Could Ownership of Companies Like Silver Wheaton Be Outlawed?

Before you ask the inevitable question "Have you lost your mind?" let me reveal the "method of my madness".

There are a growing number of people including some level-headed analysts who have publicly wondered whether it was possible that the private ownership of physical gold might be outlawed in the United States.

Many would say that the likelihood of that in the land of democracy and The Constitution is virtually zero. That is what I'd like to believe as well, especially if I were more "historically naive".

But, history does tell us that the US government, in the days of a fixed gold price, did intervene in a very direct manner with President F.D. Roosevelt banning the "hoarding of gold coin, gold bullion, and gold certificates" and thus forcing US citizens to sell to Federal Reserve at $20 an ounce.

Subsequently the Fed raised the price of gold to $35 an ounce, and the ownership of gold was literally outlawed up to around 1971.

Lawrence Williams, writing from London for Mineweb.com opined recently that:

...President Obama is known to be a Roosevelt disciple and he must be well aware of what was done at the time, given the parallels of the U.S economy between the present time and the 1930s.

There must be a temptation to try the same tactic, and then raise the gold price dramatically in a move which would certainly support reserves within those nations which still have major gold holdings.

Indeed, if monetary authorities worldwide see the gold price really start to take off, this kind of process has to become even more of a temptation as a big global move into gold could exacerbate the global financial crisis in that it would show that people no longer have faith in the economic status quo (it can be argued that already they don't) and the the current crisis of confidence could be severely worsened by such a rush.

As I've often said, it is the black widow spider that we don't see that bites us, not the one before our very eyes. The "obvious" conclusion on this subject might not be the most accurate one. Yet it is an important subject to discuss and debate.

In an article published late last year, Mark Mahaffey of Hinde Capital argued that such a possibility [that an economic crisis could trigger drastic government action] existed and pointed out that:

The fear for anyone who is in credit is that the financial system could become geared towards negating debt which, in turn, would destroy the value of their assets.

One way of bypassing this threat is to buy gold [and obviously a lot of people are doing just that at the present time]. However a general shift to gold would undermine the power of central banks and their influence on the economy.

Of course the monetary situation nowadays is completely different and the banning of gold holdings, and subsequent revaluation would be much harder to accomplish domestically - and even more so globally.

As Lawrence Williams pointed out:

Back in 1933 the dollar was on the gold standard which meant that, in theory at least, each dollar could be exchanged for the same value in gold. Nowadays all currencies are effectively fiat money with no solid backing (except perhaps of a fiat dollar), and to revert to a gold standard would require an upward revaluation of the gold price beyond belief.

But, there is a precedent out there and while we think the idea is unlikely, it might appeal to someone who is prepared to try radical means to stabilize the economy if all other measures fail.

And - consider this thought - are shortages of gold coins from national mints due to a total underestimation of demand, or part of government policies to control gold flows into private hands. We think the former, but the conspiracy theorists no doubt have other views.

Whether it is demand, manipulation or government interference the results are inevitable. Investors want to own what they believe will go up and value and what has a historic reputation of holding its value during times of unusual uncertainty.

Gold and silver meet that description; the description of what investors want to own during times like these.

In the title of my article I also asked if the government might outlaw the ownership of a company like Silver Wheaton (SLW). "Don't be ridiculous Courtenay", which obviously I'm trying to be in order to make a point.

Whether we speak of gold, a gold-producer like Goldcorp (GG), silver, or the "new and improved" Silver Wheaton Corporation, the government is capable of taking over, outlawing, or endorsing anything that it wants to.

If you would have told me even 12 months ago that the US government would "nationalize" Fannie Mae (FNM), Freddie Mac (FRE) and virtually take-over the largest insurance company in North America (AIG), while "outlawing" the existence of companies like Lehman Brothers and Bear Stearns...I wouldn't have believed you.

I use Silver Wheaton as an example to also draw your attention to the fact that it has completed the acquisition of its rival Silverstone Resources, emerging as the number one and only pure silver stream company.

The deal was approved last Thursday with 0.185 shares of Silver Wheaton being issued to Silverstone shareholders for every share held. The all stock deal was valued at $190 million. [Thanks to Dorothy Kosich at Mineweb.com for bringing this to our attention].

