Guest Post: Gold Confiscation - Straws in the Wind

Submitted by David Galland of Casey's Report

Gold Confiscation: Straws in the Wind

In the emails that our readers at Casey Research send our way, questions and concerns about the possibility of gold confiscation rank high.

My somewhat standard response is that, yes, it’s possible, but that we should see straws in the wind well before it happened… allowing us to take measures to protect ourselves.

While I don’t want to make too big a deal about it, there have been clear signs of late that the U.S. government is taking an unhealthy interest in your gold.

My recent article “I Smell a VAT” touched on one such straw. The relevant point being that, thanks to a regulation slipped into the healthcare legislation, coin dealers – and all businesses, for that matter – will have to begin reporting any purchases of $600 or more from anyone, including clients selling back their gold.

While I think the overriding intent is to pave the road for the implementation of a value-added tax (VAT), there’s no question that the legislation simultaneously paints a target on the back of the free trade of precious metals.

Then, a couple weeks ago a friend sent me a copy of Mother Jones, an a unapologetically “progressive” mouthpiece with a cover story titled “Glenn Beck’s Golden Fleece.”

And friend and correspondent Lowell sent along an article with an embedded video link to an lengthy ABC News “investigation” by Clintonista George Stephanopoulos that picks up on the Mother Jones story.

Now that you’ve watched the video – and if you don’t, some of what follows won’t make any sense – I’d like to share some observations based on personal experience.

About Coins

Years ago, I headed up the publishing division of a company (that will go unnamed) with a separate division selling coins. I was there when the coin business started, and while not involved, was impressed at its rapid growth in the heady days of the 1970s gold bull market.

Then something happened. While the founder was a strong advocate for hard money and sincere in his intent to do the right thing by his customers, as the coin business grew, he increasingly recruited “professional” managers to run the firm – hired guns whose sole focus was boosting the bottom line and, by so doing, their bonuses. And the business hired more and more “professional” salespeople – the sort of folks who know how to squeeze a client good and hard.

As the company’s sales soared, fueled by hard-hitting marketing, the founder’s good intentions began to weaken under the onrushing flood of cash that began to wash in. In time, the entire conversation at the coin division switched from “What’s good for the customer?” to “What coins can we sell with the biggest mark-up?”

On those occasions when I was invited to comment on what was going on, I did what I could to argue against the corporate culture that had developed, but my impassioned and increasingly angry fights with the managers of the coin division couldn’t win out over the millions in profits being made. As much as I enjoyed my job, the situation became so degraded, I had no choice but to resign.

Now, let me be clear. The company broke no laws and, in fact, did nothing that I suppose most businesses on to a good thing might not do; marketing was generating lots of prospects, and the sales force was selling.

The problem was that the product line had moved from selling highly liquid government-issued gold and silver bullion coins to selling illiquid “modern rarities,” an oxymoron if there ever was one. Whether “proof” Mexican silver dollars, “treasure” coins, or privately minted commemorative coins, the one thing you could be sure of was that the mark-ups were huge.

Which meant that, in the absence of an active collectors market – which, when it comes to “modern rarities,” just doesn’t exist, and never will – the coins were very unlikely to ever provide a reasonable return on investment, let alone be a good asset to preserve capital. Quite the opposite, they were almost certain losers.

Buyer Beware

In the ABC video, you’ll hear a sound bite from a client of Goldline who spent $5,000 on “collectible” coins, saying that he wanted to buy bullion, but that the sales guy “kinda, sorta talked me into buying these other coins.” Soon thereafter the buyer decided to sell those coins and, when he did, he took a 42% loss. Which, he points out, was a big hit to his net worth.

You can probably spot all the things wrong in that paragraph, but I’ll do it anyway. 

First, the disgruntled former client says he was looking to buy bullion coins, but the sales guy switched him to a “collectible.” Whose fault is it that he allowed himself to be swayed? Quoting Nancy Reagan, when dealing with a salesperson, often times the best thing to do is “just say no.”

Second, if taking a loss of about 42% on an investment of $5,000 really hurts his net worth – he shouldn’t have been buying illiquid coins in the first place.

