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Catching a Falling Financial Knife

Government Gold Confiscation 2013

Commodities / Gold and Silver 2013 Jan 04, 2013 - 12:48 PM GMT

By: Julian_DW_Phillips

Commodities

Readers may not agree with our conclusions on the confiscation of gold, but we emphasis this reality. If we are wrong, then you will still own your gold; if we are right and you have not taken the right steps to guard against confiscation and the personal dangers to you individually, then you will lose your gold and possibly suffer the penalties, which the "Gold Confiscation Order" may bring with it.


As 2013 is upon us, we point to a report by Sharps Pixley, the London Gold Dealer that:

"In the Basel III, gold has been re-rated from a Tier-3 asset to a Tier-1 asset, or "zero-risk" collateral. This means that banks can decide to buy gold instead of sovereign bonds to fulfill the rise in the Tier 1 asset requirement. The Shanghai Gold Exchange has just started a trial on gold inter-bank trading in order to increase the liquidity and flow of gold in China."

This brings the concept of the confiscation of gold, one step closer to a reality that will come upon us as a surprise!

In a continuation of our series on the confiscation of gold, we look at more critical questions that gold investors should factor in when considering how best to own/store their gold and prevent its possible confiscation.

Is it Sufficient to Hold your Gold outside your Country?

The vast majority of gold storage schemes outside of the U.S., whether in the U.K. or in Switzerland, will confirm to their clients that they will not report their gold holdings to their client's Authorities. There is no requirement for them to do so, but one would be naïve to believe that this is sufficient to prevent the confiscation of their gold or ensure client's gold is secure outside their Jurisdiction.

Much more is needed if that objective is to be achieved. Just as U.S. tax is imposed on U.S. companies and U.S. passport holders outside the U.S., so a 'Gold Confiscation Order' would apply to gold held outside the U.S.

We would expect the order to contain a requirement for U.S. citizens to either transfer ownership of their foreign held gold to the government or obey the requirement to repatriate gold home and hand it to the government.

To understand this fully, gold investors should understand how governments work when they impose Capital Controls, in general. It is not the gold, per se, that they target. Their prime route to the gold is through the gold owner and gold dealers!

Clients Attacked to Get to the Gold

It is a matter of history in all lands where controls over assets have been imposed on their citizens, that governments directly target the owners of those assets at home, when they do not comply with such controls.

For instance in 1933, the U.S. threatened a fine of $10,000 (what would that be today?) or a 10 year prison sentence or both against citizens who did not comply with the "Gold Confiscation Order".

Today, should such an order be imposed, the same tactics would be used. Keeping ones gold in a foreign storage facility in one's own name would not suffice because continuing to own it would place you outside the laws of your country and open to government retaliation on your soil (at home) irrespective of where you hold your gold. Is that a position you would be comfortable with? The authorities are very capable of discovering who is continuing to own gold.

We do appreciate that you may not have to report your gold ownership under the current 1040 return, but we would expect that the financial conditions that prompted the "Gold Confiscation Order" would come with a change in other financial laws, such as what to report and include gold.

For such orders to be effective, governments would need to ensure the laws are directed to the new end so would have to change other laws that stood in the way of such orders.

Gold dealing companies (Gold dealers, Custodial banks) who have dealt in the name of individuals or corporations, if required to do so by the authorities, subsequent to such an order, are most likely to disclose their client's names, even if not required to do so now. To keep operating offshore, or in the jurisdiction they are registered in would likely disclose this information, particularly if the Jurisdiction they operate in and are registered in, is an ally of the confiscating authority.

Switzerland is the exception as it gained its reputation by refusing to comply with foreign authorities draconian capital control laws. They need to keep this reputation for their economy not to severely contract.

But the key to owning gold outside a "Gold Confiscation Order" lies in how to own the gold. (For more information e-mail: admin@StockbridgeMgMt.com)

Nations Colluding to Impose Confiscation Orders?

Capital and Exchange Controls are usually considered illegal outside the country in which they are imposed; however, as a "Gold Confiscation Order" would have as its purpose to shore up the banking system internationally, some countries may cooperate to some extent on this matter.

  • In the Eurozone -- now that there is going to be a banking union -- individual countries would be required to comply with an E.U. decision on gold confiscation. (Switzerland would remain outside this.)
  • If the Order were enforced in the U.S., then it is likely that the U.K. would cooperate with the U.S. in imposing this on gold owners and gold dealers or custodians. (Again Switzerland would be outside this.)

Just how far this would go is difficult to gauge, but we must remember that the banking system overall would be supportive as the amount of gold that would become available in a confiscation, may enable the banking system to function much better. It's in all their interests to support such confiscation orders. We believe that a private vault outside the banking system would remain a safe place to hold gold, provided it was in Switzerland and nowhere else.

We know of no other gold storage scheme that effectively blocks the confiscation of gold and the threats to the individuals (from government) that beneficially own the allocated gold, except the twin scheme of Stockbridge Management Alliance Ltd. under the guardianship of the Ultimate Gold Trust S.A., a Swiss company. (For more information contact admin@StockbridgeMgMt.com)

Is there really a danger of gold being confiscated? We believe that there is! This is part of what we said in the Introduction to this series:

"Importantly, Central Banks and the Authorities possibly will not wait for the monetary system to crash before acting to ensure they have enough gold to keep the monetary system working. They will act well ahead of that time to make sure they avoid a collapse and attempt to engineer the event so as to catch gold investors by surprise, removing their chances of making any contingency plans. With their prime objective being to shore up confidence in the monetary and banking system, they could not afford to signal the market about their intentions beforehand. We are not just talking about the U.S.A. but many other countries that may precede or follow the U.S. in these acts. The trouble is that the gold they 'acquire' maybe yours. Wisdom demands that the crises seen since 2007 do not happen again because this time around, they may collapse. Prudence demands that investors don't take that risk but act before it's too late. The risks of not guarding against this eventuality are enormous; the rewards of guarding against it are massive. If it doesn't happen you will lose little if anything; if confiscation does happen, then you lose a lot - a matter of risk/reward!

We believe that the confiscation of gold for this purpose is a very real and present danger and have organized a way to protect against that eventuality."

Gold Forecaster regularly covers all fundamental and Technical aspects of the gold price in the weekly newsletter. To subscribe, please visit www.GoldForecaster.com

By Julian D. W. Phillips
Gold-Authentic Money

Copyright 2012 Authentic Money. All Rights Reserved.
Julian Phillips - was receiving his qualifications to join the London Stock Exchange. He was already deeply immersed in the currency turmoil engulfing world in 1970 and the Institutional Gold Markets, and writing for magazines such as "Accountancy" and the "International Currency Review" He still writes for the ICR.

What is Gold-Authentic Money all about ? Our business is GOLD! Whether it be trends, charts, reports or other factors that have bearing on the price of gold, our aim is to enable you to understand and profit from the Gold Market.

Disclaimer - This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Gold-Authentic Money / Julian D. W. Phillips, have based this document on information obtained from sources it believes to be reliable but which it has not independently verified; Gold-Authentic Money / Julian D. W. Phillips make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Gold-Authentic Money / Julian D. W. Phillips only and are subject to change without notice.

Julian DW Phillips Archive

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Catching a Falling Financial Knife