During Silver Wheaton's annual general meeting, President and CEO Peter Barnes said the acquisition increases the company's total reserves and resources to 1.4 billion ounces of silver and 405,000 ounces of gold. The company forecasts sales of 17 million to 19 million silver equivalent ounces this year,

Noting that 70% of mined silver is produced as a by-product, Silver Wheaton management said acquisition also provides three new silver streams from low-cost copper mines: Minto in Canada, Cozanin in Mexico, and Neves Corvo in Portugal. The three operations will generate 4.5 million ounces of silver equivalent this year.

The merger gives Silver Wheaton a total of 12 silver stream agreements with eight operating partners.

In a presentation to shareholders, Barnes said the silver stream from Goldcorp's Peñasquito gold, silver, lead and zinc mine will add significant growth to Silver Wheaton. He estimated that approximately 70% of Silver Wheaton's revenue will come from four mines, Luismin, Yauliyacu, Zinkgruvan and Peñasquito.

During the past four years, Barnes noted that Silver Wheaton has almost tripled the ounces of silver backing every share.

Final question: What is more likely to happen? 1) Gold and Silver Wheaton are outlawed by the US government, or 2) Gold eventually goes to $1,300 an ounce and Silver Wheaton goes up to $20 a share?

My best guess is #2, and the likelihood of option #1 is probably slim to none.

Whether you own the physical stuff or a gold and silver proxy (think GLD, SLV, or CEF) the future is looking brighter with each passing week for patient and rational investors.

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please remember investments can fall as well as rise. And they will! - Advanced Investor Technologies LLC accepts no responsibility for any loss or damage resulting directly or indirectly from the use of this content.

Disclosure: I do not currently own any shares of SLW or GG. I do own shares of the gold and silver ETF (symbols GLD and SLV) and CEF.

Comments

[User 305589:]

you might want to have a closer look at gold wheaton (GLW:TSX). It is run by the founders of SLW, basically doing similiar deals in gold. They just completed a secondary to finance further growth. The stock has lost more than 80% from its high and might offer an opportunity to participate in another SLW-like success story right from the beginning.
(disclosure: I own a small position in GLW and might increase that stake over the next weeks/months)

May 25 09:12 AM

[PastTense:]

"while "outlawing" the existence of companies like Lehman Brothers and Bear Stearns.."

What garbage. They were not outlawed; they failed because of their incompetence.

May 25 10:24 AM

[Graham and ...:]

FDR outlawed the sale of gold in the United States.

Obama looks to be the "new FDR." It's not inconceivable that he will outlaw the purchase or sale of gold and/or silver, or gold and silver companies..

May 25 11:10 AM

[Beach Bubba:]

I have never seen a mining company that couldn't blind-side an investor/speculator...... the path looks straight up and more than just rosy....start getting nervous. Anybody ever heard of "3 Card Monte" stocks like CDE or NG. This area of investing requires a great lot of research before you buy....watch for back room deals and dilution techniques that have never been heard of outside of PM miners and explorers. You are or will be in a bubble mentality much like the internet and tech stocks of the late 90's when you enter here. There are/will be, idiots and MBAs who will be buying anything that says mine on the end....running prices to the moon. This is and will be like walking in a mine field.(pun intended) That said, I own shares of Moose Pasture Gold and Silver Mining Co. that I would like to sell to a greater fool than I.

May 25 11:23 AM

[chux08:]

The people I know who hold gold & silver also hold guns and the government's chances of "recovering" either from such folks are, I would say, between SLIM & NONE. And besides, there's just too many lawyers in the US with not enough to do to ever let something like this try and get a foothold. You want to see a gold & silver black market?? Just let the tyrants in Washington DC try such skulduggery and they'll get another valuable lesson in Economics 101, something that's obviously missing, along with studies of history. Could you possibly find a group of so called leaders anywhere that constantly display such....IGNORANCE and lackluster performance on either subject as they do in the halls of our government?? That's OUR problem....

The author's right about possibility number 2 and Silver Wheaton...the rest of his article just.....inflames passions.

