The Confiscation Con
If 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 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?
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.
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.
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.
Peter Schiff is CEO of Euro Pacific Precious Metals. Having spent years encouraging his brokerage clients to buy physical gold, he grew concerned about the growing number of unscrupulous dealers that tried to "up-sell" customers to rare or collectible coins with high markups. Peter Schiff's gold coin buying philosophy is to buy for the coin's metal value, not its claimed "numismatic" value. He decided to open his own firm to sell investment-grade bullion products at competitive prices. Euro Pacific only sells reputable, well-known coins that trade on the open market, such as American Gold Eagles, Canadian Maple Leafs, and Australian Kangaroos. To find out more, please visit www.europacmetals.com or call us at (888) GOLD-160.
to buy Peter Schiff's best-selling, latest book, "How
an Economy Grows and Why It Crashes." For a look back at how Peter
Schiff predicted the current crisis, read his 2007 bestseller
"Crash Proof: How to Profit from the Coming Economic
here] More importantly, don't wait
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to buy Peter Schiff's best-selling, latest book, "How
an Economy Grows and Why It Crashes."
For a look back at how Peter Schiff predicted the current crisis, read his 2007 bestseller "Crash Proof: How to Profit from the Coming Economic Collapse" [buy here]
More importantly, don't wait for reality to set in. Protect your wealth and preserve your purchasing power before it's too late. Discover the best way to buy gold at www.goldyoucanfold.com, and subscribe to our free, on-line investment newsletter.
Mr. Schiff is one of
the few non-biased investment advisors (not committed solely to
the short side of the market) to have correctly called the current
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stock market, commodities, gold and the dollar, he is becoming
increasingly more renowned. He has been quoted in many of the
nation's leading newspapers, including The Wall Street Journal,
Barron's, Investor's Business Daily, The Financial Times, The
New York Times, The Los Angeles Times, The Washington Post, The
Chicago Tribune, The Dallas Morning News, The Miami Herald, The
San Francisco Chronicle, The Atlanta Journal-Constitution, The
Arizona Republic, The Philadelphia Inquirer, and the Christian
Science Monitor, and has appeared on CNBC, CNNfn., and Bloomberg.
In addition, his views are frequently quoted locally in the Orange