Is Your Gold Safe from Government Theft?

Money Morning reader Stephen alerted us to the following story from Malaysia:

“A former air steward and two Nepali construction workers were charged in the magistrate’s court here today with kidnapping a security company director and demanding a ransom of 10 gold bars worth RM1.44 million early this month.”

Two days ago the Financial Times wrote:

“The Libyan central bank – which is under Colonel Gaddafi’s control – holds 143.8 tonnes of gold, according to the latest data from the International Monetary Fund…

“Those reserves, among the top 25 in the world, are worth more than $6.5bn at current prices, enough to pay a small army of mercenaries for months or even years.”

The Sydney Morning Herald picked up on the story too.  It quoted Walter de Wet, head of commodities research at Standard Bank:

“If a country like Libya wants to make their gold liquid it would probably be in the form of a swap – whether for arms, food or cash.”

On Monday I mentioned another article printed in the FT:

“Iran has bought large amounts of gold in the international market, according to a senior Bank of England official, in a sign of how growing political pressure has driven Tehran to reduce its exposure to the US dollar.”

And how other media had reported these stories:

“The family of ousted Tunisian President Zine El Abidin Ben Ali has reportedly fled the country with 1.5 tons of gold worth more than 45 million euros.”

And this:

“Gaddafi’s own private plane is loaded with gold bullion and lots of hard currency…”

Then there’s this article from the Sydney Morning Herald yesterday:

“A gold bar and foreign cash have been stolen from a luxury hotel room at The Rocks in Sydney, police say.”

Finally, this report from the Mountain Xpress, North Carolina:

“Attempts to undermine the legitimate currency of this country are simply a unique form of domestic terrorism.  While these forms of anti-government activities do not involve violence, they are every bit as insidious and represent a clear and present danger to the economic stability of this country.”

The quote is from US Attorney Anne M. Tompkins.  The “insidious” crime was committed by Bernard von NotHaus.  His crime was to issue a competing currency to the US dollar that was based on gold and silver.

In a video he claims the Liberty Dollar’s “value is actually determined by the people who use it.”

Which isn’t so crazy is it?  I mean, that’s how money should be.  Think about it, you’d want to protect the value of your money if you could.  You’d want the value of your dollar to remain strong.

I mean, you wouldn’t deliberately devalue it would you?  You wouldn’t voluntarily cut a gold coin in two and throw one half away.  If you did, all you’d do is devalue your wealth.  You would have less purchasing power.

But in effect, that’s exactly what happens when the money supply is inflated.  It has the effect of devaluing your money.

That’s what I’d call insidious.  Because when the money supply is quietly inflated by the central bank and private banks, you don’t realise your dollar is worth less until it’s too late.

But more important than that, do you see a pattern in those news items?

Right, it’s the linking of gold ownership with criminal activity.

Middle Eastern dictators and gold.

Kidnapping, ransom and gold.

Theft and gold.

Mercenaries and gold.

“Domestic terrorism” and gold.

It’s clear – and has been for a long time – that there’s a concerted effort by the ruling elite to demonise gold.  And not surprisingly, the goons in the mainstream press fall for it hook, line and sinker.

Gold and silver are a worry for governments and central bankers.  The aim of monetary inflation is to assist the banks with the expansion of credit.  And governments like monetary expansion because they get their hands on the money first, plus it results in increased tax revenue.

That means governments can hand out cash as they please to their favourite special interests.

But the key to monetary inflation is that it must never stop.

The inflating must continue for ever.  Because as soon as the money supply begins to contract, the bubbles that were inflated by the monetary expansion pop… tax revenues fall… asset prices fall…

And governments and banks are left with a whole bunch of liabilities they can’t possibly honour.

In contrast, one ounce of gold is still one ounce of gold, regardless of how much a central bank inflates.  But, thanks to the inflation the one ounce of gold becomes more valuable.

That’s bad news for the inflationists.  The whole point of inflation is that it benefits one group at the expense of another.  But if people hold gold, the inflationists don’t get the full bang for their buck from inflating the money supply.

Hence the demonising of gold.

