn of the century. When these times arrive, the price
of gold will not be as important as the number of ounces held by anyone.
What most gold investors
have done is to shrug off the probability that they may have their gold
confiscated by their government, ‘in the interests of national
financial security’. Confiscation is far more than just an event that
will hurt individuals. It will hurt institutions (who are allowed to own
gold) and change the world’s monetary system significantly.
Importantly, Central Banks
and the Authorities possibly will not wait for the monetary system to crash
before acting to ensure they have enough gold to keep the monetary system
working. They will act well ahead of that time to make sure they avoid a
collapse and attempt to engineer the event so as to catch gold investors by
surprise, removing their chances of making any contingency plans. With their
prime objective being to shore up confidence in the monetary and banking
system, they could not afford to signal the market about their intentions
beforehand. We are not just talking about the U.S.A. but many other countries
that may precede or follow the United States in these acts.
The trouble is that the
gold they ‘acquire’ may be yours. Wisdom demands that the banking
crises, which have been occurring since 2007, do not happen again because
this time around they may well collapse. Prudence demands that investors
don’t take that risk but act before it is too late. The risks of not
guarding against this eventuality are enormous; the rewards of guarding
against it are massive. If it doesn’t happen, then you will lose little
if anything. If confiscation does happen, then you lose a lot. It’s a
matter of risk and reward.
Julian D. W. Phillips
Standard or Money Supply Expander