Are They Coming for My Gold?

Aside from questions about the differences between owning mining stocks and exchange traded funds versus physical gold ownership, confiscation is probably the most-asked question I hear from clients and prospective clients.

I addressed mining stocks in an article I wrote in May. You can check it out here.

Perhaps I should address exchange traded funds soon. But today, let us take a look at the threat of confiscation. Are they coming for your gold?

Planting Fear

The reason so many clients are concerned about gold confiscation is because our industry has done a fantastic job over the years of selling fear.

Weak salespeople primarily resort to two things to sell… fear and slashing prices. Rather than building value in what they offer and then offering it at a fair price, weak salespeople either scare their clients into buying something or they cut prices.

Oftentimes, by sowing fear, the greedy salespeople overcharge their clients after they have sufficiently scared them into buying.

One great example of this is with numismatic coins.

Numismatic coin prices are based upon metal content, but they also command a premium due to collectability or desirability. For years, rare coin dealers have pushed the narrative of confiscation to drive clients to buy rare coins at high premiums versus bullion coins and bars at low premiums.

You may have heard the pitch. It goes something like this…

Back in 1933, President Roosevelt signed an Executive Order making it illegal to own gold. You had to turn in your gold and get paid current value or face fines as high as $10,000 and potential jail time. BUT… Rare U.S. gold coins were not subject to confiscation.

So, to make sure your gold is not confiscated by Uncle Sam in the future, you should buy rare U.S. gold coins. Sure, they cost more, but you will be safe from confiscation.
 

And… to be fair, they are correct about the Executive Order, the exclusion of rare coins, and the fact that those coins cost quite a bit more than bullion coins and bars.

But they are completely wrong about the threat of confiscation… the fear trade they are walking you into.

Things Are Different Now

The fear trade narrative omits a few particularly important details.

The fearmongers make it sound as if Uncle Sam wanted your gold. They make it seem holding your gold was the endgame.

But holding your gold in 1933 was simply a means to another end. That was apparent in 1934 with the passage of the Gold Reserve Act. As part of the legislation, the “official price” of gold was changed from $20.67 per ounce to $35 per ounce.

That was a whopping 69% increase in the official gold price. It was also an equal and opposite devaluation of the U.S. dollar. And that, my dear readers, was the ultimate endgame.

And that is something that simply cannot happen today.

You see, raising the official gold price in 1934 resulted in a devalued U.S. dollar because they were freely convertible. The dollar was backed by gold and could be exchanged for gold.

But that all ended August 15^th of 1971 when President Richard Millhouse Nixon closed the gold window… effectively ending the convertibility of gold and U.S. dollars.

So, today, if the U.S. government wanted to devalue the U.S. dollar, confiscating and revaluing gold would have no impact whatsoever. All they would accomplish by confiscating your gold is aggravating the populace and fomenting rebellion.

There is no value in confiscation. There is no endgame to confiscation. There is, therefore, no threat of confiscation.

Rare Coins Versus Bullion Today

In my humble opinion, rare or numismatic coins serve a purpose for your portfolio today. But that purpose is not to protect you from gold confiscation.

Numismatic coins offer diversity to your precious metals holdings. At times, they can offer a greater price appreciation than bullion coins or bars can provide. For the collector, they fill a niche that they alone can fill.

But numismatic coins do not fill the role of wealth insurance. Their high premiums are too much to overcome to properly protect your purchasing power.

Remember, wealth insurance is the store of purchasing power, with high liquidity, for a potential financial crisis you hope to never have.

Numismatic coins are not well-suited for this purpose. The high premiums erode your purchasing power right from the start, and a smaller potential pool of buyers harms your liquidity in times of urgent need.

Bullion is the choice for wealth insurance always.

Once your wealth insurance needs are met – personally, I believe that figure is 10% of net worth – then, you might consider diversifying into rare coins.

DO NOT buy rare coins due to fears of confiscation. And if fear is what your dealer is selling you, it is time to find another dealer.

We respectfully throw our hats in the ring to help you Keep What’s Yours!