Of course, none of this happens quickly.  As Dan Denning wrote in his latest issue of Australian Wealth Gameplan:

“You can never be sure what the authorities will do to prevent the share market from falling or gold from rising.  They may raise margin requirements on speculators (as they have done all year).  Or they may raise capital gains tax rates on short-term holdings.  Or they may limit the choices you can make with your retirement assets in numerous other ways.”

In other words, those in power will use any method necessary in order to keep inflating the money supply and asset prices.

And ultimately, in a last act of desperation it will lead to the confiscation of gold.

It couldn’t happen you say.  Don’t forget it has happened in the United States… under Executive Order 6102:


Source: Wikipedia

In an act that can only be described as government theft of private property, the US government confiscated all private holdings of gold.  In return the government handed back USD$20.67 per ounce – the current gold price at the time.

That’s bad enough.  But what did the government do next?  Well, one year later it devalued the dollar so that gold was now worth USD$35 per ounce.

Who gained from that?  That’s right, holders of gold… the government.  Who lost out?  The individuals who handed over their gold and only received USD$20.67.  If they then wanted to buy back the same amount of gold, they would have to pay nearly twice what they had received – which they couldn’t anyway, because holding gold was illegal.

But don’t think it couldn’t happen here.  Perhaps you’re not familiar with Part IV, sections 40-46 of the Banking Act 1959.

At the moment, Part IV is dormant.  That means it isn’t it force.  Section 40 states, “This Part [ie. Part IV] shall not be in operation except as provided by this section.”

What’s a banking act got to do with gold?  Well, keep reading and I’ll show you…

Because the next bit is where it gets interesting.  By the way, no further legislation is required to activate Part IV.  All that’s needed is a proclamation by the Governor-General:

“Where the Governor-General is satisfied that it is expedient so to do, for the protection of the currency or of the public credit of the Commonwealth, the Governor-General may, by Proclamation, declare that this Part, or such of the provisions of this part as are specified in the Proclamation, shall come into operation…”

Still not sure what this has to do with gold?  Don’t worry, I’m getting there now.

Once the Governor-General (under advisement from the government of course) has issued this proclamation the Section 42 kicks in:

“Subject to this Part, a person who has any gold in the person’s possession or under the person’s control… shall deliver the gold to the Reserve Bank… within one month after the gold comes into the person’s possession or under the person’s control, or if the gold is in the person’s possession or under the person’s control on any date on which this Part comes into operation, within one month after that date.”

The fine for not complying is fifty penalty units, or over $5,000.

There you have it.  Legislation already exists in Federal law to authorise the Australian government to confiscate private property.  And no new law is required to do it.

Look, this won’t happen overnight.  But it’s clear that all the government has to say is that it needs to protect the currency… the fiat paper currency.

And who in the mainstream would argue against that?  No one.  Think about it, gold is still viewed as an investment of the rich.  A proclamation that many would see as protecting the currency from manipulation by the rich would be supported by almost everyone… except those that hold gold.

That’s one of the precise reasons why I don’t believe the gold price is a bubble waiting to burst.  Very few people in Australia own physical gold for investment or insurance purposes.

But importantly for you as an investor, it’s also a strong argument for replacing paper or electronic gold investments with physical bars or coins… just make sure you’ve got a safe place to keep it where the government can’t get hold of it should the Governor-General ever activate Part IV of the Banking Act.

Don’t forget, there would be no need for legislators to have come up with such a law if they didn’t expect it to be used.  And make no mistake, the Reserve Bank of Australia and the Australian Treasury is perfectly aware that Part IV exists.

You shouldn’t be surprised to see it enforced as the global experiment in paper money finally edges towards oblivion.

Cheers.

Kris Sayce
For Money Morning Australia


Money Morning is Australia’s most outspoken financial news service. Your Money Morning editorial team are not afraid to tell it like it is. From calling out politicians to taking on the housing industry, our aim is to cut through the hype and BS to help you make sense of the stories that make a difference to your wealth. Whether you agree with us or not, you’ll find our common-sense, thought provoking arguments well worth a read.

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19 responses to “Is Your Gold Safe from Government Theft?

