Gold Bulls Needn't Fear Noise About Government Confiscating Gold

 |  Includes: GLD, SGOL, SLV
by: Jonathan Bernstein

Some influential commentators say that as the Government gets more desperate to shore up its finances, it will confiscate private gold holdings. Just like it did in 1933.

After all, the argument runs, the Feds already did this, so there is precedent. And if Fort Knox really is running on empty (Ron Paul among others wants an audit to find out), the U.S. needs money even more badly than it is willing to admit.

So, why wouldn’t the Feds go for the gold? First, I don’t think Obama wants to; I’ll explain why below. More importantly, Americans just don’t own a lot of gold, and so there isn’t much for the Government to confiscate.

Do US Private Citizens Own Enough Gold to Bother Confiscating?

To see why their isn’t much bullion in private U.S. hands (actual figures on U.S. private gold ownership are hard to come by) just look at how different things are from the way they were in 1933. Until that time, the U.S. gold coins circulated in the ordinary course of business.

Gold coins were used as money, along with silver coins, and yes, paper. But then the dollar really was good as gold. You could bring a $10 bill to the bank and emerge with a $10 gold piece if you cared to. When Roosevelt confiscated gold, he confiscated a form of money that lots of people used, every day. Of course there was plenty around.

These days money in the form of gold or silver is something Americans barely relate to. Some Americans bought precious metals during the price runup of the 1970s, but Paul Volcker seemingly restored the soundness of the dollar then, and gold fell off the investing public’s radar screen for a good twenty years.

Here’s another reason to suppose that if the Government came for citizens’ gold, it would have slim pickings. Gold dealers have reported to the press that they can get supply only from wholesale sources, such as official mints. Individuals are not selling it. And the few times that I have been in the market, I have heard the same thing. The dealers are getting buy orders from the public, but not offers to sell even at today’s record prices. So far, anyway.

Is this a reflection of low private holdings or a belief among bullion owners (as opposed to ETF holders, maybe) that metals are only heading higher? My guess, is some of both. So while ETFs like GLD, SGOL, and SLV have become popular, private bullion ownership has likely not become a mass phenomenon, yet.

Obama is Quite Investor Friendly

The second reason I don’t expect gold confiscation is that, despite his reputation, Obama governs as a moderate if not a Republican in drag. We’re all reading about how the current Republican tide has (or will) force President Obama to “move more to the center.” But in truth Obama already made his hard right turn, back in August 2008.

As Yves Smith graciously allowed me to note here, candidate Obama condoned the August 2008 amendments to the Foreign Intelligence Surveillance Act (FISA). The FISA amendments made it easier for the government to monitor citizens’ electronic communications without a warrant and even granted Bush-era wiretappers retroactive immunity from prosecution. Having bolstered his “anti terrorist” credentials, Obama then signed on to the TARP bill in September 2008. You can’t be more business friendly –or at least, investor and big bank friendly — than that.


Once in office Obama continued his moderate bent. His stimulus plan consisted mostly of Republican style tax cuts. Obama’s health plan will force citizens to buy insurance from private insurance companies – how “anti business” is that?

I can only assume that business keeps chanting the “Obama is a radical” mantra in order to keep Obama in line, to keep him from even thinking about “change,” and to gin up Republican campaign contributions. But is this man out to take your gold? Hardly. I don’t think his people even understand the stuff. Otherwise, why would they continue to debase the dollar, and ignore the message gold and silver prices are sending? Was anyone surprised that gold hit $1,298 after the Fed hinted at more possible QE September 21?

Advice for Investors

So I remain a long term dollar bear, and a bull on precious metals. If I’m right, it’s safe to store most of your bullion in the U.S., though maybe not all of that at a bank. The main worry here, is the outside chance that banks might close temporarily in the event of a run on the dollar. But in that case, you would still own your bullion. You would need, however, to have some real, non paper money in another safe place where you could get it in an emergency. Non-bank depositories such as First State of Delaware and Brink’s are now trying to fill such needs and might be worth a look. I have no connection with either.

Disclosure: Long GLD, SLV, gold bullion