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Letter Re: Potential for Gold Confiscation in the U.S.?

Hi Jim,
I'd very much like your opinion on this matter. I've been investing in gold and silver bullion for a couple years now. One source from which I made one of my purchases stated that he believed that gold and silver are going to be confiscated from citizens by our government when the economy implodes and that the confiscation will take place soon after an announcement is made without warning, that the face value of the gold will be reset to $42.00, which will be the sum that's reimbursed upon confiscation. He argued that investing in pre-1933 collectable silver and gold was not liable to be confiscated, due to some arcane law that protects coins with numismatic value. He also claimed that the central banks, the IMF, WTO and the Bank of Rothschild, when they conduct their internal audits, do so with their bullion priced at $42.00 per ounce.

Now, I didn't just fall off the turnip truck and I'm old enough to smell a dung pile from a long way off, so his whole argument stinks to high heaven and I'm sure you'll agree. To make matters worse, he claimed that he hadn't sold bullion to anyone in about three years, due to the dangers of confiscation and the subsequent warnings to his customers. He did a lousy job of back-peddling when I reminded him of his eagerness to sell me bullion less than a year ago, which he did (I have the signed receipt). Needless to say, I didn't buy anything from him today, nor will I ever. This certainly doesn't mean
that I think pre-64 silver isn't a very sound investment.

My question to you is what are your feelings on government-conducted gold/silver bullion confiscation? Is this truly a real threat? The dealer claimed that even Dr. Ron Paul has said that confiscation is a real issue (I know it has been done before, in 1933, I believe). My guess is that it will not be an issue, before I sell mine (preferably before the poop hits the prop), however I'd like to hear your side of this. My decisions are my own responsibility, but I do value your opinion. Many thanks for your time. Stay safe, - HHH

JWR Replies: Like you, I think that the talk about a second gold confiscation is mainly hot air. It is noteworthy that most of those touting this "looming threat" are coin dealers that primarily sell rare coins!

With that said, non-numismatic gold coins and gold bullion were indeed confiscated by the FDR administration during the Great Depression. Individuals cold hold no more that $100 face value in gold coins, except for collectible or numismatic coins. (In that instance, they paid everyone $20.67 per ounce in paper money for their gold, and then soon after raised the official gold price to $35 an ounce and realized a handsome profit. Running a national government is quite a racket!) In effect, private ownership of gold bullion was banned in the US from 1933 to 1974.

Nobody can completely rule out a similar confiscation decree during an economic crisis sometime in the future. The safest forms of gold in such circumstances would probably be (in order of safest to least safe): 1.) pre-1933 mint state numismatic mint state US gold coins (MS-60 grade or higher), 2.) low grade "about uncirculated" (AU) pre-1933 numismatic US gold coins (AU-58 or AU-59 grade), 3.) American Eagle gold bullion coins (issued by the US mint, 4.) jewelry grade gold nuggets, 5.) numismatic coins from other countries (such as high grade gold Sovereigns) 6.) gold bullion coins from other mints (such as Canadian Gold Maple Leafs, Chinese Pandas, Aussie Kookaburras, South African Krugerrands, and so forth), and finally, 7.) serialized gold bullion bars from private mints like Johnson-Matthey.

As background: In the numismatic world, coins are graded on the Sheldon Scale, with numeric rankings from 1 to 70. A "1" would be a melted, barely recognizable round lump that used to be a coin. A "70" would be an absolutely perfect fresh from the mint without even a single detectable scratch. Most coin collectors buy coins in the AU-58 through MS-60 to 67 range.

In the midst of all this speculation about a second gold call-in, one thing is almost certain: Silver is far, far less likely to be included in any future confiscation than gold. This is simply because there is too much of it. (It is roughly 17.5 times more common than gold, at least underground.) The logistics of a silver confiscation--that much weight an bulk--would be monumental. Storing the mountain of confiscated silver would also be a huge problem. I suspect that silver bullion bars might presumably be included in a confiscation, but probably not US silver coins. After all, in the eyes of the law, a pre-1965 silver dime is still nominally "circulating" and is worth 10 cents if traded for FRNs. A Village Idiot can still spend silver dimes and quarters at their face value. A few school children do, unknowingly. These both explain why these coins occasionally pop up in circulation.

I earnestly believe that the chance of another gold confiscation is very small. But if you are the ultra-cautious type, then you might want to diversify your portfolio into mostly pre-'65 U.S. "junk" silver coins. Then, depending on the size of your portfolio, perhaps buy a few MS-60 grade pre-1933 mint state US gold coins. (But be advised that by doing so you will be paying a big premium over their bullion value.) Unless you are an expert on coin grading, then be sure to buy only PCGS or NGC certified "slabbed" (plastic encapsulated) professionally graded gold coins. The difference of just one grade number between an MS-64 and MS-65 could double (or halve) the value of a coin. Do not just take the dealer's word on it. Buy only PCGS or NGC slabs!

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