  1. Are you actually advising us to act contrary to the law, should GG activate that Part IV?
    Or perhaps silver is exempt from it and is thus a safer bet?

  2. I analysed Part IV in detail and the possibility of gold confiscation in Australia in 2008 in this article http://goldchat.blogspot.com/2008/11/australian-gold-confiscation.html

    The Act only refers to gold, not silver, so I think you would be safe in that respect. However, note that legal tender silver coins have some confiscation risk via Currency Act 1965 (see blog for more detail), so if you really want to be safe, silver bars would be the best bet.

    Personally I do not think confiscation will be that easily implemented, notwithstanding the easily “unsuspended” nature of Part IV. Look at the response to the resources tax. I do not think WA voters (many employed by the gold industry) will take kindly to Federal Govt “stealing” their gold.

  3. I’m confused Kris, you are saying we should hold an investment which can (effectively) be confiscated by the Government at anytime? My first response was we should sell our gold and buy land but then I realised the Government can (effectively) confiscate that too!
    In reality, anything we think we own, the Government is able to get its grubby hands on one way or another – and if they can’t do it now, they will legislate it so they can (and make the law retrospective).
    It doesn’t matter whether we kick up a stink – the spin doctors flood the media with “a Tax is good for us” message and convince the apathetic majority and paint the rest of us as greedy, selfish individuals.

  4. My concern is what we get paid for the gold if/when it gets confiscated. I seem to recall digging through some legislation (might have been that Act) that suggested we would get the market price here in Aus should confiscation occur? There are concerns (and so there should) in the US that they will get paid out the $42.22 per ounce that gold is currently valued at instead of market price. What value does the RB put on gold here? Could it happen here???

  5. Strewth, mate- that’s really made my day. There I was, happy in my strategy, and you lob this into the mix.

    The really scary part is that in the sections referenced there is no mention of compensation (at least the US Govt paid something), and that if you look at section 48, the Govt can specify any exemptions it chooses… the miners, maybe? Certainly not your average Aussie.

  6. what if the vault you store it in specifically has a policy of non-delivery of physical gold (oh and the vault is in switzerland operated by a non-Australian company)

    so even if I have gold under my control I can’t effect physical delivery to the RBA

  7. Bron @ 2 – even if you didn’t surrender your gold and silver, they have much more limited application if you can’t trade or sell your holding legally, and that could push down prices.

    You might under certain circumstances need to hide your holding for a long period of time, which may not suit your objectives.

    Personally I can’t see that ever happening, but a lot of things have happened lately that we didn’t forsee.

  8. Personally, I would take the jail option.

    No government is going to strip me of my hard earned “for the greater good”, when the greater good is actually government fiscal responsibility

    My problem is how to hide it…..

  9. Bob B
    You reminded me of when I bought my first bit of gold and did some reading that night and found out that they may confiscate it. I wanted to get rid of it straight away… waiting for the knock on the door that night. Fortunately common sense and money printing prevailed. I guess the thing is that they are going to want to encourage people to hand in their gold. They are not going to do by taking it at little or no cost. They certainly wont see any of mine. Id rather throw it the ocean! I think they will probably pay market price but then seriously inflate the price once they have got it all as they did in the 1930s only by more this time. I would appreciate other people’s thoughts on this because I have been pondering this for years and would love to sleep a little deeper.
    I think this is a serious issue and needs to be discussed in more depth!

  10. I would be interested in how the the RBA would know who has allocated gold. Superfunds yes, but personal…

    But I also have a substantial amount of gold and silver personally and I know that there is invoices that I purchased gold, but that would not mean I still have gold in my possession.
    What if I use gold and silver right now as a form of currency, I do have 1oz gold coins which is $100 legal tender. How could it be proven that I did not use this $100 coin to buy something ?

    Anyway, I would probably expect house loans to be called in before we had to hand back gold. As if we get to the stage of the RBA calling for gold then the banks are dead.

  11. Now you see why Aussie has the gun laws it has….

    Basically the Govt can take what it likes and there is no way for defenceless people to stop them. Riots and regime changes tend to be undertaken by poor young males, and there are not many of them going to complain about gold being confiscated.

