What is Gold Confiscation?
There’s no prospect gold investors find scarier than having their gold confiscated by the government. Even though the risk is incredibly small, the fear still persists and is rooted in history. While this actually happened in 1933 when President Roosevelt had the gold owned by U.S. citizens confiscated, in theory, the risk of that happening now is next to none, as the monetary system is not as directly linked to gold as it was back then.
Or is that a dangerously false assumption?
You may have heard of an infamous gold confiscation case in 2011 when the Secret Service confiscated $20 Saint-Gaudens estimated at $75 Million from a family in Philadelphia. The U.S. Department of Treasury claimed that the gold coins were stolen from the Mint since all the 1933 Double Eagles designed by Augustus Saint-Gaudens were supposed to be melted.
With that said, having in mind the increasing number of terrorist attacks, the uncertain economy and the looming financial crisis, is it possible for the government to confiscate your gold? In this article, we aim to examine this possibility.
The Truth behind the 1933 Gold Confiscation Act
To answer this question, we first have to look into the past and the infamous gold confiscation act issued by President Franklin D. Roosevelt. He blamed the Great Depression on the strong dollar and made a plan to fight it by devaluing the currency. He ordered all private gold to be turned in at $20.34 per ounce. Gold coins with numismatic value were exempt. The price of gold was then raised to $35 per ounce, and as a result of that devaluation, investors suffered a de facto loss of 40%.This resulted in the increase in the government’s gold assets, which stabilized the monetary system. But at what cost?
The gold owners suffered a staggering 40% loss and lost all their gold that they had obtained, ironically, to avoid such a scenario and secure their finances in times of crisis. Furthermore, the possession of gold was made illegal.
However, it is worth noting that in 1933 gold was still the monetary standard. The rates between currencies and gold were fixed, and gold was accepted as an alternative form of payment. In 1933, President Roosevelt ushered in the beginning of the end of the international gold standard.
He closed all the banks and prohibited them from trading or exporting gold coins and bullion. The Trading with the Enemy Act that was enacted during World War I gave him the power to do so and the amendment to that act gave him the authority to do so in times of national crisis, not only war.
Another piece of information that is not as known is that President Roosevelt also confiscated silver bullion, although that was not a legal tender. He used the silver to instate a new type of legal tender: silver coins and certificates. In 1934 the silver confiscation made silver a monetary precious metal, a role that was previously held exclusively by gold. This would remain the case until the 60’s.
Could Gold Confiscation Happen Today?
One thing that makes this scenario less likely to happen today is the fact that gold is not a currency. Back in those days, a dollar was basically a receipt you could exchange for actual physical gold, the actual currency.
Today, the Central Bank sets the currency, and could easily devalue the dollar with a simple push of a button. This was not possible under the gold standard. Back then, the only way to devalue the dollar was to buy off all the gold and raise its price, as the value of the dollar was directly linked to the amount of gold the banking system owned. The amount of dollars in circulation could not be changed unless an equally proportional amount of gold was added to the reserves.
But today, devaluing the dollar is much easier. All it takes is a push of a button, and the Central Bank can add all the dollars they like since they are not limited by the gold standard or other similar physical requirements. Gold is no longer a determining factor in spending, inflating or lending of money. Therefore, governments have no actual reason to confiscate privately owned gold.
One of the main reasons why investors shouldn’t fear gold confiscation is the fact that not many people own gold. In fact, only 3% of Americans own physical gold. Therefore, the amount of privately owned gold is too small to bail the government out of a financial crisis.
In contrast, they have much more interest in gaining control of retirement funds, forcing the owners to hold government issued debt in place of actual finances. The best thing about this scenario (as far as the government is concerned) is that there is no need for actual physical confiscation, which makes obtaining the funds much easier.
For that reason, governments today are more interested in controlling the official currency. While the official currency in 1933 was gold, in 2017 the official currency is the dollar in the U.S. and the Euro in Europe. Governments are interested in controlling the cash flow. That means that you should be more concerned about your savings rather than gold bullion.
The Takeaway
So what happened to that family from Philadelphia?
The story is that the family brought the coins they found in a family vault to the Mint for authentication. The Mint, upon verifying that the coins were authentic, insisted on keeping the coins claiming that they were illegally obtained by jeweler Israel Switt, who left the coins in the family safe.
After a lengthy legal process, the family briefly won the coins back in 2015 on the grounds that Switt may have exchanged his own gold scraps for the coins. However, in 2016 the Third Circuit ruled in favor of the government. The family asked for the Supreme Court to review the case, but with no result. The case is considered closed as of April 21st, 2017.
But this is more of an isolated incident than a general rule. Saint-Gaudens are collectible coins and are not considered the same as modern bullion coins. Their numismatic value also means that they are more expensive than their gold content, historically around 50% to 100% to be more specific. However, today they can be found for a price 25% over the value of their gold content.
Working with reliable gold dealers will ensure you don’t end up on a receiving end of gold confiscation because they are familiar with the current regulations and do thorough research before selling you the gold. Furthermore, investors store their physical gold in private offshore vaults and are not exactly rushing to hand it over to the government. Since Singapore is considered to be one of the safest jurisdictions in the world, it’s the go-to choice for investors from all over the world.
Singapore’s Silver Bullion even has a Nationalization Protection clause which can be enabled, by which the client would give Silver Bullion the right to freeze the gold stored in case there is a nationalization event in the client’s domicile jurisdiction. This means that, even if the client was ‘’forced’’ to ask for their gold bullion back, Silver Bullion would refuse making the delivery until the client comes to Singapore in person.
In this way, Silver Bullion leverages Singapore’s jurisdictional flexibility and offers additional protection to the clients, in addition to providing world-class bullion storage and guaranteeing legal title ownership of the stored bullion to its clients.