U.S. asset managers worried Obama could confiscate gold
dirtygoldman
Posts: 18
Speaking at the FT Silver conference in London yesterday, lead-off speaker John Levin, HSBC Bank's Managing Director, Global Metals and Trading (HSBC is one of the world's top precious metals traders and its vaults in the U.S. and Europe hold huge holdings of gold and silver bullion) recounted conversations with some of the U.S.'s top asset managers controlling massive amounts of capital asking if HSBC had the capacity in its vaults to store major gold purchases. On being told that the bank's U.S. vaults had sufficient space available he was told that they did not want their gold stored in the U.S.A. but preferably in Europe because they feared that at some stage the U.S. Administration might follow the path set by Franklin D. Roosevelt in 1933 and confiscate all U.S. gold holdings as part of the country's strategy in dealing with the nation's economic problems.
While in Mineweb's view such a move is unlikely, one needs to bear in mind that President Obama is a keen follower of Roosevelt's views and policies and that the very fact that some asset managers controlling huge volumes of money feel that such a move is possible is a significant factor - and one that is perhaps heightened by the huge amounts of money flowing into gold at the moment in both ETFs and bullion.
As a reminder to readers - Section 2 of Roosevelt's Act read as follows: All persons are hereby required to deliver on or before May 1, 1933, to a Federal Reserve bank or a branch or agency thereof or to any member bank of the Federal Reserve System all gold coin, gold bullion, and gold certificates now owned by them or coming into their ownership on or before April 28, 1933, except the following:
(a) Such amount of gold as may be required for legitimate and customary use in industry, profession or art within a reasonable time, including gold prior to refining and stocks of gold in reasonable amounts for the usual trade requirements of owners mining and refining such gold.
(b) Gold coin and gold certificates in an amount not exceeding in the aggregate $100.00 belonging to any one person; and gold coins having recognized special value to collectors of rare and unusual coins.
(c) Gold coin and bullion earmarked or held in trust for a recognized foreign government or foreign central bank or the Bank for International Settlements.
(d) Gold coin and bullion licensed for the other proper transactions (not involving hoarding) including gold coin and gold bullion imported for the re-export or held pending action on applications for export license.
At that time of course, the dollar was exchangeable for gold at a set value ($20.67 an ounce) so compensation for such a move would have been easy to calculate. Roosevelt subsequently revalued gold to the $35 level which stood for over 30 years. Nowadays that kind of process would be a little more difficult, but perhaps not beyond the means of a government, already versed in printing large sums of money to try and re-stimulate the economy. Perhaps a figure of the average gold price over a 3 month period at a certain date would meet an initial compensation valuation, but in today's much more litigious society such a move might well fail anyway.
Indeed current economic analysis of the Roosevelt move suggests that it was not successful in helping drag the U.S. out of depression and indeed may have contributed to a recession within a depression - a pretty dire situation. It probably took World War II to end the Great Depression.
Levin's presentation - a trader's view from the coal-face as he put it - contained much anecdotal material of interest and was a refreshing change from the usual analysts' viewpoints. More of that in a subsequent article.
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While in Mineweb's view such a move is unlikely, one needs to bear in mind that President Obama is a keen follower of Roosevelt's views and policies and that the very fact that some asset managers controlling huge volumes of money feel that such a move is possible is a significant factor - and one that is perhaps heightened by the huge amounts of money flowing into gold at the moment in both ETFs and bullion.
As a reminder to readers - Section 2 of Roosevelt's Act read as follows: All persons are hereby required to deliver on or before May 1, 1933, to a Federal Reserve bank or a branch or agency thereof or to any member bank of the Federal Reserve System all gold coin, gold bullion, and gold certificates now owned by them or coming into their ownership on or before April 28, 1933, except the following:
(a) Such amount of gold as may be required for legitimate and customary use in industry, profession or art within a reasonable time, including gold prior to refining and stocks of gold in reasonable amounts for the usual trade requirements of owners mining and refining such gold.
(b) Gold coin and gold certificates in an amount not exceeding in the aggregate $100.00 belonging to any one person; and gold coins having recognized special value to collectors of rare and unusual coins.
(c) Gold coin and bullion earmarked or held in trust for a recognized foreign government or foreign central bank or the Bank for International Settlements.