Third, buying any “collectible,” or pretty much any asset, at full retail and then turning right around and selling it, is invariably a sure-fire ticket to a quick loss.

Finally, who is to say that the coin dealer that bought the coins off the client didn’t lowball him? That, too, is part of generating a profit in the coin business.

While I feel sorry for the former Goldline client, he really can’t blame anyone but himself for that loss. He didn’t do his homework or stick to his guns when the salesman tried to move him up to a higher-margin product line.

As for the company, I don’t know them, but I do know that they spend a lot on marketing and celebrity endorsements. It doesn’t take a genius to figure out that money has to be recouped from somewhere – specifically, the clients. Which is why I strongly suspect that, yes, the company’s salesmen are especially aggressive. And that they try very hard to load their clients up with high-margin coins.

Let me recap some lessons from this article, and based on my own brush with the business.

First, if you’re going to become a coin collector, don’t think you can stumble into it and enjoy any measure of success. Do your homework – then do some more – before actually laying out your hard-earned cash. Fortunately, there are a lot of useful resources out there for you to rely on… pricing guides, auction results, and numismatic groups, to name just a few.

More important, however, is that if you are not going to be a collector, then stay away from anything but U.S. or Canada-minted bullion coins, or bullion bars issued by the widely acknowledged mints such as Johnson Matthey.

Will the bullion products be exempt from confiscation, should it come to pass? No. But trying to avoid confiscation by dealing yourself into a large loss right out of the box by overpaying for an illiquid pseudo-collectible is just silly… no matter what the sales person tells you.

What’s in the ABC Video That Should Concern You

While imminent confiscation isn’t really addressed in the ABC exposé of Goldline, there were some things that caught my eye as worthy of further reflection.

The first was the contention by the appropriately named NY congressman, Anthony Weiner, that it was ludicrous to suggest that the government could ever just confiscate a person’s gold. Excuse me? Deep breath. If the Weiner were to repeat that contention to my face, the conversation might roll out something like this…

“What!?! Did you actually just say what I think you said?”

“Why, yes, David, I did.”

“Are you kidding?”

“Why, no, David, I am not.”

“So, a government that can invade countries on false pretenses… arrest people and throw them into prison camps and hold them indefinitely without trial… whisk suspects off to foreign countries to be tortured… hit targets in sovereign nations on the other side of the globe with missiles fired from drones… declare imminent domain to take private property in order to give it to a hotel developer… confiscate homes because someone on the property, maybe not even the owner, is caught with a marijuana cigarette… freeze the bank accounts of anyone suspected of a crime, then not let them use their own money to defend themselves… offer known criminals, murderers even, ‘Get out of jail free’ cards if they testify against someone else… but they wouldn’t confiscate gold? Oh, and by the way, Roosevelt already did it once, you moron!”

“Who are you calling a moron? Security, we have a problem.”

Another deep breath. Pat hair back into place and resist urge to apply my forehead to the keyboard.

But enough of Mr. Weiner.

The second thing that should concern you – and the EVP of Goldline tossed Stephanopoulos a soft pitch down the middle on this one – was when he mentioned that his salesmen have instructions to “advise” their clients on the best sort of coins to buy. Paraphrasing Stephanopoulos, “But your people aren’t licensed as investment advisors, are they?”

No, but I suspect that, if this witch hunt continues, they may soon have to be.

Especially because a congressional committee has been set up to investigate this serious matter. Surprise, surprise, the co-sponsor of the committee is none other than Congressman Weiner. Apparently he was chosen for this particular bit of dirty work. While all of this may be nothing more than grand standing and bare-knuckle politicking, any time Congress gets involved, pretty much anything can happen; keep your eyes open for a fresh assault on the gold coin industry.

And, finally, the thing that probably concerns me most is that, whatever else he is, Glenn Beck is a highly visible and apparently effective critic of the current administration. Having failed to knock him off the air by unleashing a well-financed boycott that chased away many of his advertisers, it appears the Democrats are now pursuing their vendetta against Beck by attacking the business practices of the show’s largest sponsor. No matter what your opinion is of the man, this sort of determined government-backed assault should make your antenna go up.

