My recent article on the coming gold and silver confiscation certainly generated quite a few email comments and questions. As expected, when talk turns towards people being dispossessed of that which they pin their financial security on, the tempo rises. Some I replied to individually but others I left in the hope of collating them into generic groups to be dissected in this article. Let us do that now.
The generic comments or questions can be classified as follows:
1. Depositing gold or silver in a safe haven such as Switzerland.
2. Non-compliance in a post-confiscation black market.
3. How authoritarian government has to be for this scenario.
4. The position of numismatical coins.
5. The position of mining shares.
6. The current Central Bank dumping of gold.
7. The relative safety of non-monetary metals.
8. The importance of a possible global currency and government.
9. Seizure of other assets.
10. The small holdings of gold by the general populace.
11. USA invasion of Mexico and Canada?
12. Militarization of silver.
13. What to do with money exchanged for gold/silver?
I will select some of the issues here; others will be discussed in more detail in future issues of New Era Investor.
First, the idea of a safe haven in perhaps a secret bank account number in a vault in a far away place, such as the quintessential safe haven of Switzerland. Let me concede that such a scheme looks pretty safe. In fact, even during World War II, Switzerland's neutrality seemed safe, well, so long as the Nazis didn't beat Britain.
But let me tell you that I recently sold out my silver bullion certificates with the Perth Mint and another bank. I am not happy, not happy at all. After all, when the proverbial hits the fiat fan, why would one want their gold and silver to be stored in a vault thousands of miles away? Such a scheme is fine if you merely expect a 1970s scenario to play out, but we are talking more like the 1930s for the next Big Test of the monetary system.
Now, you may find that after you have convinced the White House or whoever that you have no gold in your pockets, you may then find that economic distress elsewhere may have emptied your storage provider's pockets as well. Why take the chance? And even if you do preserve your long distance grip on your metal and try to move it back home, you may find that customs and excise are very interested in who is trying to import gold and silver bullion. As an aside, now is a good time to convert from remote silver to local silver. The dollar rally, at least for a time, will hold gold and silver down to allow such a transaction.
And what can we say about non-compliance in a post-confiscation black market? In my newsletter, I pointed out the little publicized fact that gold coin holders up to a face value of $100 were exempt under Roosevelt's executive order. If a household had three adults, that gave us 15 double eagles or about $6,300 at today's prices. One could spread the wealth around a bit and still be compliant. Of course, like the South Koreans in my article, a lot of people would have enthusiastically and patriotically rallied to the flag and coughed up. Today, the situation is different, no monetized gold coins in customers' savings accounts and no banks holding gold coins as reserves. There is less gold and therefore more rooting out to be done. Woe betides the man who hides his gold eagles and then tries to sell them on eBay (or more likely gold sales will be banned by then on eBay alongside live animal and illegal drugs)!
But what am I saying? Gold will be recalled to either shore up failing treasuries or become the basis of new gold-backed currencies. Wasn't that what gold advocates wanted in the first place? So, do you hold gold in that situation or give it up merrily? Time will tell.
Moving onto our third point, how authoritarian does government have to be for this scenario? The answer is not very much. Many will criticize the Roosevelt administration and I don't particularly like the socialization that went on as a result of the Great Depression. But if you look at what was happening over the Atlantic in the USSR where Stalin was both collectivizing and starving millions of his fellow Georgians, I think you would agree that Stalin's world was not the place to be. I would also point out that Stalin's co-brute, Lenin imprisoned and tortured anyone who he thought might have an ounce of gold somewhere. Compare and contrast if you will.
The position of mining shares offers no safe haven. In fact, the possession of mining shares in a time of confiscation reminds me of the death of a monarch. When a king died, and the cry went up "The King is dead, long live the King!" then the heir became king instantly no matter if he was in skiing in Antarctica or holidaying on Mars.
So it is with the nationalization of mining operations. When the government on whose land your company is mining issues the decree "Your equity is dead, long live our equity!" then it doesn't matter whether your shares are buried in Antarctica or on Mars, they instantly become worthless or whatever morsel of compensation a depression-hit government deigns to give you. And remember, it won't just be the USA that is in the fiscal ditch when our crisis arrives. All governments will be scrambling to put hard assets into their public portfolios.
Not that I am decrying the ownership of gold or silver equities. At least for this present time anyway.
But with time running out, I visit one more point and that is the question of non-monetary metals such as palladium and platinum. I would say first of all that Peak Oil or any depression-inducing event would hit the industrial demand side of an investment metal. In that light, we may expect platinum and palladium to suffer more than gold or silver.
The other issue is that Peak Oil spells death for the conventional car industry and catalytic converter demand will plummet. Yet on the other hand, hydrogen fuel cell technology may provide a counter balance for platinum and palladium (though I don't expect hydrogen to solve much).
To suggest that a new monetary role may be found for them is at best speculative to me, but it is possible they could form part of a hard asset reserve without necessarily being monetized.
So, for the time being I offer my thoughts on these selected questions and comments. As I write the US dollar continues to rally from its December 2004 low. Though I must say at this point the strength of it does not look strong. Nevertheless, the 4-year upper trend line was broken last month and the 65-week moving average is nigh unto breached. A suggested 38% retracement at this point would take us back up to 95; this cannot be bullish for gold and silver in the medium term.
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