(d) Gold coin and bullion licensed for the other proper transactions (not involving hoarding) including gold coin and gold bullion imported for the re-export or held pending action on applications for export license.
At that time of course, the dollar was exchangeable for gold at a set value ($20.67 an ounce) so compensation for such a move would have been easy to calculate. Roosevelt subsequently revalued gold to the $35 level which stood for over 30 years. Nowadays that kind of process would be a little more difficult, but perhaps not beyond the means of a government, already versed in printing large sums of money to try and re-stimulate the economy. Perhaps a figure of the average gold price over a 3 month period at a certain date would meet an initial compensation valuation, but in today's much more litigious society such a move might well fail anyway.
Indeed current economic analysis of the Roosevelt move suggests that it was not successful in helping drag the U.S. out of depression and indeed may have contributed to a recession within a depression - a pretty dire situation. It probably took World War II to end the Great Depression.
Levin's presentation - a trader's view from the coal-face as he put it - contained much anecdotal material of interest and was a refreshing change from the usual analysts' viewpoints. More of that in a subsequent article.
Link
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They didn't confiscate gold in 1933, they bought it with Federal Reserve notes.
Maybe that is confiscation to many here.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>U.S. Administration might follow the path set by Franklin D. Roosevelt in 1933 and confiscate all U.S. gold holdings as part of the country's strategy in dealing with the nation's economic problems.
They didn't confiscate gold in 1933, they bought it with Federal Reserve notes.
Maybe that is confiscation to many here. >>
Good point. People were required to sell it at current value, before it was revalued, thereby depriving them of their free will (to own or not own gold) but not their property.
In 1932/33 the Hoover administration prepared lists of anyone withdrawing large amounts of gold and not re-depositing it or showing it used for business purposes. These lists never included ordinary people, but were aimed at hoarders and speculators.
All gold was “money” and the government had tracked its location for decades. Except for what was in Treasury control – which was most of it – the tracking was highly inaccurate with errors compounding errors.
When FDR nationalized gold ownership, they used Hoover’s lists to identify speculative hoards. With most gold already in Treasury control, what was left was fairly small amounts. Treasury had done much the same during WW-I.
The key to being able to locate gold in 1933 was that the government more or less knew where it was: circulating coins, and government & bank vaults. Today, with completely unregulated gold markets, nobody knows where gold is except for the private storage and speculative companies.
The danger is not some sort of government confiscation, but fraud by the storage companies who sell paper receipts promising that you have physical gold in their vault. These same companies, however, do not let customers see, visit or segregate their gold, even though it is personal property.
<< <i>What happened to the price and availability of silver when the "confiscation/govt. mandated purchase" of gold was announced and after it was completed? >>
Well, that is kind of a moot point -- on 09 Aug 1934, silver was confiscated (with a few exceptions, as was the case with gold -- mainly being silver coins were obviously allowed, as they were in use).
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The threat of a $10,000 fine plus imprisonment was just as real for ordinary people as it was for hoarders and speculators. And I don't recall any distinction being made as to the amount, other than for small amounts of collectible gold coin.
Let's not quibble over the technicalities - the issue isn't confiscation, but the government's capricious declaration that people's assets (gold in this specific case) were no longer worth what the people knew they were worth, in order to attempt to force people to hand over assets that the government had no legitimate claim on.
That same administration's farm agency went so far as to declare food raised by a family for it's own consumption to be taxable because it was "being withheld" from the market. It's that type of "thinking" that scares anybody who has worked hard for what they've got.
The reason that this is scary is because this type of emergency declaration is a sham and is intended to force people into a box where they can be controlled more easily by the government, instead of the government doing the will of the people. Americans have every right to resist confiscation of assets by the government, especially when they are unfairly and unequally applied.
The very reason that gold and silver are trusted is because they can be hidden and the asset can be preserved regardless of who wants you to cough it up.
I knew it would happen.
Yes.....that is confiscation of wealth to me...even worse because the nation was on a gold monetary standard. Wouldn't have been so egregious if they confiscated beanie babies or tulips, but they were confiscating circulating money authorized/mandated via the US Constitution.
Considering that anyone holding FRN's or any asset denominated in USDollars (ie stocks, bonds, etc.) one lost an instant 40% vs. gold on FDR's dollar devaluation (gold from $20.67 to $35), how else could the common man have protected himself against this other than gold? In essence they just saw an asset they were formerly holding increase in price by 70%.
