Chances of Gold Confiscation
The manager of a gold hedge fund has said that governments in the past have banned owning gold and they could do it again. Mark Mahaffey of Hinde Capital notes that interest in gold soared when the financial markets got the wobbles and he's worried banking interests will see that as a threat and pull the levers of government to re-create something like Franklin Roosevelt's April 5th, 1933 decree calling in gold.
Americans complied for several reasons. The country was on a gold standard and the people received gold-backed paper dollars for their coins at the going rate, $20.67 per troy ounce. The Roosevelt administration made the call-in sound like it was a temporary act because of the financial emergency. Not a word was said about devaluing the dollar after the call in. Besides, silver coins remained in circulation. By surrendering their gold the people thought they were supporting the nation's credit during very tough times.
Is it reasonable to think that if the government demanded that people turn in their private gold hoards that the going rate of more than $900.00 per ounce would be paid? Very unlikely. In 1933 gold was money - by definition. Today it is not, although a U.S. gold eagle coin containing a troy ounce of pure gold is legal tender for $50.00. No rational person would trade a gold coin worth more than $900.00 for an irredeemable paper fifty-dollar note, so a call-in of gold on the basis of its face value would fail.
Then there is the matter of ownership. When the United States Treasury Department mints a one-ounce gold coin and sells it to you for something above $900.00 that bit of precious metal belongs to YOU. The government no longer owns it and has no more legal claim to it than it does the nickels and quarter-dollars that jingle in your pocket. So it could not demand a return of your gold coin to the treasury without paying you full value. The government is broke so its chances of buying up all the private gold hoards in America at market values is extremely remote. There is the further complication of setting a value on foreign gold coins, such as the Krugerrand and Canadian Maple Leaf.
The bottom line here is: The Federal government has no more claim to your gold coin(s) than it does your wrist watch.
Some alarmists believe the government would not be denied should it demand to lay its hands on America's private gold. It could decree that anyone caught with gold coins of any kind be thrown into prison and/or fined. Armed forces and other police might be sent on house-to-house searches. This would turn even tenuous rights to private property upside down, and only timid people who are comfortable being indentured to a governing class anyway would cave in to such ruthlessness.
What is more likely to happen is the current financial storm will eventually lead to a national conversation about returning to some level of gold backing for the U.S. dollar and other major currencies. Whereas the dollar was once worth 1/20th of an ounce of gold its new value might be established as 1/1000th of an ounce of pure gold. To be sure, there would be strong objections of tying the dollar to gold. It would scuttle the grand plans of the political con artists who yearn to get rich by running the paper-money printing press overtime.
We got into trouble by completely abandoning the money system mandated by the U.S. Constitution. It's time we admitted our folly and returned to honest money...a currency that is not only a reliable medium of exchange but also precise standard of measure and a store of value.
October 8th, 2008