Could My Gold Be Confiscated?
A common question that gold investors have is: “Could my gold ever be confiscated?” While the notion of confiscation-whether it is gold or any other property-may cause a degree of anxiety, one must also consider the facts surrounding such an idea.
When it comes to gold ownership and the idea of confiscation, one must also be aware of what has occurred in the past, and what could potentially occur in the future.
This brief guide will provide a short history of gold confiscation as well as discuss some key points pertaining to the possibility of a similar scenario in the future.
The U.S. Gold Confiscation
Modern day fears of gold confiscation are derived from history. On April 5th, 1933, U.S. President Franklin D. Roosevelt signed executive order 6102. This executive order banned the hoarding of gold bullion, coin or certificates within the continental U.S. The order went a step even further, however, and made gold possession by individuals, corporations, associations and other entities a criminal offense.
It is important to note that there were, however, some exceptions to this order. For example, the order exempted gold that was used in specific areas of industry and for art purposes. Gold coins that were considered rare and had special value to coin collectors could also be exempt.
While an individual could legally hold up to $100 worth of gold coin, executive order 6102 as well as additional executive orders led to multiple prosecutions.
Why Was Gold Ownership Banned?
In order to understand the rationale behind the gold confiscation, it is important to view it within the context of that time period. Difficult and extremely challenging economic conditions led to people and entities “hoarding” gold.
The Federal Reserve desired to use a method that is still in use today to battle the tough economic times. They wished to increase the money supply-essentially print dollars-in order to boost economic activity and growth.
The central bank faced a major roadblock, however, as the Federal Reserve Act required 40 percent of all bank notes issued to be backed with gold. This is in contrast to current times, in which central banks can essentially print all the money they want.As the Great Depression began to consume the nation, the central bank was running out of ammunition to fight the slowdown. With limitations on the amount of money that the Federal Reserve could put into circulation, the government had only one choice. It needed more gold in order to increase the money supply.
The government eventually devalued the dollar, while resetting the price of gold to $35 per ounce. The government’s wealth grew rapidly due to the increased value of gold. Monetary gains from the increase in the price of gold were then used to fund various new deal programs designed to get the country on more stable economic footing. It would be three decades before U.S. citizens were allowed, by law, to own gold certificates again. Another decade would then pass before President Ford along with Congress made gold ownership legal once again.
Could Such a Scenario Unfold Today?
Technically speaking, it is possible this could happen again. The government retains certain powers, and one of those powers is the ability to call gold in under specific circumstances such as war or declared emergencies. The laws regarding private gold ownership can vary, however, by nation. While it may be legal in the U.S., for example, it may not be legal in other countries. It is important to have an understanding of what your government’s particular laws may be.
While anything is possible, and this issue is certainly worth consideration, the likelihood of a large scale gold confiscation is slim.
For starters, enforcement of a gold call in could be extremely difficult. Many precious metals transactions today are not reportable, and transactions of this type are some of the most private. Secondly, any country that decides to confiscate gold would in many ways be demonstrating a lack of faith in their own currency. This could potentially lead to rapidly declining currency values and many of the problems associated with declining currency such as inflation, economic difficulties and others.
Perhaps the biggest reason that such a scenario may be unlikely in modern times is that today’s banking systems are very different from those of nearly a century ago. Central banks today have few limitations compared to back then, and have the ability to print money at will. A specific amount of gold is not required, for example, by countries engaged in quantitative easing programs.
While we must stress that anything is possible, it seems that the threat of confiscation today is extremely remote. The idea of confiscation is, unfortunately, commonly used by some precious metals dealers attempting to sell higher premium “collectable” coins to the unknowing public.