    Among other exciting news, a group of eminent people in the UK have declared the drug war a failure and called for a complete overhaul in the way The State views drugs. This includes ex-heads of MI5 and the BBC, very establishment people. If they crash the wealth of the drug gangs they will run out of criminals to scare us with…

  12. Mark – The reserve bank values its gold at current market prices. Section 44 says the price is the price as fixed by the RBA. However it also says “… or, at the option of the person delivering the gold, such amount as is determined in an action for compensation …”, so I think it will be market price.

    Peter Fraser – Have a look at this press release by the Treasurer when the suspension of Part IV was in place (http://goldchat.blogspot.com/2008/08/history-of-gold-controls-in-australia.html), which explains how the system operated. Gold still traded and miners still got paid (at market price) by the RBA.

    Keep in mind that gold wasn’t confiscated as such (ie taken without payment), it was just illegal to hold it.

    I would argue that any “confiscation” action would push the price up as it would be a very clear signal that the Government was on the ropes economically. That in my view is a reason why I don’t think it will happen again.

    High “speculator” taxes on gold are a more likely response. But really there is so little gold held by Australians (Perth Mint exports 90%+ of Australia’s gold production) that even with a $50000 gold price I don’t think taxing will raise much money.

  13. Bron
    Thanks for your insight.
    Have to go change my pants now after you mentioned a $50,000 gold price. Wouldn’t mind paying tax at that price.

  14. Just bringing this to light !! – Recently Amended 1959 Banking Act

    Section 40 Operation of Part
    (1) This Part shall not be in operation except as provided by this section.
    (2) Where the Governor‑General is satisfied that it is expedient so to do, for the protection of the currency or of the public credit of the Commonwealth, the Governor‑General may, by Proclamation, declare that this Part, or such of the provisions of this Part as are specified in the Proclamation, shall come into operation, and this Part, or the provisions so specified, shall thereupon come into operation.
    (3) Where the Governor‑General is satisfied that it is no longer expedient, for the protection of the currency or of the public credit of the Commonwealth, that this Part, or any of the provisions of this Part, should remain in operation, the Governor‑General may, by Proclamation, declare that this Part, or such of the provisions of this Part as are specified in the Proclamation, shall cease to be in operation, and thereupon this Part, or the provisions so specified, shall cease to be in operation….

    Read more from this link http://www.comlaw.gov.au/Details/C2011C00034

  15. They already had a load of Aussie gold…..Howard and Costello sold over half our reserves when they were elected……then they proceeded to wallop on about low inflation for 10 years as house prices went through the roof.

  16. Seriously JB – whilst it could happen, I think the chances are zero, so I wouldn’t worry about it.

    In times of a national emergency such as war, the government has the power to take anything it needs, but gold is a lot less vunerable than land in strategic areas, because there is no registrar on gold, although tracing very large transactions would not be hard.

    Small players should be immune from any punitive action as it’s just too much trouble for too little gain.

    The article is interesting, and you should be aware of the possibilities, but rest easy tonight. Common burglars would be more of a concern. Do you have insurance that covers your precious metal?

    Security alarms and video surveillance would be a good idea. Perhaps a rifle or a baseball bat beside your bed… trip wires in the garden. DC will be up on all of that spy vs spy stuff, he’s ex intell.

  17. Peter Fraser, first of all the chance is NOT ZERO if “it could happen”.

    In times of a national emergency such as war, government COULD confiscate your gold! War is a very expensive endeavor especially in the event of severe economic downturn where FIAT money is rapidly losing it’s value and PRECIOUS METALS are gaining popularity.

    Have you consider “other” national emergencies…? such as Economic collapse??? In the event of FIAT currency is no longer wanted by the people, government will do ANYTHING to salvage their fiat currency even if it means making gold ownership is illegal thus effectively FORCING people to use their FIAT currency.

  18. Old thread but a comment worth noting. The RBA is controlled by foreigners and is NOT a part of the Federal government. A confiscation of Australian gold could very well be performed by foreign powers.

    In the event of an economic collapse, that is exactly when Australia and Australians would most benefit from holding.

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