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Precious Metals Confiscation: Can it really happen? (Again)

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Gold Confiscation: How Big a Threat?
By Franklin Sanders

Investors new to silver and gold usually ask,  "Will the government seize gold again like it did in 1933?  Shouldn't I buy numismatic coins to protect myself from seizure?  Aren't numismatic coins exempt from reporting to the government?"  The correct answers are (1) No,  (2) No, and (3) No.  But numismatic coins do cost a lot more per  ounce than bullion coins, and they carry a much higher commission.

SHOULDN'T I BUY NUMISMATIC COINS TO AVOID A GOVERNMENT GOLD SEIZURE? The sales pitches for their alleged safety rest on ignorance of the law and shakey assumptions about human nature.  "Numismatic" coins were not exempted from the 1933 gold seizure, only "gold coins having a recognised special value to collectors of rare and unusual coins." [Exec. Ord. of 4/5/1933, 2(b)].  Any tyrant worth his whip could drive an 18-wheeler through a definition that vague. 


NO CONSISTENCY

Numismatic dealers argue that because government exempted "numismatics" then, they must exempt them now.  But what obliges a tyrant to be consistent?  No, if they played by the rules they wouldn't be stealing your gold. If the government chose to seize gold and silver again, nothing obliges it to follow 1933's path.  Why would the lawless respect this particular law?


NO LAW OR REGULATION

Numismatic dealers may tell you that "the law defines a `numismatic' coin as one with a premium of 15% or more over its gold value."  That's also not true.  No such law or regulation exists.  A reg was proposed in the Federal Register, Vol 49, No. 3, 1/5/1984, but never adopted. 

By statute, the only coins defined as "numismatic" are American Eagle gold and silver coins minted since 1985 and other currently minted commemorative coins.  No statute or regulation defines U.S. $20 gold pieces (or any other U.S. gold or silver coin) minted before 1935 as "numismatic."

The Gold Bullion Coin Act of 1985  (Public Law 99-185 of Dec. 17, 1985, 99 Statutes At Large 1177, 31 USC 5101, 5111, 5112) provided for minting the American Eagle ounce, half ounce, quarter ounce, and tenth ounce gold coins. Section 2(3) provides, "For purposes of section 5132(a)(1) of [Title 31], all coins minted under this subsection shall be considered to be numismatic items." The Liberty Coin Act of July 9, 1985 (Public Law 99-61 of 7/9/85, 99 Stat. 115, 31 USC 5112) authorized the one ounce silver coin commonly called the Silver American Eagle.  At section 202(g) it contains identical language.  By statutory definition then, the American Eagle gold coins and the silver American Eagles are "numismatic" coins.  (31 USC Section 5132(a)(1) requires the Secretary of the Treasury to apply proceeds from selling "numismatic" items to cost of making them.)

Dealers may tell you that "U.S. $20 gold pieces are exempt from reporting when you buy or sell them," but this means nothing - everything is exempt from reporting when you buy it, unless you pay more than $10,000 in cash.  Even then it's not your gold or silver purchase that must be reported, only the cash transaction.


NO EXEMPTION + Contrary to the scare stories,  very few things are reportable when you sell.  Under 26 CFR 1.6045-1 and Rev.Proc. 92-103, dealers need only report customer sales of 25 or more (but not fewer) Krugerrands, Maple Leaves, or Mexican Onzas, five bag lots ($5,000 face value} of US 90% silver coin, kilo gold bars, 100 oz. gold bars, 1,000 oz. silver bars, or 50 oz. or 100 oz. of platinum.  If you sell lots smaller than these, the dealer reports nothing.


NO SENSE

Millions of people refused to hand over their gold in 1933.  How many would comply today?  If your family's survival depends on owning a little gold and silver what will you tell the government agent? Will you fork over  your gold and watch your family starve?  Or will you reply, "Gold?  What gold?  Oh, yeah, I was talking to a fellow in the Burger King a few years ago when my wife was sick and I needed money.  I sold him the gold, and even remember his name.  Sold it at a loss, by the way."

Finally, gold and silver today don't represent the huge pool of wealth they represented in 1933.  Why risk wide-spread disobedience to steal such a tiny plum?  If the government wants to steal a big pool of wealth, they'll snatch your pension funds and IRAs, not your gold. Tyrants always shoot for the biggest target.

On January 4, 2005 I received the following release from Chris Powell, Secretary-Treasurer of GATA (Gold Anti-Trust Action Committee, www.gata.org.)

In a letter released today in response to an inquiry from GATA, the U.S. Treasury Department declared that it has no statutory authority to confiscate gold.

GATA made the inquiry last fall through the office of U.S. Rep. John B. Larson, Democrat of Connecticut, co-sponsor with U.S. Rep. Ron Paul, Republican of Texas, of legislation to require the Treasury Department to obtain the approval of Congress before intervening in the gold market.

GATA's inquiry was prompted by enduring fears and rumors among gold investors about the legal security of their gold, prompted in part by the U.S. government's attempt in 1933 to confiscate monetary gold by presidential decree.

The Treasury Department's letter was dated December 17, 2004 and was received today by Representative Larson's office. The letter was signed by Roberta K. McInerney, the department's assistant general counsel, and addressed to Michael Kirk, Representative Larson's press secretary. The letter reads as follows:

Dear Mr. Kirk:

I am writing in response to your e-mail of November 29, 2004, which forwarded a question from a constituent of Congressman Larson's as to whether the Treasury Department could force the redemption of U.S. gold bullion coins at face value, or the surrender of foreign bullion coins.

In Public Law 97-258 (Sept. 13, 1982), Congress eliminated a statute (12 USC 248 n) which had allowed the secretary of the Treasury to require individuals and others to deliver to the Treasury gold coins, bullion, and certificates. As a result, this statutory authority no longer exists.

I hope this information is helpful. Please let us know if you have further questions or need additional information.

Roberta K. McInerney
Assistant General Counsel
(Banking and Finance)
Department of the Treasury
Washington, D.C. 20220"

(End GATA release. To subscribe to GATA's dispatches, send an e-mail to: gata-subscribe@yahoogroups.com. The Moneychanger strongly recommends you visit GATA's website and support GATA with a contribution.)

Only the word "vindication" conveys how this release exhilarates me. For years I have warned consumers that no statute or regulation empowered the government to confiscate gold, so they were wasting money buying expensive numismatic coins to "protect" themselves from confiscation. At last the US Treasury itself admits that it lacks any authority to confiscate.

You might buy numismatic (collectors') coins because numismatics is a fascinating hobby, but don't buy them as a gold investment. Why? Numismatic coins usually carry commissions of 25% or more, compared to bullion coins with a 3.5% commission or less. The huge numismatic spread between buy and sell means that gold has to gain 25% or more before you break even, let alone make a profit. Now here's proof that numismatic coins confer no immunity from confiscation because the government has no power to confiscate anyway, from their own lips.

Franklin Sanders has been dealing in physical gold and silver since 1980, over 25 years. He publishes a monthly newsletter about the silver & gold markets, The Moneychanger, available from www.the-moneychanger.com. When visiting his site, be sure to download your free Portfolio Calculator to keep track of your gold & silver investments. With the Portfolio Calculator comes a free subscription to Mr. Sanders' daily e-mail commentary.