May 25 11:45 AM

[D Johnson:]

The banks, by 1933, had created more money than they could back by their gold, so people were exchanging their dollars for gold, and creating a run on the banks. FDR outlawed gold ownership by citizens to save the banks -- many of which failed anyways due to bad loans. However, since we are no longer on a gold standard, the people will not fall for this fraud again. People that own gold now, have purchased it as an insurance policy to protect their wealth. Today, the government would have to do door-to-door searches to get the gold, and even then, would be unsuccessful. If the gov't did try such a foolish thing, there would already be price controls, exchange controls, and a whole new black market (and a new class of "criminal") already in place. Ron Paul's "Edit the FED" bill (if passed as written) includes an audit of U.S. Gold. If, as I suspect, it has all been leased out or sold, the FED will have a lot of explaining to do. People will demand an end to the FED, and all bets will be off as to what congress would do then.

May 25 12:43 PM

[Plebian:]

"...They were not outlawed; they failed because of their incompetence. "

Anyone who still thinks that any 'major' financial institution failed because of their 'incompetence' needs to wake up and smell the 'roses'. Plain and simply, those that failed were allowed to fail, as they obviously had the means to 'not' let them 'fail' if they had wanted to. Why does anyone think the 'major' banks have not failed yet--aren't they just as 'incompetent'? It's never been a matter of competence or incompetence--it's about who has the power and control...

May 25 02:14 PM

[bkdc:]

FDR outlaws the owning of gold, and guess how many Americans were prosecuted under the law?? ZERO. Even people who wanted to be prosecuted and let their private ownership be known were prosecuted. Why were they not prosecuted? Because FDR was scared that a court challenge would find the law unconstitutional.

Congress and the President can pass any law they want. If an idiotic Supreme Court actually let the law slide by, you would see the a thriving black market for precious metals.

May 25 05:13 PM

[bkdc:]

Without a GOLD STANDARD it would be very difficult for any group of politicians to outlaw the private ownership of gold. It would bring into question the value (or lack thereof) of fiat currency (which rational monetary historians know is worth the paper it's printed on). The currently clueless fools will start asking the question "if the government wants to use gold as money, then why do we currently use paper?"

May 25 05:26 PM

[psig:]

In a banana republic anything is possible and its all about control; rewarding friends and punishing enemies. Who woulda ever thunk a year ago that the gov't and the UAW (friends) would own General Motors and Chrysler bond holders (enemies) are about to be screwed. My analysis tells me that large physical gold holders are enemies. Remember we are talking wealth redistribution here. If its illegal to own gold what are you going to do with the stuff you don't turn in. The only option is a black market economy which is possible like there was and still may be in the old Soviet Union. Steady as she goes, captain, due course strait ahead next stop: banana republic. ALLLL ABOARD. No ones getting off this train.

May 25 05:45 PM

[socphd71:]

This article is inflammatory nonsense much like what I've read whose purpose is to scare gun owners into believing that "the government" will confiscate personal weapons. The cost (financial and political) of either would be overwhelming. IMO, the Obama administration is trying to pursue middle - of - the - road policies. There are numerous articles out about how upset Obama's "left" supporters are by this (to them) new found discovery.

May 25 07:35 PM

[one eye:]

Well, I guess, I don't have to add anything.

No links, just another story. Fascinating how Gold Confiscation in the 1930's can lead to Silver Wheaton, a Canadian Silver Miner.

Another trip to Fantasyland by Marc Courtenay. Is it a spoof or is it real?

May 25 08:58 PM

[Gold Barron:]

No, ownership of such companies will never be outlawed.

May 26 12:30 AM

[Jake2:]

What do you get when you step on a Gold Bug. Well, a silver dollar, of course.

May 26 11:24 AM

[Marc Courtenay:]

Thanks. Good idea.


On May 25 09:12 AM User 305589 wrote:

> you might want to have a closer look at gold wheaton (GLW:seekingalpha.com/symbo...).
> It is run by the founders of SLW, basically doing similiar deals
> in gold. They just completed a secondary to finance further growth.
> The stock has lost more than 80% from its high and might offer an
> opportunity to participate in another SLW-like success story right
> from the beginning.
> (disclosure: I own a small position in GLW and might increase that
> stake over the next weeks/months)

May 26 06:08 PM

[Hot Richard:]

Democracy is the god that failed. The Constitution hasn't been anything more than a coaster for 100 years. So, you can throw away any idea that the US government will honor any limitations in the pursuit of self preservation (not preservation of the people, but preservation of the government).

