Gold Confiscation: A Highly Unlikely Threat

The prolific Gary North at his lengthiest...

Gary North

Sept. 21, 2011

I wish this were not necessary, but articles like this one keep popping up. So, from time to time, I push one of them down. Here is a recent one.

The Greatest Threat to Gold OwnershipIf 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 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 it 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 those 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:

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.
2. "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.

The advisers he consulted are correct. There are lots of other arguments that support them. I shall cover some of these arguments in greater detail here.

The mark of someone who has no clue about gold is that he goes back to 1933, when the USA was the last nation on a gold coin standard. There was a massive depression. Prices were falling. People held gold coins for the same reason that they held currency. Its price was fixed by law. The price would not fall. They did not hold it as an inflation hedge. They held it as a deflation hedge.

The gold newbies then equate that era with ours: inflationary, no trace of a gold standard for 40 years, and a population that does not use gold. In short, they argue from a world in which gold was money, and draw conclusions for a world in which gold has not been money for almost 80 years.

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 is enough reason alone to confiscate.)

You know this guy has no concept of history or money. The world of 1933 was radically different from today.

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

The US dollar is not on the ropes. Its status as the world's reserve currency is challenged only by the euro, which really is on the ropes. http://lewrockwell.com/north/north1033.html

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

I hope no reader takes any of this seriously. It's nonsense. Power over gold has nothing to do with reserve currency status, since no currency is connected legally to gold. You cannot walk into any bank and demand gold for any nation's currency at a fixed rate. This has been the case ever since 1933.

The US 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.

He is arguing for universal hyperinflation in every Western nation. This has never happened. I mean not ever. To argue this way shows an ignorance of history that is astounding. He is predicting the suicide of all Western governments and currencies. It's easier for governments to default selectively on targeted interest groups, such as oldsters, than to commit suicide. He does not understand this.

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.

It's all hypothetical. No nation is anywhere near doing this. No exporting nation would dare do this. It's currency would skyrocket. That eliminates Asia. So, who's left? Latin America? Does he think Brazil is going to introduce a gold coin system? His whole argument is just plan nuts.

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... read more>>