Heller's article on the minimal likelihood of gold confiscation similar to 1933-1934 doesn't factor in the possibility of a new world currency, a defaulted dollar, etc. In such a situation, regardless of how unlikely, govt's will do whatever necessary to get as much bullion gold as possible in as little time as possible....possibly including gold confiscation and the nationalization of gold mines. I'm sure most in the financial industry and congress thought that the current economic crisis was "impossible." Yet here we are. It's uncanny how things formerly thought to be impossible or extremely unlikely turn out just the opposite.
roadrunner
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>In 1932/33 the Hoover administration prepared lists of anyone withdrawing large amounts of gold and not re-depositing it or showing it used for business purposes. These lists never included ordinary people, but were aimed at hoarders and speculators. >>
Do you have a source for that?
This line of thinking seems backwards to me, and as such, wrong. If you held gold or gold certificates, you gained when they raised the official price of gold. Since at the same time, they took us off the gold standard, the FRN's stayed the same vale because they were no longer convertible except if you wanted to buy some gold (if they let you, that is). To put it another way, the things the FRN could buy didn't drop when they raised the price of gold. So holders of FRN did really loose 40%, unless they wanted to buy gold at the new price.
RBW "lives" at the Archives, so I would assume he does.
As stated in my original post, the value of dollar denominated assets DID indeed fall 40% vs. (ie compared against) gold. This is no different than saying stocks have lost 70% of their value vs. gold over the past 10 years...a true statement. Yeah, your FRN's from 2000 can still buy about the same amount of a multitude of consumer products, but they can't buy the same amount of precious metals? Holders of gold over the past 10 yrs can now buy 3X as many stocks as they could in 2000. If I was a holder of gold (or a prized Indian Cent collection) and had it taken away from me along without the chance of ever buying it again, I would certainly construe that to be a form of wealth destruction/preservation. It would not matter one iota if I was given FRN's in exchange for my property. The 40% dollar devaluation vs. gold did not occur over 10 yrs, but in one day. It still occured and the effect was similar to the price of gold escalating a similar amount over a couple of years.
The US did not leave the gold standard in 1933-1934 but removed public convertability. The USTreasury still allowed the exchanging of FRN's for gold when it came to foreign nations, banks, etc.
roadrunner
Box of 20
Interestingly, silver was well below the face value of the coins during this period. something like 65c of silver in a $1 coinage.
Having an asset and having it change in value is much different from having the opportunity of buying an asset (gold) taken away and then it's value changing while you sit on the sidelines. The buying power of the FRN's didn't change much in 1933-1934, except if you wanted to convert to gold.
What if you wanted to use those freshly depreciated dollars to purchase something overseas? Say you were taking a trip to Europe at the time. Would your dollars go as far as it did before they were devalued 40% vs. gold? Similarly what if foreigners were coming to the USA to buy. Would their cash now buy 40% more of our goods? Is this a wealth transfer? What if the govt decided to devalue the dollar vs gold 40% every day for a month, but didn't give any advance warning to the public. After 5 days of 40% devaluations vs. gold would this still have no effect on the consumer or the merchant (99% devaluation)? How about after 30 days of this (Wiemar & Zimbabweeville). If it has an effect after 5 or even 30 days, why wouldn't it have an effect after 1 day (ie -40% devaluation)?
roadrunner
<< <i>Dow lost about 16% over the past decade using nominal numbers. But when considering the real value the DOW lost from 2000-2010 one must also factor in dollar depreciation (ie inflation). Inflation adjusted returns are a far better measuring stick. In this case it's currently an additional -27%. Hence a net -43%. But in reality gold is the best measuring stick as it has been money longer than anything else still being used today. Dow/gold ratio peaked at around 42-46 over the past decade and is currently running 8-10 these days. That's a lot more than a 27% drop (just invert those numbers....ie -72%).
Having an asset and having it change in value is much different from having the opportunity of buying an asset (gold) taken away and then it's value changing while you sit on the sidelines. The buying power of the FRN's didn't change much in 1933-1934, except if you wanted to convert to gold.
