This article concerns the very real possibility that the US government will again confiscate gold if it cannot continue to successfully cap its price. However, if you trust the government to never again do what they have done before, there is no need to read this article. If you feel that the US government will never use the laws to confiscate gold and silver that have been on the books for almost 70 years, there is nothing for you to learn from me despite my 44 years of experience in rare coins and precious metals. Why? Because you know the unknowable, and because you can see into the future.
The fact of the matter is that FDR issued an Executive Order in 1933 that immediately took us off the gold standard and confiscated all non-collector coins. The actual law wasn¡¯t passed until the next year. A minor detail¡to them. { More details below.}
However, I do know the most important thing about the government which is that they do what is in their best interests, and that of big business which supports them via political contributions, not what is in our best interests. [Enron, Worldcom, etc.] Right now, big government and big business do not want the price of gold to soar, which it wants to do. In other words, gold is not a free market say in comparison to pre-1934 US gold coins or other collectibles. Wall Street and CNN rarely report on the price of rare coins, antique cars, paintings and so forth. So, collectibles are not on the government's radar screen...this is very, very good. Additionally, the amount of money invested in collectibles each year is no threat to Wall Street, while billions in gold, gold shares and contracts can change hands in just one trading day. That amount of money is hard to ignore. Lastly, even the government knows that gold is real money, which is why they have so much of it, {Supposedly 271 million ounces.} and why they stopped selling it in 1975. This calls to mind the old adage: "Do as I say, not as I do." Or, even better, do as we say, not as we do.
Even worse for gold bullion buyers, is the realistic point of view of Wall Street and the government, in that they know that gold has been as much of a life preserver for knowledgeable Americans in the last couple of years, as has been the Euro. It is very interesting that the mass media, such as CNN, reports on the value of the Euro which is up by more than 30% against the dollar, but never ever mentions that gold has done just as well or better depending on the price at the time of comparison, which is this case is early July. Gold bottomed out at about $250 and closed this past Wednesday at $350. My calculator says that is a gain of 40%. In effect, purchasing/investing in foreign currencies like the Euro and gold/$20¡¯s would have produced very large profits in the last few years with relatively little downside risk. Further, strong foreign currencies and gold were a perfect hedge against a weak stock market for most of the past three years. Had an investor, two-three years back, divided his portfolio into equal parts of gold bullion/$20's, strong currencies and stocks, they would have probably, on average, at least have broken even. And now, stocks are doing better so all three asset areas would have produced significant gains depending on timing and asset allocation.
As stated above, the future is unknown, but these are facts and clearly demonstrate the wisdom of diversification, no matter what the talking heads on TV have to say. Virtually every one of them is a hired hand espousing the "company/party line." There are exceptions of course, such as the Merrill Lynch gold analyst who stated in November of 2002 that "he wouldn't be surprised to see $500 gold in the next few years or even to see it test its former highs. ($850+) I believe he appeared on CNBC TV.
*** From their recent bottoms, strong foreign currencies such as the Euro, the Swiss franc, the Norwegian kroner, gold bullion and US $20 gold pieces, have all increased by 30-40% in the last couple of years, and this doesn't count trading profits derived from buying and selling these assets...simply a buy and hold strategy. In addition, gold is "only" $350 as I write this and some months back it reached more than $385 which also sent most $20's up more than $100 a coin over today¡¯s prices. To date, strong foreign currencies have been the most impressive because they have produced gains of 25-40% + interest. However, at this point I favor gold & US $20's because gold is currently down 10% from its most recent high, while double-eagles are down by 10-20% depending on the grade. In contrast, the Euro is down only about 3-4% from its recent high against the dollar making gold and $20's a better buy, relatively speaking. Yet, we all should make intelligent diversifications and look for the most promising investment at the time of purchase. Right now stocks are doing well, but that may or may not last. To me these gains seem suspicious and worrisome, as the economy is not very healthy & deficits [at a new record level] and war costs are soaring.
Since I cannot see into the future and do not trust big government or big business to do what is in the best interests of investors who like gold and silver, I can only look at the laws and related evidence, some of which I will present in this and future articles. I do not mean to make this single article into a definitive work on this issue despite having a huge amount of relevant information stored in my "little gray cells¡±. Consider this to be a start in the educational process which will hopefully allow you to make an informed decision as to how far you will trust the government with your hard won savings. Perhaps it will also lead you to diversification, which may include gold, silver and/or rare coins. Naturally, being a numismatist with four decades of experience I trust the one area I have the most experience in, but which is also clearly the most undervalued of all the top collectibles. I do know enough to buy low whenever possible, and am always looking for coins with real investment potential, and in all price categories. A really good investment coin can be less than $700 or more than $1 million...or anything in between.