Is Goldline an angel? Based on my experience with the industry, probably not. But in this case, I’m not sure that that matters as much as that they sponsor Beck’s show.

A Final Word – on Confiscation

Do I think confiscation is imminent? No.

But I do think that the straws in the wind point to yet more regulation. This could ultimately place gold dealers under the watchful eye of the SEC or some other Frankenaucracy that emerges out of the new financial reform legislation.

I am not a fan of regulation – even if it sounds like a good idea. For instance, to protect the ignorant from predatory salesmen. My rationale is that this is not a perfect world and never will be. Humans can and will find a way around every rule (witness the fact that Madoff, the former head of the NASDAQ, was able to scam billions off clients). Therefore, the sooner the citizenry learns that they have to rely on their own common sense – and actually educate themselves – before reaching for their wallets, the better. Having an implied government blessing over every transaction does nothing but create a false sense of security.

But that’s just my particular, and some think peculiar, world view. Back in the world we live in, any new regulations will, if nothing else, assure that any private transactions between you and your favorite coin dealer will become a thing of the past. The new reporting requirement on purchases of over $600 pretty much makes that a reality.

With this new layer of reporting in place, should the sovereignty come to the conclusion that it, versus you, should be in possession of your gold – they’ll know whose door to knock on.

Of course, we can’t know if and when such a thing might occur… but to pretend it can’t is to be naïve or, in the case of Weiner, disingenuous.

In my article, “I Smell a VAT,” I touched on some ideas for how you might protect yourself from a possible gold confiscation (none of which involved buying overpriced coins.

There is one other option I didn’t mention – expatriate. Many of the happiest people I have met in my life have their passport from one country, residency in another, and money/gold in a third.

Comments

[RockyRacoon]

The 1933 law was toothless and everyone knew it, but it was successful in damping gold use in the general economy.   A law concerning silver could have the same effect on miners, smelter, and large dealers.  It would be unlikely to have any real effect in the general economy however.  What are they going to do, arrest farmers for trading a bushel of corn for a Franklin half dollar?

[Azannoth]

Sure they would, they have been aresting farmers for selling milk and eggs!(without a licence)

[RockyRacoon]

OK.  You're right.  I gotta get some reality based outlooks.  Thanks.

[DosZap]

Anyone who keeps jewelry,or cash,or PM's,anything of $$ value, in a Bank SD Box in the USA is nutso.

[RockyRacoon]

Safe deposit box seizures

According to a folk rumor on the internet President Roosevelt ordered all the safe deposit boxes in the country seized and searched for gold by an I.R.S. official. A typical example reads:

    By Executive Order Of The President of The United States, March 9, 1933.

    By virtue of the authority vested in me by Section 5 (b) of the Act of October 6, 1917, as amended by Section 2 of the Act of March 9, 1933, in which Congress declared that a serious emergency exists, I as President, do declare that the national emergency still exists; that the continued private hoarding of gold and silver by subjects of the United States poses a grave threat to the peace, equal justice, and well-being of the United States; and that appropriate measures must be taken immediately to protect the interests of our people.

    Therefore, pursuant to the above authority, I hereby proclaim that such gold and silver holdings are prohibited, and that all such coin, bullion or other possessions of gold and silver be tendered within fourteen days to agents of the Government of the United States for compensation at the official price, in the legal tender of the Government.

    All safe deposit boxes in banks or financial institutions have been sealed, pending action in the due course of the law. All sales or purchases or movements of such gold and silver within the borders of the United States and its territories and all foreign exchange transactions or movements of such metals across the border are hereby prohibited.

    Your possession of these proscribed metals and/or your maintenance of a safe deposit box to store them is known by the government from bank and insurance records. Therefore, be advised that your vault box must remain sealed, and may only be opened in the presence of an agent of the Internal Revenue Service.

    By lawful order given this day, the President of the United States.

