To hedge against inflation, or diversify your portfolio, you have invested or are thinking about investing in gold. And now you’re wondering whether the government can confiscate gold or not.
Will it happen again, and is there any solution to mitigate the risk of gold confiscation?
Gold can be confiscated by the government. But it’s not very likely because they deploy money-printing or tax tactics to recover from bad financial status. Invest in gold jewelry and stocks, bitcoin, and silver to avoid the risks. Alternatively, store your gold in other countries.
This article will discuss the reasons for gold confiscations in the past and explain why we think it probably won’t happen again. We also tell you what you can do to protect yourself from gold confiscation if it happens.
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Why Did the Government Confiscate Gold in the Past?
In 1933, President Franklin Roosevelt signed Executive Order 6102, requiring the Americans to hand over all their gold coins, bullions, and certificates to the government for a fixed price of $20.67 per troy ounce.
People who violated this order could expect a maximum punishment of $10,000 fine or ten years in prison or both. So, why did the Roosevelt administration do this?
The great depression hit the country hard. So the Federal Reserve wanted to increase the money supply to pay off debt, fight deflation, increase consumer spending, and decrease interest rates, which would essentially combat the depression.
But at the time, the US monetary system was still based on the gold standard, and under the Federal Reserve Act (1913), the US government had to back its money supply by at least 40% gold.
The Federal Reserve was approaching this limitation. So, they confiscated people’s gold, and within only nine months, the official price of gold rose to $35.
In other words, what the former gold owners had received in exchange, lost 40% of its value. This ban on owning gold lasted more than four decades. Finally, at the end of 1974, President Ford issued another Executive Order and repealed Executive Order 6102.
Throughout the twentieth century, other countries like Australia, Britain, and Italy have adopted similar measures in their financial crisis.
Gold Confiscation: Is It Going To Happen Again?
So, now the question is whether the government would resort to gold confiscation in times of crisis. We can see many signs indicating that it wouldn’t be a rational choice, especially in today’s economic environment.
However, we still can’t be sure. Some dire situations can make the government turn to such measures, and governments don’t always act rationally.
Why the Government Won’t Confiscate Gold Again
Today, unlike the past:
- Government has other, maybe more effective, choices than confiscating gold.
- The US dollar is not pegged to gold.
- US debt is so high that confiscating gold won’t solve any problem.
- American people don’t own much gold. So, confiscating gold wouldn't be worth the effort.
- The US can’t by itself determine the gold price. So, if the government decides to confiscate gold and the price decreases, it would lose money.
- Gold owners also have more options, like storing gold overseas.
Why the Government May Confiscate Gold Again
- In crises, governments resort to every possible option.
- Gold confiscation has happened in countries without gold-pegged currencies.
- Governments can change the law according to the needs of the times. So, we can’t judge only by today’s laws.
- The ban on Bitcoin and other cryptocurrencies in some countries is a sign of governments’ appetite for meddling in the kind of assets people use to hedge against inflation.
What the Government May Do Instead of Gold Confiscation
What might happen if the government runs out of money? Will they take your gold? This is not likely to happen, as they have other methods to boost the economy.
Let’s take a look at some of these options they might implement.
One of the things that governments do in times of depression or to pay off debt is print money. But, unfortunately, this can have inflationary consequences, thereby reducing the value of money.
So, this is more of a concern for savers, and as a gold owner, you don’t have to worry about it.
Windfall Profits Tax
The government may make another move that can negatively affect gold owners: putting taxes on windfall profits from gold.
When an industry’s profit goes way above the norm due to an exceptional economic condition, governments sometimes decide to impose an additional tax on that industry, which is called a windfall profits tax.
For example, if the US dollar value depreciates significantly due to inflation, the gold price will rise correspondingly. And the government may decide to impose a windfall tax on gold.
Congress has done this to oil companies in 1980. Even in more recent memory, Barack Obama proposed a windfall tax on oil companies during his first presidential campaign, which was when oil prices reached unprecedented numbers.
So, this is a plausible scenario. But you can make some moves to mitigate its impacts.
For example, since contributions to individual retirement accounts (IRAs) are tax-deductible, you can contribute your profits to your retirement account. Or put your money in a health savings account (HSA), which has a status similar to an IRA.
If you have underperforming stocks, another option would be selling those stocks at a loss. This way, your losses would be deducted from your gains.
How to Mitigate the Risk of Gold Confiscation
Now, let’s review some of the steps you could take to mitigate or even eliminate the risk of gold confiscation.
Investing in Silver Instead of Gold
Since confiscating silver was not a part of Executive Order 6102, some recommend investing in silver instead of gold. It might be a safer option, but it’s not entirely out of the question for confiscation.
Note that silver confiscation also happened in the US, as it just happened a year later.
Buying Collector’s Coins or Gold Jewelry
Another recommendation is buying rare or collector's coins. Executive Order 6102 exempted these coins, so people think it’s very likely that a new confiscation order would exempt them, too.
Gold jewelry has also been exempted from most gold confiscation orders. So, it can be another option. But remember that gold pieces of jewelry are usually priced way above the value of their gold.
Storing Gold In Gold-Friendly Countries or Free-Trade Zones
A gold-friendly country like Switzerland can be an excellent place to keep some of your gold. Singapore, New Zealand, Liechtenstein, and Austria are other good examples.
Storing in free-trade zones would also work. As these regions are not subject to Customs Duty, they can be low-cost for storing, importing, and exporting gold.
Buying Gold Stocks
Instead of investing in gold directly, you can buy gold stocks. To do that, you have three options, including mining companies, gold streaming and royalty companies, and gold ETFs.
Remember that with gold ETFs, you don’t have real exposure to gold.
Investing in Similar Assets Like Bitcoin
Bitcoin and gold are both useful assets for hedging against fiat currency inflation. So, if that’s your goal, you can buy Bitcoin instead or alongside gold. Just note that, unlike gold, Bitcoin has a volatile nature.
As discussed above, we think gold confiscation isn’t a serious threat. And we have several reasons for that. For instance, the government has other choices like printing money or putting taxes on windfall profits from gold, which is a more severe threat by our estimation.
However, gold confiscation has happened in the past, and there’s no guarantee that it won’t happen again. So, you should be ready by deploying some of the solutions that we mentioned.
Want to learn how to invest in gold & silver in your IRA account?
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I’m Donny. I’m a world traveler, investor, entrepreneur, and online marketing aficionado who has a big appetite to compete and disrupt big markets. I thrive on being able to create things that impact change, difficult challenges, and being able to add value in negative situations.