The Gold Confiscation Con Scare Tactic To Get You to Buy Gold Coins

Discussion in 'Gold' started by ozcopper, Dec 4, 2010.

  1. ozcopper

    ozcopper Well-Known Member Silver Stacker

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    The Gold Confiscation Con Scare Tactic To Get You to Buy Gold Coins

    By Peter Schiff

    Best Financial Markets Analysis ArticleIf 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.

    Regards,
    Peter Schiff

    Euro Pacific Capital
    http://www.europac.net/

    More importantly make sure to protect your wealth and preserve your purchasing power before it's too late. Discover the best way to buy gold at www.goldyoucanfold.com , download my free research report on the powerful case for investing in foreign equities available at www.researchreportone.com , and subscribe to my free, on-line investment newsletter at http://www.europac.net/newsletter/newsletter.asp
     
  2. Clawhammer

    Clawhammer Well-Known Member Silver Stacker

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    I haven't got Mike Maloney's book on hand so I don't have the estimated percentage of people that surrended their gold for EO6102..but from memory it was very small.

    if it gets bad here we'd have dumb govt hired thugs invading your privacy too.. but if it get that's bad, I'll be long gone.

    That still less than illegal tobacco growers get today. And they're far more visible than someone storing a few ounces of gold to protect their wealth from a corrupt Govt.

    Governments can and have done this in tough times nationalising businesses, property and even the money in your bank account. Local and State Govts routinely resume people's houses underneath them for roads. That's why I am no longer outraged by the Qld Govt. Asset sell-off... if ever they need something, they'll just take it back with some token reimbursement.
     
  3. goldpelican

    goldpelican Administrator Staff Member

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    I'd be more worried about superannuation than personal holdings. We're the world's third largest gold producer - far easier to nationalise a mine's output (even easier to extend, oh, say a resource rent tax payable in gold) than to hunt down a roll of Kookaburras in someone's bedroom.
     
  4. Boyo

    Boyo Active Member Silver Stacker

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    If this scenario of our (possible ) future became reality.Would SS be a magnet for the investigators?
    It's hard to stay "under the radar"when you are part of it ... and proud of it.... :)
     
  5. goldpelican

    goldpelican Administrator Staff Member

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    In what sense?
     
  6. perthsilver

    perthsilver Member Silver Stacker

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    I think it was about 12%.
     
  7. Boyo

    Boyo Active Member Silver Stacker

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    In the context of this community being a target for the powers that be to get some idea of who has PMs

    I do not ,subscribe to the paranoia inherit in this topic,however
     
  8. PerthStack

    PerthStack New Member

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    Most of us lost our stacks in boating accidents, I believe.
     
  9. Boyo

    Boyo Active Member Silver Stacker

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    Ha ha ,PerthStack...brings to mind the notorious 'bottom of the harbour 'tax avoidance schemes of the 70's
    My PMs are all gone too.I buried them and can't remember where ... :)
     
  10. Goldrush

    Goldrush Member

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    That will only work for a little while, than they will get serious and water board you. You will think your are drowning and will give up your stack to save your life.

    Apparently fairly effective in getting hard core Islamic Terrorist to give up secrets so I'm guessing average Joe won't stand much of a chance when he is strapped to the water board. :eek:
     
  11. Clawhammer

    Clawhammer Well-Known Member Silver Stacker

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    It's the other way around up here in Qld, our water board is the terrorist. They're putting up our rates 300% !!! ;)
     

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