What if you wanted to use those freshly depreciated dollars to purchase something overseas? Say you were taking a trip to Europe at the time. Would your dollars go as far as it did before they were devalued 40% vs. gold? Similarly what if foreigners were coming to the USA to buy. Would their cash now buy 40% more of our goods? Is this a wealth transfer? What if the govt decided to devalue the dollar vs gold 40% every day for a month, but didn't give any advance warning to the public. After 5 days of 40% devaluations vs. gold would this still have no effect on the consumer or the merchant (99% devaluation)? How about after 30 days of this (Wiemar & Zimbabweeville). If it has an effect after 5 or even 30 days, why wouldn't it have an effect after 1 day (ie -40% devaluation)?
roadrunner >>
And gold has lost 50% in inflation adjust dollars over the last 30 years. Who cares?!! All asset classes have their day in the sun. Dont walk around carrying an umbrella.
Knowledge is the enemy of fear
<< <i>And gold has lost 50% in inflation adjust dollars over the last 30 years. >>
How has gold performed over the last 10 years in inflation adjusted dollars?
Worry is the interest you pay on a debt you may not owe.
"Paper money eventually returns to its intrinsic value---zero."----Voltaire
"Everything you say should be true, but not everything true should be said."----Voltaire
That's my point, they were not freshly depreciated dollars. The only revaluation happened when it is compared to the gold price, which was no longer money (or tied to the value of money, except officially - to deal with international transactions). So for the common man, the dollar didn't devalue, gold was revalued upward. They would have loved to take your FRN's in Paris.
Worse than that, if you are gauging things by the Dow. Remember that they drop losers from the Dow periodically and replace them with whatever they think will make the index look good. What would the percentage be if they included the stocks that were dropped over that decade: GM, Citibank, AIG, Altria (formerly Phillip Morris), SBC Communications, Eastman Kodak, International Paper, and Honeywell?
I knew it would happen.
I doubt they will try it.
Besides, come November, the Clown will be ‘electorially neuter’ and the only thing that Lame Duck will be able to do for the remaining two years is work on his jump shot. (on our dime.)
<< <i>This time, if they attempt it, they had better confiscate all the hidden the ammo that's out there, first.
I doubt they will try it.
Besides, come November, the Clown will be ‘electorially neuter’ and the only thing that Lame Duck will be able to do for the remaining two years is work on his jump shot. (on our dime.) >>
So 4 years of "change"
I wish it were Nov. Don't forget that the new congress doesn't get placed until Jan. That gives a lame duck congress with nothing to lose two months to do more damage.
<< <i>2000-2010 dow lost -1%. The lost decade. What a waste.
Worse than that, if you are gauging things by the Dow. Remember that they drop losers from the Dow periodically and replace them with whatever they think will make the index look good. What would the percentage be if they included the stocks that were dropped over that decade: GM, Citibank, AIG, Altria (formerly Phillip Morris), SBC Communications, Eastman Kodak, International Paper, and Honeywell? >>
A good reason to diversify your paper holdings. If you had a good mix of all the markets, foreign and domestic, and a good bond mix, there wasn't any "lost decade," you made money, as much as gold, no, but you also didn't have the 20 year doldrums that gold was in for the preceeding two decades. A fool puts all his eggs in one basket.
roadrunner
<< <i>This time, if they attempt it, they had better confiscate all the hidden the ammo that's out there, first.
I doubt they will try it.
Besides, come November, the Clown will be ‘electorially neuter’ and the only thing that Lame Duck will be able to do for the remaining two years is work on his jump shot. (on our dime.) >>
C'mon, Boy, no political trash on the Forums.
<< <i>I continue to see no correlation between what gold has done for the past 10 yrs vs. its performance over 30-50 years. It's a non-issue and a pointless argument. Lost 20 yrs for gold? What about the lost years for stocks from 1966-1982 or from 1929-1954? Even using the shortest time frame the current period won't end before 2016. And it's not like bonds have been gangbusters the last couple of years either.
roadrunner >>
Granted, yes, past performance is no indication, blah, blah blah, however a great deal of my income comes from what my portfolio throws off, I would hate to be in any one investment that experiences a 20 year snooze.
<< <i>This time, if they attempt it, they had better confiscate all the hidden the ammo that's out there, first.
I doubt they will try it.
Besides, come November, the Clown will be ‘electorially neuter’ and the only thing that Lame Duck will be able to do for the remaining two years is work on his jump shot. (on our dime.) >>
The Clown? Where did you teach constitutional law? It will be great when we get a republican in the White House again, the last one was doing such a good job.