THE LIBERTARIAN ENTERPRISE
Number 357, March 5, 2006
Avoiding the Next Gold Confiscation
Special to TLE
One of the readers of The Libertarian Enterprise wrote to mention that gold confiscation is a threat. It is true that in 1933, as part of the so-called "National Banking Emergency," President Franklin D. Roosevelt ordered all the gold in the country confiscated. Later, finding less of it had been turned in than the central planners had hoped, they raised the exchange rate from $20 per ounce to $35 per ounce75% inflation in one goand gave a brief amnesty.
So, how compliant were Americans? Well, the banks were very compliant. If your gold was stored in a safety deposit box in a bank's vault, some government agent probably grabbed it. Then, if you wanted it back, you'd have to prove it was antique or a collectible or otherwise exempt. Nasty.
The rest of the country, it turns out, didn't really trust the government or the banking cartel. My friend Jim Turk says about 22% of the gold was turned in, so about 78% of it was kept free. You can read his analysis and views on what may yet happen here.
Mr. Turk's views are relevant because he runs one of the most successful of the digital gold currencies, GoldMoney.com. His work for GoldMoney includes the development of a system for holding gold outside the USA, with data served from the financial privacy haven of the Channel Isle of Jersey.
Next part of this issue: is there going to be an economic crisis? Yes, I believe so. So does Jim Turk, who recently wrote with John Rubino a book entitled The Coming Collapse of the Dollar, which I reviewed here.
Another friend, Doug Casey of CaseyResearch.com calls it "The Greater Depression." He expects gold not only to go through the roof, but also to go "to the Moon!"
Many different thoughts come up in this context.
First, the best way to protect yourself is to diversify your portfolio risk by holding gold in several different ways and in different countries. More on that below.
Second, you should have some gold and silver in your possession. Ten one ounce gold coins are worth about $5300 just in metal, plus a coin premium. You can easily fit a roll of ten coins in each pocket of your trousers and have about $20K with you at all times if you like. (The cost might not be easy but it isn't coming very far down any time soon.)
Third, don't trust a bank safety deposit box, because it isn't your safety they have in mind. During the gold confiscation period, the Secret Service searched bank vaults and would rifle through the contents of any safety deposit box. They seized gold from safety deposit boxes routinely, and then made the owners prove that it was exempt (jewelry, antiques, collectibles, numismatics).
For the portfolio diversification, I would suggest you buy some gold and silver to keep on your person, some to store where you live, some to store in a place where you can go if things get rough, keep most of your ready cash in digital gold, and put some money into mining stocks.
In terms of digital gold, I suggest you buy some e-gold but store it in the 1MDC system, have some Pecunix, perhaps some GoldMoney, and some e-Bullion. Another alternative in a completely different culture as well as in a different country is e-dinar.com in Dubai. Focus on the political issues if you please, but remember that portfolio risk is less if the correlation between risky things is less, so having some gold in a completely different country may be a good way to reduce portfolio risk.
A diversified portfolio is good because it stores not only the gold in different countries, but the data about your gold account in different countries. The e-gold gold is stored in London, Zurich, and Dubai; the Pecunix gold in Zurich; the GoldMoney gold in London; the e-Bullion gold in Zurich, Perth Australia, and elsewhere. Data about the e-gold accounts is in Florida, which is a risk, but the 1MDC system works with the same e-gold, but they store their data in Singapore. So you are safer that way, I think. At my suggestion, the e-Bullion servers were moved to Switzerland last year. The Pecunix servers are in free market New Zealand.
The nice thing about digital gold is it is very sellable. Go to FreeMarketMoney.com for one of my favorite exchangers. With gold and silver to protect the value of your wealth, and digital gold to provide convenient conversion back to fiat money when you need to pay bills, I think you are much better off. There's no need to hold much fiat money except as you need it.
With regard to having some gold and silver in your possession, I think the confiscation, when it comes, will at first target the low hanging fruitgold in stores, in storage within the USA, and in bank vaults. Later, the government may move to door to door confiscationsas they proved willing to do for guns in New Orleans last Fall. Of course, how you respond to such behavior is up to you. Guns and kevlar and ammo, gas masks and radios and cell phones and friends you can reach are all good ways to prepare for a possible attack by thugs. Keep yer powder dry.
