Over the last few weeks, we’ve had a number of people writing in asking the same question: should I be worried about the government confiscating my gold?
For those unfamiliar with Executive Order 6102, that might sound like a strange thing to worry about. But for those who lived through it, or for those who study history, it certainly is not.
Here’s what you need to know…
Back in the 1933 the US was in bad shape. It was four years on from the infamous stockmarket crash of 1929 and the great depression was in full effect.
When we were in a similar situation in 2008, governments around the world simply printed more money to get us out of the crisis.
But back in 1933, that tactic was impossible. At that time, the US dollar was backed by gold.
So in order to print more money, the government would have to do one of two things:
1, either say that gold was now worth more, so that its reserves would allow for more money to be printed.
Or 2: get hold of more gold so it could print more money.
The government, in the end, decided to do both.
First it obtained more gold, then it said that gold was worth more than it had paid for it.
And where did the government get all this extra gold? It took it, by force, from its people.
Why Executive Order 6102 still strikes fear into the hearts of gold investors
Executive Order 6102 demanded US citizens hand over all their gold to the government or face a hefty fine and up to 10 years in prison.
The government paid these citizens the official market rate of $20.67 per ounce, which was far below what gold was actually trading for at the time.
Then once it had all the people’s gold in its possession, it increased the official market rate by 69% to $35 per ounce.
So by robbing its citizens, the government managed to massively increase its money reserves… for the good of its citizens.
Gold ownership in the US remained illegal until 31 December 1974.
It’s easy to see, then, why people are concerned something like this might happen again today.
Those who do not learn from history are doomed to repeat it, we’re often told.
And the prospect of gold confiscation strikes a chord with many gold investors for another reason, too.
Gold tends to be at its most valuable during times of political and economic crisis… which is the very time when the government would be most likely to confiscate it.
That would be an incredibly difficult thing to deal with psychologically. It’s like taking away someone’s dream just as they’re about to realise it.
Why you don’t need to worry about having your gold confiscated
However, gold investors today should rest easy knowing that a repeat of Executive Order 6102 is extremely unlikely to happen.
The reason being that governments no longer need gold to print money.
In 1971 President Nixon did away with the gold standard. The US dollar was no longer pegged to anything and the government was free to print as much as it wanted.
When the last major financial crisis hit in 2008, the US government simply kept on printing money until it was out our trouble.
All told it printed over $4 trillion. That’s the equivalent of printing $110 million a day for an entire century. Try doing that while your currency is pegged to gold.
So, for better or worse, the next time major governments need money, they won’t need to take their people’s gold to get it, they will simply print it out of thin air.
The problem with this strategy, as many gold bugs and Bitcoin investors point out, is what happens if people stop believing in this printed money’s value?
After all, it came out of nowhere and it doesn’t represent anything real. It’s only as good as the government’s word – hence why it’s called fiat currency: fiat meaning “by decree”.
If today’s money isn’t backed by anything, isn’t it simply worthless?
If people stop believing the government’s word, then its money is worthless…
At least that’s the argument. But the government does have something else on its side: an army.
It can simply force people to accept its money by… force. And would you really want to go up against the US army, or any country’s army for that matter? I know I wouldn’t.
So in conclusion, your gold is not likely to ever be confiscated by the government. But it is likely to increase in value if the government finds itself in a financial or political crisis.
So right now, given everything that’s going on with Brexit, and the US-China trade war, it’s probably a good idea to put some of your investments into gold.
And if you’d like to find out how to go about getting your money into gold, I can recommend Eoin Treacy’s Gold Investor’s Master Plan.
This is a USB stick crammed with all the knowledge Eoin has built up over 20 years’ investing in gold. It tells you how to buy it, how to store it and how to sell it. As well as how to buy gold stocks, and which gold investments Eoin believes could turn £100 into £1,000.
The best part is, it only costs £3.95 to have it delivered to your door. You can get your own Gold Investor’s Master Plan by following this link now.
Until next time,
Editor, Exponential Investor