    Franklin Roosevelt – March 9, 1933

Examination of the actual Executive Order as issued shows that this text never appears in it. In fact, safe deposit boxes held by individuals were not forcibly searched or seized under the order, and the few prosecutions that occurred in the 1930s for gold hoarding were executed under different statutes. One of the few such cases occurred in 1936 when the safe deposit box of Zelik Josefowitz, who was not a U.S. citizen, containing over 10,000 troy ounces (310 kg) of gold was seized with a search warrant as part of a tax evasion prosecution.[7] In 1933 approximately 500 tonnes of gold were turned in to the Treasury "voluntarily" at the exchange rate of $20.67 per troy ounce.[8]

The U.S. Treasury came into possession of a large number of safe deposit boxes due to bank failures. During the 1930s over 3,000 banks failed and the contents of their safe deposit boxes were remanded to the custody of the Treasury. If no one claimed the box it remained in the possession of the Treasury. As of October, 1981, there were 1605 cardboard cartons in the basement of the Treasury each containing the contents of an unclaimed safe deposit box.

http://en.wikipedia.org/wiki/Executive_Order_6102

[Pillage]

APPLICATION to be a contributor:

1. Can you post images? ______

2. Can you show up at opportune times and mock other contributor's posts? _______

But you promised Jim!

http://www.webtvwire.com/wp-content/uploads/2009/04/alf.jpg

[hamurobby]

Thats funny right there, I dont care who ya are.

row row row your bot...

[beastie]

Guys,

There will be no confiscation except and the point of exit. VAT will probably happen but it will not make a difference to any gold holder unless we are talking large quantities. Ever hear of pieces of eight?

Take a gold coin and cut it up until the pieces are less than $600. Problem solved.

[Big Corked Boots]

Or, buy an electric furnace (about $500-650 on ebay last I looked) and some ring molds and go into "bidness." Those low-premium ounce bars will become bling in no time.

[Dolar in a vortex]

Eminent domain.

[CrazyCooter]

Hmmm, isn't this a similar vein with regards to bi-metalism when the US established the coin act of 1792 (e.g. control of the currency)? If gold is squeezed, folks will use silver. Or Copper. Or god knows what else. Its a failed policy from the get-go.

Personally I am buying Silver Eagles at 3 over spot for a while now ... I think silver has a lot more upside than gold (1) because its is affordable and (2) its well under the $600 limit unless I really really make some ROI. I dont mess with bars or anything else simply because I want (1) legal tender and (2) instantly recognizable coins.

In the big scheme of things, this is just another link in fiat dam.

Cooter

[Jake Lamotta]

Come and get my gold but you'll have to say "hello to my little friend" & his name is MR UZI and i can tell you he ain't japanese but loves to make sushi!

[iota]

UH! *beatboxes*

[Sudden Debt]

confiscation or not. I bought my stuff from every big country but my own.

Import them so there's no trace from 4 to 5 sources.

I did.

[Shiznit Diggity]

The Feds thank you for publicly reporting your gold holdings. Your name has been added to the list of prospective confiscatees.

[nmewn]

"The Feds thank you for publicly reporting your gold holdings. Your name has been added to the list of prospective confiscatees."

Well, here's the thing about stupid lying statist's.

They always stupidly assume everyone else is not lying...and they assume what is here today will be here tomorrow...because, well, they're statist's...LOL.

[DosZap]

SD,

How did you make payments?.Where they close to, or over $10k?.If so, your legally req'd to report the purchases.

[Sokhmate]

David Galland's peculiarity and/or particularity are, practically, appreciated.

[Sokhmate]

I wonder what the global ramifications would be if the OOh Ess Aah Guavamint starts to, technically or in actuality, confiscate its peasantzens' gold.

[simon says]

They will not confiscate gold like in 1933 because our currency is not gold-backed.  The justification ("national interest") for confiscating gold in 1933 was that gold was leaving the US leading to a massive deflation.  FDR had to confiscate so he could get off the Gold standard.  There is no justification today for the Govt to confiscate gold because it does not solve any of its fiscal problems by doing that.  It might as well plunder your home and steal your cattle - its just as random to confiscate gold.  This is the USA folks - ain't happening here.

