Choices For Gold Buying

I was asked about what I invest in for gold and why.  So, I wanted to send out the following reprint of an article I did a while back about gold confiscation (which is why I buy Saint Gaudens), along with a video I did about why you should not use the GLD for long term investment purposes:

There is a major issue that is often debated amongst gold investors. And, it relates to the government's ability to confiscate gold owned by the public.

This issue often leads to heated debate, and, unfortunately, most of the debate I see on this matter is not supported by facts. Rather, arguments on the side of confiscation not being a possibility for which one must plan is often an emotional response which is quite tantamount to covering your eyes and muttering to yourself "it simply can't happen."

Many quote the famous words of Winston Churchill "Those who fail to learn from history are doomed to repeat it." However, if one delves further into where this astute phrase originated, you are led back to George Santayana (1863-1952), who likely "borrowed" it from Edmund Burke (1729-1797), a British philosopher, who stated that "Those who don't know history are destined to repeat it." But, I digress.

I would suggest we learn a little history before we can begin discussion of whether or not you have to be concerned about your gold being confiscated.

On April 5, 1933, President Roosevelt signed United States Presidential Executive Order 6102, "forbidding the hoarding of gold coin, gold bullion, and gold certificates within the continental United States." This was followed up by Presidential Proclamation 2039 which forbade the holding of gold or silver coin, bullion or currency under the penalty of law.

However, Order 6102 specifically exempted "gold coins having recognized special value to collectors of rare and unusual coins."

At the time, the United States was still under the gold standard, and Roosevelt felt the enactment of this Order was a necessary step to allow the Federal Reserve the ability to act in a somewhat unfettered manner to stem the tide of deflation through further money printing. To quote Irving Fisher from that period of time, "after a wave of bank failures . . . both banks and their depositors began raiding each other in a cut-throat competition which more than defeated the new issues of Federal Reserve notes."

The main point that many gold enthusiast point towards is that the confiscation Order was enacted during the time when the United States was still on the gold standard, and the government needed to control the gold in order to control monetary policy. So, of course, those that maintain the perspective that we will not face confiscation again appropriately note that, since we are no longer under the gold standard, the government does not have the same incentive to confiscate the public's gold.

However, I believe this is a very narrow reading of history, as well as a narrow perspective of the true purpose behind the enactment of this confiscation Order. I submit to all those reading this article another, more broad, perspective to take away from the enactment of such an Order. Does Roosevelt's signing of this Order not tell you that the government will go to whatever lengths it needs in order to maintain itself and an orderly society? Does it not tell you that if the government will deem it necessary to confiscate gold in the future for whatever purpose it deems necessary for the common good at the time, it will do so?

Remember what Franklin said in his autobiography: "So convenient a thing is it is to be a reasonable creature, since it enables one to find or to make a reason for everything one has a mind to do." And governments are not beyond such "reason."

While I will not harp on this issue any further, I suggest you consider this perspective a little more carefully, rather than "reason" that since we are no longer on the gold standard, the government will never confiscate gold again. I think too many proffer a public perspective based upon this over-simplified understanding of history and they are doing metals investors a serious disservice.

Furthermore, while there was an exemption to this order for those coins that retained independent numismatic value beyond the value of the actual gold itself, there is no guarantee that, should any future Order be enacted again, we will have a similar exemption; although, it is a reasonable expectation. For this purpose alone, I think it behooves all metals investors to have some allocation of their overall gold holdings in coins with independent numismatic value, especially those that view gold as "insurance."

In fact, in speaking with fellow Seeking Alpha contributor and precious metals broker Doug Eberhardt of Buy Gold and Silver Safely, Doug stated that "premiums for rare and semi-numismatic coins are at historic lows relative to their past. The risk is less when investing in these coins when you are paying lower premiums." So, it would seem that, should you consider adding this type investment to your overall gold portfolio, we are approaching an ideal time to so.

Before I conclude this article, I also want to address the related issue of safety deposit box seizures. It seems that there is a common belief that the government can simply seize all safety deposit boxes, which then makes any gold you have stored therein subject to government confiscation. However, there is only some truth to this perspective, again, based upon history.

During the 1930's, as thousands of banks failed during the massive deflationary spiral experienced by the United States, the Treasury came into possession of the safe deposit boxes located in these failed banks. So, one had to come to the US Treasury to claim the contents of their deposit boxes. Now, if one stored gold in the deposit boxes at one of these failed banks, then they were required to turn that gold over to the Treasury when they opened the deposit boxes.

So, if one is to learn a simple lesson from history, you would need to see several factors being in place before you would not be able to collect your gold from your bank deposit box. First, a confiscation order would have to be in effect. Second, the bank in which you store your gold would have to have failed and come under the control of the US Treasury.

Many of you are probably saying to yourself that you can now be much more comfortable with leaving gold in your safe deposit box at your bank since banks are not failing and there is no foreseeable confiscation order being proposed. Well, let's think about this. Gold is wanted by most as protection against systemic failure, whether that be governmental or financial. But, once the system does fail, only then do we begin to see confiscations and bank failures. So, the events that will have you seeking safety in your gold are the same events that can potentially prevent your access to your gold, or can even separate you from your gold.

So, I will leave you with one final quote from Franklin, which I sincerely hope you take to heart with regard to storing your gold:

"By failing to prepare, you are preparing to fail."

The following link takes you to a webinar I did about the GLD prospectus.

Avi Gilburt is founder of