That said, yes, the US will address private gold ownership. One reason why you MUST have an account outside the US that enables you to safely store your gold.

Same goes for silver.

May 27 10:52 AM

[Angry Taxpayer:]

When gold was originally outlawed; we had a representative democracy, people believed in our government, and people didn't own high caliber military type weapons -- still many people didn't turn in their gold. If the government tried this today, I think they would get a lot of laughter. If they tried to take it forcibly they would likely see a lot of Waco type endings and still would get little to no gold. Most gold bugs don't trust the government and aren't stupid enough to keep their gold anywhere it would be "found". Paper stocks in Gold and Mining shares, well that's another story.

May 27 12:14 PM

[D Johnson:]

FDR's gold confiscation of 1933 did not forbid gold ownership by U.S. citizens. If you read the complete executive order, each citizen was allowed to keep up to $100 in gold coin. That would be $500 for a family of five. However, on January 30, 1934, the Gold Reserve Act was passed that did, indeed, outlaw all gold bullion and gold coin (except collector coins of higher value) held by citizens. The Emergency Banking Act of 1934 (along with the Gold Reserve Act) made contracts payable in gold invalid. Why? A gold clause in a private contract was the only way a citizen could protect his purchasing power, as a gold revaluation (devaluation of the dollar) was expected by the populace. The acts in 1934 revalued gold to $35 per troy ounce. However, Under President G. Ford, in 1975, gold could again be freely traded by U.S. citizens. Finally, Congress later reinstated the option to use gold clauses for obligations (new contracts) issued after October 1977 in accordance with 31 U.S.C. § 5118(d)(2), and their legality was upheld by the courts.

May 27 04:51 PM

[D Johnson:]

I came upon an interesting angle (on the web) on gold or silver coins that I had not thought about before. The author claimed that since a $50 gold piece (market value of $1,000) or silver dollar (market value of $11.50), or other precious metal U.S. coin, is still a legal tender for its face value, that one could chose to get paid for their labor at the face value of the coin and pay income tax on that face value only. The author further claimed that (by IRS ruling) income taxes owed could not be collected by the IRS on the market value of the coin until it was sold. Tax deferral anyone? Disclaimer: The above is not my advice to anyone. I am not a tax attorney.

May 27 05:13 PM

[realold:]

I agree with the probability of some limitations or outright ban on owning stocks and physical metals. And this article has expressed many of the ideas I have been kicking around with friends. BUT, Obama is not out to be FDR, he is out to be the Messiah of the poor and "of color", to confiscate wealth from everyone from tax payers to bond holders at GM and transfer it to his chosen tribe. I wish that everyone would listen to his radio interview of a decade or so ago where he outlined all that he is doing now. The Supreme Court nominee is directly reference in that decade old plan for the purpose of amending the constitution to allow extra credit for being of a disadvantaged background, a women, or of color.

Since my parents and grandparents picked cotton and lived in barns during the depression, had no Messiah to help them and worked their way to prosperity, I am not for Obama's plans or ideas. It is all a personal agenda and has nothing to do with prosperity - it has to do with medocrity and lowest common denominator. Welcome to the third world where they buy silver and gold and hide it......


On May 25 11:10 AM Graham and Dodd Investor wrote:

> FDR outlawed the sale of gold in the United States.
>
> Obama looks to be the "new FDR." It's not inconceivable that he will
> outlaw the purchase or sale of gold and/or silver, or gold and silver
> companies..

May 27 10:38 PM

[capt Brian:]

UR ALL SCARED AREN'T YOU, HAVE NO IDEA WHAT TO DO?
Neither do I, so I have positioned myself for recovering economy, and a disaster in the making. This is a must for now for peace of mind
WELL, GOOD LUCK
Capt. Brian

May 28 12:14 AM

[Funkifize:]

Well, more and more of the long arm of redistributive socialism as Obama solidifies his neo-fascist agenda. Throw this treasonous fool out of office now, because he's working on every impeachable offense possible while Congress resembles the German parliament as Hitler consolidated his power. LONG LIVE FREE ENTERPRISE, AUSTRIAN SCHOOL ECONOMICS (The only true believable form of economics) AND LIBERTARIANISM!

May 31 08:07 PM