On April 5, 1933, President Franklin D. Roosevelt issued an executive order making private ownership of gold illegal. The order forced Americans to sell their bullion to the Treasury at the then legal price of $20.32.
Gold ownership remained illegal in the US until 1974.
Failure to tender your gold could get you a maximum fine of $10,000 (492 ounces of gold or approximately $625,000 at today’s prices) and up to 10 years’ imprisonment.
Franklin’s order was also followed by the Gold Reserve Act of 1934. The act lifted the nominal price of gold from $20.67 to $35.
The penalties were exceptionally high to ensure compliance with what was a disguised 42% tax on savers.
Is it possible that our indebted government could force similar measures on gold owners today? We can’t rule it out, but it’s less likely to happen today than it was in the 1930s.
Why the US Is Not Likely to Confiscate Gold Today
Desperate times call for desperate measures. Franklin’s order was justified as a measure to overcome the Great Depression.
Nobody knows how severe the next recession will be and what measures it may call for. However, gold will be less of a target for a few obvious reasons.
First, the US dollar is no longer backed by gold reserves. Second, gold represents a tiny portion of today’s financial assets. For this reason, it’s unlikely to be the prime target for taxation or seizure.
All the gold ever mined is worth about $7.5 trillion as of this writing. Meanwhile, total financial assets make up $294 trillion globally. Why would government focus on gold ownership when gold is a mere 2.5% of total assets today?
There is much larger fish to fry.
However, in times like these, nobody is safe. And there’s no guarantee that gold owners won’t become the targets of desperate governments. When things go sour, anyone who owns tangible assets is a potential target for any form of taxation or confiscation.
Why You Should Use Gold as a Hedge
What can investors do to protect all of their assets from the risk of government seizure?
First, you have to understand how government seizes assets from citizens—and what actions may not be politically acceptable even in desperate times.
Outright default on insolvent pension funds would be political suicide. No sane politician would ever campaign for that. However, a progressive default through debt monetization (e.g. quantitative easing) would be more likely.
This means that the dollar is almost certain to lose its value against hard assets like gold.
There are more reasons why investing in precious metals is safer than hoarding cash.
Cash is convenient and essential, but holding large sums in cash exposes you to a bigger risk of seizure and devaluation.
Bail-ins of bank accounts with savings that exceed the FDIC insurance level ($250,000) will be more politically legitimate than taxing those who have no savings. Most voters simply won’t feel sorry for the rich.
That’s why gold is a much safer store of value in the long run despite the risk of seizure.
How to Minimize the Gold Seizure Risk
This risk can be minimized, too.
If it ever happens again, it will likely be focused on domestic holdings—as it was in 1933.
The untouchable billionaires and politicians have their assets tucked away in foreign trusts and will make sure they are kept safe there. The US government will save itself the trouble and chase domestic holdings instead.
The middle class and small entrepreneurs will once again be the prime targets of government seizure and taxation.
To avoid this, I’d recommend investors storing their metals in a safe foreign jurisdiction like Switzerland or Singapore.
With your gold stored abroad, you may have some time to react.
If you feel the threat is product specific, you can liquidate those products and diversify into other precious metals products. Another option would be to take delivery before such a legislation comes into effect.
However, no risk can be fully eliminated. There is no perfect solution. Nonetheless, diversification can be an essential element of an overall protection strategy against an increasingly uncertain future.