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Schiff: Commentary on Gold Confiscation - NOT This Time!

Peter Schiff sent out his most recent report to subscribers this morning and his topic is the issue of government gold confiscation.  He covers some of the history and events that that led to the 1933 government gold confiscation and why this does not pertain to today's market.

This is an important topic that many novice buyers do not fully comprehend.  While I haven't seen any hard numbers on this, my belief is that millions of dollars are squandered each year on PM (Precious Metals) investments by novice buyers who are instructed to buy numismatic coins for security based on "lessons learned" from history.

Many PM dealers (and talk show hosts like Glen Beck) sometimes perpetuate the fear of confiscation which results in increased margins on PM sales, esp. for semi-numismatic pre-1933 gold.  Don't get me wrong, I don't fault those informed individuals who acquire numismatic or semi-numismatic coins for their beauty, historic significance, slight margin, and metal value -- I have purchased a few of these myself, but as I always tell more novice buyers: 
first, decide what your objectives (goals based on economic data and forecast beliefs) are to determine your reasons for owning precious metals; 
and second, match the metal products and quantities of PM you are acquiring to fit those objectives. 

Getting educated or coached by a non-biased source for your specific objectives BEFORE investing can be critical.

Some of the following are considerations when purchasing PM:
  • How PM fits into a diversified portfolio as a commodity asset class.
  • Mix of Metals
  • Type of Metals
  • Form of Metals
  • Amounts of Metals
  • and not least ... the Storage and Security of Metals

If your goal is to acquire and hold ("in hand") metal for the purposes of emergency and or wealth preservation as a hedge against an economic emergency then numismatic coin shopping is NOT your first consideration. In Hand metals should pass, what I call the TDP (Trust, Denomination, Purity) litmus to be an effective hedge.

A Must Read for Novice Buyers:
I agree with the Schiff post below, and I believe many folks would benefit from his understanding, lest they may loose a good percentage of buying power when shorting FRNs to PM at premiums that would cause the L.A. District Attorney to investigate, as in the GoldLine and Monex cases).

I sincerely believe that the government is more apt to confiscate your 401K balance and all your Mountain House freeze-dried food before they come into your property with dogs and metal detectors.  Having said that, don't keep anything valuable in a bank safe deposit box until you read and carefully understand the govermnets right to confiscate anything in it.  Similar to most Fed backed PD market Ponzi schemes today, as long as you can convince your family and friends to buy numismatic coins on the dip, then you can still sell yours and buy more affordable bullion coins that will meet more realistic objectives for owning physical PM. ;)~


The good ol' days:

by Peter Schiff

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.


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.


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.


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.


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.


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's Company Sells Gold and Silver:  
If you would like more information about Euro Pacific Precious Metals, click here or go to their website, For the fastest service, call 1-888-GOLD-160. 

Then there is this plausible theory... 
("Thanks for the Drink / Run don't walk!")

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