One good thing about e-gold, you can pay for ads on The Libertarian Enterprise and donate to keep the magazine published with your e-gold account. Other liberty-oriented people such as Laissez Faire Books and Casey Research accept GoldMoney.
How easy would it be for the USA government to put the squeeze on the British government to get them to turn over gold held by Americans in offshore accounts? Well, that turns out to be much more difficult than just seizing gold in bank vaults in the States. The British run the biggest offshore tax and financial privacy haven for Americans, not only in Britain itself, but also in the Channel Isles of Jersey and Guernsey and in the Isle of Man. Ireland is also a nice tax haven for Americans. Offshore is a good place to preserve your wealth. Similarly, the USA is a great tax and financial privacy haven for British subjects. So, it is possible the USA would try to shut down the British tax havens, but it would be very tough. Britain is a nuclear power, after all. And they could make a lot of financial grief for the USA if that got started. For one thing, the British would presumably view such activity as a good reason to pull a lot of their invested capital out of the USA. Capital controls would go in place and that would probably start a global financial trade war.
GoldMoney is a good alternative, but they do require identity papers on all account holders. The data on their servers is stored in the Channel Isle of Jersey which is a privacy and tax haven, but is also compliant with the OECD/FATF "know your customer" rules. Some of us in the industry joke that "know" is meant in the Biblical sense.
Why would it be difficult for a specific account to be shut down? Well, it is a different justice system. So a federal agent would have to get the State Department to send someone to a court in Jersey and the court there would have to be persuaded that a Jersey law had been broken. It is not, for example, a violation of Jersey law to fail to pay taxes in South Africa. The courts there do comply with requests for information on drug cases, murder, and theft. Those are crimes there. But they would not have over a trillion dollars stored in banks on their tiny island if they just routinely closed accounts.
The same for Switzerland, Singapore, New Zealand. These places aren't like the USA, in that due process still means something. And the process is very different. Switzerland still has financial privacy laws that are highly regarded worldwide.
Yes, everything is vulnerable, and things change even in good countries. So, you want to protect yourself, I think, by having a diversified portfolio.
More information on some mining stocks I like is here.
The market still has not recognized the value of Lumina Resources, in my view. So, that's one to look at. Some of the others have gone up already, but I think Northgate and Newmont remain good values. And, of course, some stocks are going to trade at an extreme premium as the prices of the metals rise. During the peak of the last bull market, some stocks traded at two and three times the value of the gold in the ground, whereas right now they are trading at a discount to net assets in the ground.
In my view, based on their 43-101 compliant mining data, the measured and indicated resource for Lumina includes over ten million ounces of gold in the ground and a huge amount of copper. At recent prices for these metals, my math shows over $600 per share in measured and indicated metalwhich you can buy for around 45 cents a share, Canadian. Plus, the management under Ross Beattie is just superthe same people behind the very successful Regalito Copper.
For those looking for more information on digital gold, I've built two sites to help out. One is EzEz.com which has some text tutorials. The other is Vertoro.com which has graphical tutorials. Please feel free to ask questions or send for us to help with converting a business to use digital gold more and more.
Confiscation is a very, very bad sign. It is a sign of desperation. Desperate men in power have reached those depths of depravity before, where they seize private property and call it "confiscation." I think we must conclude that since it has happened, it is possible.
Other than keeping some gold and silver where you live, and on your person when you drive around, it would make sense to have some buried where it would not be easily spotted by an aerial magnetometer survey, such as under reinforced concrete (basement, roadway) or an old junk car. If you live near any granite outcroppings, these are generally fairly good radio frequency insulators. It would make sense to be armed and be prepared to defend your property.
It would also make sense to have a portfolio of gold denominated assets including 1MDC, Pecunix, e-Bullion, and perhaps GoldMoney. Since GoldMoney cooperates with the identity paper stuff, they might be the last place raided by the state, but, ultimately, you have to choose how much you want to tell them.
As it happens, I also like the Liberty Dollar gold and silver specie and paper warehouse receipts. It is a bit of a worry that their warehouse is in Idaho, though. The servers for eLibertyDollar are in Evanston, Illinois, I think. But, anyway, you may enjoy spending silver at a store near you, and the Liberty Dollar works well, in my experience.
Finally, the gold mining stocks should give you some premium on your capital. In a period of high inflation, you have to be looking for high rates of return just to keep up.
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