What the US does have to worry about is an underground economy which develops because of inflation from a breakdown in the supply chain for basic goods and services combined with massive money printing by the Fed so the Govt can meet non-discretionary (and discretionary) expenditures.  In such an economy, precious metals become the medium of exchange because of stability of value.  The challenge for the Govt will be to find a way to tax this underground economy - that is how they will invade private citizens' lives.  It won't be pretty.

[Azannoth]

"This is the USA folks - ain't happening here." - The best fuking laugh I had in a week !

[Azannoth]

Where you living under a rock or in a coma the past 10 years ? Because you sound like you still thought we had the 1990s

[ColonelCooper]

What the US does have to worry about is an underground economy which develops because of inflation from a breakdown in the supply chain for basic goods and services combined with massive money printing by the Fed so the Govt can meet non-discretionary (and discretionary) expenditures.  In such an economy, precious metals become the medium of exchange because of stability of value.

Your own post contradicts itself terribly.  If they can tax an economy, it is inherently NOT underground.  The entire reason to take it in the first place is to stop the max exodus from fiat into PM, and underground thereafter.

[RicktheDick]

Confiscation is a possibility, but the bigger dilemma would be government intervention to drive out speculators and deflate the price. 

[primefool]

Why inur the headaches of chasing after small retail gold holders? Far better to create a vehicle for acumulating gold , call it, say, GLD ( for laughs). Current market cap around $50Bil. ben could buy this entire stash out without breaking a sweat.

[DosZap]

This was buried in the Health Care Scam, and the DemoNcrats are running from the 1099R $600.00 limit like scalded dogs.

They are screaming they will get this provison OUT, as they (AS usual) never thought how costly, and onerous the prices would be on every sector of the economy..............

That said, we shall see.......but, for now their running scared, and if the GOP takes control, along with some new real red blooded conservatives, this will never see the light of day.

If Obama's team suceeds in controlling both, sell your stuff, and get ready to move.

All that will be left are Serfs, and Progressives.

[RockyRacoon]

...and you live, where?

[Ace Ventura]

If the GOP takes control, all that will happen is the throttle will be retarded to 'Warp 5' from the current setting of 'Warp 7'. Course will not be reversed, we're still headin' for the black hole.

And it will likely only be a temporary slowdown. It's entirely possible that something could 'happen' within the next two years which 'forces' the 'new' bosses to advance the throttle to Warp 8, 9, and finally....Ludicrous Speed.

[mynhair]

A straw in the wind would be forced investment of retirement funds into USTs.

That ain't dead yet, BTW.

[DonutBoy]

I looked at numerous firms before beginnng my purchases of gold and silver, includng Monex, Goldline, APMEX, and a local store (Irvine Gold Mine) where I could conduct cash transactions.  I narrowed it to Goldline, APMEX, and the local store based on Better Business Bureau ratings.  I've made purchases from all three - perfectly satisfactory.

Whenever I talk to someone at Goldline - they do try to move me to a "collectible".  I am not interested in becoming a collector, I am interested in having a portion of my wealth having: 1) zero counter-party risk and 2) immediate recognizability if this goes south.  As soon as Goldline realized this they changed me from one of their 'senior account managers' to someone who just takes the phone orders.  I understand, they get no real profit from the transaction.  It causes me no grief, but I would not be surprised if people end up owning collectibles without ever having intended to get into them.

My favorites are APMEX and the local store.  I pay a bit more at the local store and I walk out with my coins.

[Blano]

Just curious.  If the guvmint "borrows" it from you to store somewhere "safe," is it really confiscation??

[RockyRacoon]

You mean like put it in a "lock box" like your Social Security payments?

[Blano]

Chuckling......yeah, something like that. 

[honestann]

Absolutely, positively YES.

[honestann]

The author is mostly correct, but he makes the same HUGE mistake that many liberty advocates do.  Call it the "let the buyer beware" error.  Their attitude is essentially, "the seller can blatantly lie, scam, mislead, misrepresent to potential customers, and if they aren't savvy enough to figure out his scam, they DESERVE to be defrauded".

