As we enter the post-COVID-19 economy, we’re aware of how the “Great Pause” has plunged the world into a state of uncertainty, a “great unknown” of sorts. We don’t know if our economy is heading down the rabbit hole of hyperinflation or deflation. But we do know that monetary stimulus on overdrive is going to hurt currency values over time.
Standing in front of all this is gold, one of the few remaining safe havens not dependent on fiat values. Central banks know this. That’s why they’ve been adding to their gold reserves. Governments understand this as well.
This brings up a question that sits comfortably between reason and paranoia: if the world tips toward a Depression, is it possible that governments may begin confiscating gold?
Of course, it’s possible. After all, it’s happened before. But is it a probable outcome? Before we address this idea and provide a potential solution (namely, what to avoid in order to prevent confiscation), let’s re-examine the reasons behind this general fear among gold investors.
Investors Follow the Money, Governments Follow the Votes
Is the US government and central bank working to suppress gold and boost stocks? Yes, and it’s been going on for several years. The suppression part might sound like an alarmist conspiracy theory, but only to those who fail to see the practical side of things.
First off, investment gold across the globe stands at $1.9 Trillion, or 35,000 tonnes, according to Credit Suisse. As compared with $360 Trillion in global financial assets--including stocks, bonds, and other holdings--gold’s portion stands at a mere 0.5%. That’s all.
So, if investment gold is dwarfed by all other assets, why the suppression in favor of equities? It’s because more people invest in stocks than gold. The US government wants stock to advance higher, enriching Americans’ paper wealth, as that is what “buys” votes. Investors want to see their wealth advance. Politicians want to take credit for it and hold on to their jobs. This may upset gold investors, but who invests in gold, anyway (sarcastic remark)?
Might Gold Suppression Escalate to Gold Confiscation?
As central bank monetary easing boosts equities across the globe, so too will their negative consequences. Currencies will experience a debasement in value, and people will notice their purchasing power weakening as they pay increasingly more for basic necessities. That’s the inflationary perspective. On the deflationary side of things, we may see income levels sinking faster than prices; yet inflation will remain below the Fed’s 2% target.
We don’t know if we’ll end up seeing a repeat of 1933, when FDR began confiscating gold. Should you prepare for it? Well, if it does happen, we’ll be in a very different world from the one we know now. But again, the world we know now no longer resembles the world we remember back in January, before COVID-19 spread to the US. It would be nice if governments “hedged” the likelihood of a pandemic, as remote a possibility as it sounded years ago when epidemiologists first sounded the alarm. Should we hedge against the possibility of gold confiscation? That’s up to you.
A word of warning though: if you hold CUSIP coins or bars, those assets are on record with you as the owner. So, if confiscation does happen, guess where the government might look first (you guessed it...CUSIP metals). CUSIP coins are tagged, ready to be monitored, and likely among the first to get seized should such a draconian measure be enacted.
But the US Holds Sufficient Gold, Making Confiscation Unnecessary
That’s an assumption based on an old estimation. The US supposedly holds 8,000 tonnes of the yellow metal. But how can anyone know this for sure, considering that the US gold reserves haven’t been audited since the 1950s, around seventy years ago.
Why wouldn’t a country audit it’s own gold? It’s not like central banks consider the metal a relic--2018 gold purchases by central banks prove otherwise. Perhaps the US has audited its gold, not making the results public. There is a reasonable chance that the US doesn’t own as much gold as it claims, making the case for confiscation more likely.
When Currency Values Sink, He Who Holds Gold…
As a gold investor, you don’t need to be reminded of gold’s intrinsic value, and how such value can offset the negativity of an inflationary or deflationary environment. You know well that when currencies get debased, the person, state, or country who holds the most gold is in the most favorable, most empowered, and most advantageous position.
The choices are clear-cut: 100% faith in a sinking US dollar (it sinks every year, by the way), or a prudent dollar hedge in the form of gold allocations; not minding the vulnerabilities of CUSIP-tagged gold, or holding private gold off the confiscatable grid.