*** Before 1933 the US had world-class silver/gold coinage, and currency almost fully backed by both metals. Seventy years later it seems almost unbelievable that we once had such a monetary system and that it lasted from 1795 to 1933 for gold coins and from 1794 to 1964 for silver coins. Of course, if you study our monetary system and related issues, it is also hard to believe that from 1801 to 1901 the US dollar almost doubled in value, meaning that the purchasing power of our paper dollars bought almost twice as much in 1901 than in 1801. Conversely, it is almost unfathomable that the purchasing power of the US dollar has collapsed between 1901 and 2001. Succinctly, using the US government's own statistics (PPI) the purchasing power of the dollar has fallen about 89% since 1945 and by 95% since 1901. Don't take my word for it. Go to Google.com and find an inflation calculator, then plug in your own figures and time frames. But, do it on a day you feel strong and determined. Otherwise, you may simply give up, bury your head in the sand, or become depressed. Trust me that you are under attack from any number of directions, and you need to do something about it while you still can. Almost everyone feels like being an ostrich at times, but remember, ostrich meat gets eaten.
*** President Andrew Jackson said it best: "if Americans truly understood our monetary system, there would be a revolution overnight." So be careful, a little bit of knowledge can be dangerous...or it can help save your financial future and that of your progeny. There is always a better way to do things, you only need to find it.
*** So, what happened to our money in order for the purchasing power to go from about +95% between 1801 and 1901 to about -95% between 1901 and 2001? Keeping in mind that books can be written on this one aspect of our monetary system, I will give you some of "the usual suspects."
*** Our country was young in the 19th century and spreading westward, in effect, conquering land from the Native Americans who were here say 10,000 years before Caucasians arrived with their ruinous ways. It would be no lie to say that the cost basis for 100's of millions {Probably billions.} of acres of land was the cost of a few armed soldiers and bullets. Land and the accompanying riches contained within or under, couldn't have cost much less than that. The US government still owns enormous acreage worth an unfathomable amount of money. Nor were we only restricted to conquest, although Mexicans may still be unhappy about what they lost to us in the Mexican-American War. Remember the cost of Manhattan? The cost of Alaska? The cost of the Lousianna Purchase? However, most of this was conquered or purchased before 1901. After all, Utah Territory became a state in 1896, followed much later by Hawaii and Alaska.
*** To give you some idea of the wealth torn from this vast land mass I can mention a few special cases which include the Gold Rush of 1848 which produced so much gold that our government didn't have any way to effectively utilize it. The only way they could deal with such a mountain of newly discovered gold was to strike two new denominations of gold coins starting in 1849, the $1.00 and $20.00 gold pieces. Neither was very popular as one was too small and could fall through a small hole in your pant's pocket, and the other was too large, both in size and purchasing power. Eventually most of the $1.00 pieces were used as gifts, turned into jewelry or re-melted to make other coins. This is why they have been, on average, such a fine investment.
*** Most $20.00 pieces, affectionately called double-eagles, remained as the reserves of banks. Bankers in those days knew what real money was, and remembered the large numbers of wildcat banks that went under as they were dependent on the value of land, and the hope that deposits would continue to be larger than withdrawals. If one large customer went under he usually took the entire bank and its other customers with him...no silver or gold backing combined with printing presses running wild... reminds me of today. [Federal Reserve Chairman, Greenspan, said ¡°they had the means to produce any conceivable amount of money to deal with deflation¡± and I believe this.]
*** Gold attracts such attention that silver often gets forgotten. Before the huge deposits of gold and silver were found and extracted the government tried to maintain an official ratio of gold to silver of about 20 -1. A $20.00 gold piece contains .9675 of an ounce of gold, while silver dollars only contain about .7734 of an ounce of silver. To this day, most people think that our Morgan and Peace silver dollars contain an ounce of silver. For decades, in the last half of the 1800's, the US government maintained an official price for gold of about $18.67 an ounce. However, $20 silver dollars only contained about $15-$16 worth of silver at $1.00 an ounce. (Yes, the government made a profit on these coins just as they do today on their eagle bullion coins.) Interesting and perhaps academic today, but this meant that smart Europeans could exchange $20 silver dollars for a $20.00 gold piece and make a profit by melting them in Europe. Actually this accounts for the rarity of many US $5.00 gold pieces of the 1820's and 1830's. Visiting Europeans loaded up on our world-class gold pieces and melted them upon returning home. Perhaps this paid for their passage on the ships of the era?
*** As for silver, our hard working miners extracted a huge mountain of it eventually amounting to 2.2 billion ounces, believe it or not. What to do with such wealth? Again, make hundreds of millions of mostly unpopular silver dollars. Imagine carrying 20 silver dollars in your pocket? That's something like 1 & 3/4 Troy pounds total weight. They were relatively popular in the west, but nowhere else, except as gifts. Of course, John Wayne liked them, and I wouldn't want to argue with the Duke.
*** The above clearly demonstrates that we were truly an enormously wealthy nation that could afford to make gold coins worth as much or more than the bullion they contained. [I am ignoring many other forms of wealth like land, timber, cattle, coal. copper and so forth that actually constituted far more wealth than silver and gold, both then and now.] Typically, and historically, countries have had the opposite problem in that the value of their coinage and currency becomes debased. Take Rome as one of the greatest examples. Their coinage became so debased that even their barbarian mercenaries eventually refused to accept it in payment and that was the end of Rome. Why die for junk money?
*** Yet, when FDR cut the ties between gold and our currency in 1933, we began the same ominous slide down the very familiar slippery slope of paper backed by less and less, until today when our money is backed by the "full faith and credit of the US government." One could describe this as paper backed by hot air.
Confiscation Part 2 Will Cover the FDR Debacle and Its Never Ending Effects. |