Here’s a question I received today, and it is both quite common and legitimate.
I know you have been a strong physical gold advocate as many on this
site have been as well. I can’t think of a less risky term to store wealth
over the long term.
However, although gold confiscation has been mentioned in a few
articles on the site, I have yet to see you post any comments or opinions.
The biggest risk I see with gold is the confiscation issue. Everyone will
have to decide their own course of action if this comes to pass, but my
question to you is this:
What evidence do you see for or against the reimplementation of a
gold standard and what evidence do you see for or against another round of
Hopefully you can answer. Also, I check your site multiple times a
day, but still I don’t have a chance to see every forum post. Is there any
way you can notify me of a response?
Thanks so much for your time and effort. You have already made a
great positive impact on my family!
All I can offer here is my opinion, as I certainly do not have any better insights than anybody else.
When gold was confiscated in 1933, gold was money. Today it is not. That, in a nutshell, defines why I place the possibility of gold confiscation quite low on my personal list of Things to Worry About.
First, here are the reasons I am not terribly worried about gold confiscation:
- The current official stockpile of gold in the US stands at 261 million ounces. While there is more in private hands, we also have to consider that the US has almost certainly leased a lot of the official gold out, so it is unlikely that there’s a whole lot more than that within our borders at the moment.
- At the current price of $810/ounce, the total value of all the official gold in the US is $211 billion.
- $211 billion is barely two-thirds of the amount that was lavished on Citibank over a single 24 hour period last weekend and less than one-sixth the amount of new money created by the Fed since September.
- Total debt of the US government stands at nearly 50 times as much as $211 billion.
- Total credit market debt of the US stands at more than 230 times as much as $211 billion.
The case I am making here is that the total amount of gold, at current values, is puny and insignificant compared to either the amount of debt or money creation.
And the amount of gold in private hands? An even tinier amount than supposedly exists in the official US stockpiles.
So in the context of current monetary and fiscal policy, gold in the hands of US citizens is not significant enough to merit the distraction and possible legal difficulties that would be required to seize it from law-abiding US citizens.
Well in advance of gold being seized, I would expect 401Ks to have their tax rules amended to pass more funds to the government. I would anticipate enhanced seizure and forfeiture rules, directed at larger pools of money and larger assets. Why? Because that’s where the wealth currently resides.
And here are the conditions under which I will become more concerned that gold forfeiture and seizure rules might be in the offing:
- Gold climbs to some meaningful dollar value that both represents a threat to the perceived value of the dollar and represents a meaningful target for seizure. For me that number begins around $5,000/ounce and becomes critical around $10,000/ounce.
- Some foreign country with a resource we want demands payment in gold. For example, if some oil-producing nation suddenly demands gold in exchange for oil, I would place a very high probability that gold will be seized under the umbrella of "national security."
- A major bank, playing the short side of the paper gold trade, gets caught, is unable to deliver, and faces insolvency as a result. Here I might also expect the rules to suddenly be changed to protect yet another "too big to fail" institution.
- A new international standard of currency exchange arises, based in whole or part on gold. In this scenario I could see all gold in the world being declared off-limits for everybody except for official purposes and uses.
While reason #4 gives me the most pause, I am counting on two things: My ability to see this coming from a long way off, and my ability to sell out at a much higher price prior to it happening.
But the short version of all this is that gold is not money in today’s financial system, and it is a tiny asset compared to other more readily identified and liquid assets. Those, like Argentinian bank accounts in 2001, would presumably become the first targets of a desperate government.
Great question, and thanks for asking!