Gold confiscation – it’s a myth that too many gold investors have been caught by in years past. That myth of course is perpetuated by dealers out to make a quick buck. They claim certain coins (i.e. bullion) can be confiscated by the government. Therefore, you should purchase more expensive coins that can’t be.
This little fib has unfortunately influenced many investors – for example, a couple spends $50,000 purchasing gold coins and silver just to find out later on that their investment is only worth around $30,000. These figures of course are just examples, but you get the idea of the consequences this myth has on real people.
While unscrupulous dealers promote this myth, the likelihood of another gold “confiscation” is very remote, if not impossible.
(To learn more about what gold confiscation these dealers are referring to, read our post Beware of Gold Confiscation Myth for more)
It’s important to remember that anything can happen. But according to a report from SeekingAlpha, Americans today should be more worried about exchange controls rather than a physical confiscation – the differences between 1933 and today are pretty stark.
In 1933, the U.S. was mired in a deflationary depression, which is characterized by cash hoarding and a rising dollar value. To drum up business, companies will slash prices in response, which then precipitates layoffs since profits are inevitably squeezed.
In a completely fiat system, the common response to this is to print more money and inject it into the system. This spurs demand, which spurs activity and growth – or so the theory goes.
When President Franklin Roosevelt issued the now infamous order in April of 1933, the U.S. currency was still deeply tied to gold. This meant the government could not expand the money supply. So in order to remove this roadblock, the government confiscated or “recalled” gold coins like the Double Eagle. American citizens had to return their gold to a bank – in return for a 1-oz coin, they received $20.67, or the fair market value of gold at that time.
Once the confiscation was complete, the Gold Reserve Act was passed in 1934, which revalued the gold price from $20.67 to $35 per ounce. This effectively increased the number of dollars required to buy an ounce of gold, which allowed the government to devalue the dollar without resorting to printing.
In reading the Gold Reserve Act, we can surmise the true reason behind the confiscation/recall in 1933 was to devalue the dollar.
Today is different in that the U.S. Dollar, or any other major world currency for that matter, is tied to gold anymore. These currencies freely float against each other. Therefore, the government no longer has to confiscate gold in order to combat deflation. They can simply turn on the printing presses and flood the economy with money.
According to SeekingAlpha’s analysis, a confiscation is also unlikely because it would essentially be a vote of no confidence on the dollar by the U.S. government. A confiscation would bring more attention to financial imbalances, leading most to more openly question the U.S. government’s ability to manage their balance sheets.
In the end, governments and central banks would prefer to manipulate a completely fiat currency rather than saddle themselves with the burdens of confiscating gold. It would be much harder today too since virtually no gold/silver purchases are reported, which is another myth pushed by illegitimate dealers.
Gold purchases are NOT reported, unless you’re paying over $10,000 in cash, or pay for a large order with multiple checks. If you’re like most investors in gold bullion and silver coins, nothing gets reported.
Exchange controls are a more likely threat according to the report, which would limit the ability for citizens to move money and assets in and out of a country and currency. This will effectively keep Americans from dumping dollars in favor of another currency, or another asset.
While we can’t predict the future, we can confidently say that you shouldn’t have anything to worry about in terms of confiscation. Therefore, don’t be taken in by claims of confiscation – you will end up paying a lot more for your gold and silver coins.