I utterly reject this notion.  Fraud is a serious crime.  In fact, fraud is one of the 3 fundamental crimes:

#1: harming or killing another human.
#2: harming or destroying another human's property.
#3: fraud or mischief in your contracts/transactions.

Someone who sells a product 40 hours per week, in an organization full of people looking for ways to lie, cheat, trick, scam, mislead and defaud their customers in the most effective ways --- is massively better prepared to take advantage of customers who inherently CANNOT spend nearly as much time, focus or effort on each product or service they buy.

I so cringe every time I head liberty advocates state the opinion this author stated.  Fact is, I tend to have exactly the reverse attitude... that BECAUSE the seller knows what he is selling much more clearly than the buyer, he is obligated to make a significant effort to explain every relevant aspect of the products he offers.

At root, the primary benefit of "free market" is optimizing value and efficiency for everyone.  But this can only happen when everyone involved in a transaction is clearly aware of the nature of every element of the transaction.  Then everyone can make the very "best" trades/exchanges/transactions, where "best" means "having the largest aggregate benefits to both/all parties".

I always go out of my way to make clear exactly what are my products, including all their benefits AND limitations.  I don't want anyone to buy my product and be unhappy later.  I want them to be thrilled.  I'm revolted at the notion that business SHOULD BE an attempt to mislead and scam others.  Shame!

[nmewn]

"I am not a fan of regulation – even if it sounds like a good idea. For instance, to protect the ignorant from predatory salesmen. My rationale is that this is not a perfect world and never will be. Humans can and will find a way around every rule (witness the fact that Madoff, the former head of the NASDAQ, was able to scam billions off clients). Therefore, the sooner the citizenry learns that they have to rely on their own common sense – and actually educate themselves – before reaching for their wallets, the better. Having an implied government blessing over every transaction does nothing but create a false sense of security."

Or another predator in sheep's clothing.

"But that’s just my particular, and some think peculiar, world view."

Not at all.

Excellent article...and thanks for the heads up on Wanker...errr...Weiner;

"Especially because a congressional committee has been set up to investigate this serious matter. Surprise, surprise, the co-sponsor of the committee is none other than Congressman Weiner. Apparently he was chosen for this particular bit of dirty work. While all of this may be nothing more than grand standing and bare-knuckle politicking, any time Congress gets involved, pretty much anything can happen; keep your eyes open for a fresh assault on the gold coin industry."

[bdrichards]

For those of us residing in the United States there is already a law in force to confiscate 28% of the capital gains on the sale of gold. It would be much easier to just raise the capital gains tax to 80% rather than stir up emotions by ordering the citizenry to turn in their gold coins.

[onlooker]

My mother was discussing her childhood and this was in the story. School children were told that their parents would go to jail if they did not turn in their gold. Her father had made the statement to his family that he was not turning in his gold. After learning that her father would go to jail, my mother rushed home from school most upset and pleaded with her father to turn the gold in. Kilgore, Texas during the oil boom.

[the grateful un...]

so you go to germany where you can buy gold out of a frickking vending machine. confistace that assholes!!

[Melson Nandela]

Going to have a look around the Gold Souk in Dubai, or go straight to the source for Krugerrands in Johannesburg. Some real Paul Kruger gold, cool stuff. Store them in a secure undisclosed location without any extradition treaties.

Now that's insurance!

[Hook Line and S...]

The $600 1099 has the dealers of physical on edge. Several have relayed to me that they are closing the PM 'portion' of their business if its not repealed. Without it, it's just too much paperwork for the quantity and profitability of each transaction. Get ready to trade the way of the mole soon. Make your handshakes now, and consider sending a package or two now (not tomorrow) to a 'reliable' outside the wire. 

[sbenard]

Anyone -- what size gold coins can I buy that are LESS than $600? 1/4 ounce?

Why do I have a hunch that 1/4 ounce gold bullion is going to surge in sales?

[sbenard]

Weiner -- Obama's lap dog!

[Herry12]

I found lots of interesting information here. I love zerohedge.
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