As the likelihood that the US goes through another round of “quantitative easing” or QE2 increases, fears are starting to escalate that as the value of US currency continues to decline, the government might seize individual gold assets. While the move would certainly be an unpopular one, reports of gold seizures at airports and increased US regulation have some investors concerned that US government gold seizure is a real possibility. See the following article from Money Morning for more on this.
Could the government seize your gold?
It’s a question that’s being asked with increasing frequency these days. The United States is struggling with a post-financial-crisis economy that can’t seem to get healthy, which has led to a ballooning budget deficit and a staggering national debt.
And don’t expect any structural improvements to the country’s finances. Near-term stock-market bulls are awaiting an all-but-guaranteed round of “quantitative easing” (known as “QE2”) – which will inject money into the U.S. financial system, though it will only add to shortfall even as it weakens the U.S. dollar.
The U.S. government hasn’t seized individual investors’ physical gold since U.S. President Franklin D. Roosevelt did so by a special “executive order” during the Great Depression. And there’s nothing active afoot to make investors believe that such a seizure is imminent.
In fact, many experts say a repeat of that episode is highly unlikely.
“It would be very unpopular, so would only happen in an emergency,” says Martin Hutchinson, an author and Money Morning columnist who is a former international merchant banker. “And [U.S. President Barack Obama] would need to carry Congress with him, which may not be possible after Nov. 2,” when the upcoming midterm elections are scheduled.
Could the Government Seize Your Gold?
In spite of such reassurances, gold-seizure concerns are clearly escalating. These worries are very evident on the Internet, with questions, comments and articles on the topic appearing with increasing frequency.
There are several catalysts:
- The increasingly uncertain U.S. economic outlook.
- Stories of individual seizures of gold and other assets by government agents.
- And a reminder that the government maintains that it could seize gold – should the prevailing conditions so warrant it.
Let’s take a look at each of the three potential problems facing holders of physical gold.
And we’ll start with the widely expected new round of quantitative easing, or QE2.
A Dour Outlook
Although experts such as Money Morning’s Hutchinson see this as a flawed strategy, U.S. central bank policymakers see QE2 as a positive. QE2 is part of the U.S bid to win the so-called “race to the bottom” – a competition between the world’s biggest economies to see who can debase their national currency the most. The victor’s objective: To offset a weak domestic economy.
As the old adage goes, however, in finance “there’s no free lunch.” In other words, any such near-term gains will have a long-term price tag. And that cost could be frightful, manifesting itself as an unhealthy dose of hyperinflation, and a completely destabilized monetary system.
Given such a dour outlook, it’s no surprise that fears of a government gold seizure – akin to the one ordered back during the Great Depression by President Roosevelt (“FDR”) – are escalating.
According to Hutchinson, “by seizing gold, the government can force people to deal in their own devalued money, which prevents the people from setting up any parallel payments system which the government doesn’t control.”
President Roosevelt issued Executive Order 6102 on April 5, 1933 “forbidding the Hoarding of Gold Coin, Gold Bullion, and Gold Certificates” by U.S. citizens. It required all persons to deliver on or before May 1, 1933 all gold coin, gold bullion, and gold certificates owned by them to the Federal Reserve.
As noted above, some of the circumstances of the time are eerily similar to modern-day conditions.
In March 1933, America was sinking into the Great Depression. Citizens across the country worried that the government would simply print more paper money, causing rapid inflation that would make cash virtually worthless.
At that time, paper money was still backed by gold, and Americans rushed to exchange their cash for gold. Everyone assumed that the government actually had enough gold to back its paper currency. The sudden demand, however, overwhelmed America’s banks, threatened the already-precarious American economy and forced Roosevelt’s hand.
While President Richard Nixon took the United States off the “gold standard,” it was actually President Gerald Ford who repealed the limitations on gold ownership in December 1974, which reinstated American citizens’ right to own gold. Congress went one step further in 1977, stripping the president’s authority to control gold transactions, except during war.
But some recent events have some investors worrying that with the increasing popularity of gold, the government may once again expand its powers to seize private property, including holdings of precious metals.
Gold bugs are buzzing over a Houston Chronicle report about federal agents seizing cash and gold from individual travelers at that city’s George Bush Intercontinental Airport during May. According to the report, U.S. Customs and Border Protection officers and U.S. Immigration and Customs Enforcement (ICE) agents seized more than a quarter-million dollars in cash and nearly $160,000 worth of gold in 14 separate seizures that month.
Why all the angst?
Simple. George Bush Intercontinental is one of many airports that serve as entry and exit points for the continental United States. That means that it’s possible the number and total value of these seizures could be multiplied many times over.
The newspaper report has gold bugs in a frenzy because the seizures were based on an arcane legal requirement that hadn’t been used much by government agents – until recently.
U.S. citizens have the right to personally transport physical gold or other precious metals in or out of the U.S. by air or other means. But things could get sticky when you deal with a little-known requirement to report transfers if the total value of the precious metals you are carrying exceeds $2,500.
Officers at the Houston airport seized one bar of gold, two silver bullion bars and three bottles of gold nuggets – all because the travelers failed to file a government form known as a “Shipper’s Export Declaration Form,” or SED.
The consequences are severe for not having or stating correct information on an SED, an automated U.S. Census Bureau declaration-required document when transporting any commodity in or out of the country valued at $2,500 or more. The result of stating incorrect information can be seizure of the commodity, a fine up to $10,000 and/or imprisonment.
U.S. ICE agents have virtually unchecked power to seize any unreported currency under civil forfeiture laws, at which point their victim must begin a lengthy and costly legal battle to prove the confiscated property was legally theirs.
And although such actions are rare, seizures of gold are of particular concern to precious metal owners because of such previous U.S. acts as FDR’s executive order.
The Long Arm of the Law?
Vigilant investors also are upset by the federal government’s apparent attempts to force more disclosure by investors. The U.S. Treasury Department’s Financial Crimes Enforcement Network proposed rules earlier this year that would require reporting of precious metals held offshore in custody on behalf of others. These rules are pending in draft form and do not take effect until 2011 or later.
Also this year, Congress adopted the so-called HIRE Act, a law requiring gold owners to report offshore holdings of precious metals. Rules to implement the law have not been issued yet.
This shouldn’t be much of a surprise.
In terms of seizing investments such as physical gold, the U.S. Treasury Department has apparently been stating for years that it has the power to do so, should the need arise, says the Gold Anti-Trust Action Committee, which keeps correspondence between it and the U.S. Treasury on this very topic on its Website.
Moves to Make Now
Because the current economic climate resembles that of 1933, with a sinking currency and a ballooning national deficit, some investors think the politicians might find it easy to justify confiscating gold as a means to stabilize the country’s monetary system
In this economic climate precious metal investors would be wise to take at least some precautions.
How to store your metals presents a dilemma. Every storage choice comes with pros and cons, and each individual probably weighs those pros and cons differently.
For example, burying some metal in the backyard or someplace else you consider to be safe may not be a bad idea, but it may not be for everyone. Also, that idea comes with some downside. Physical gold is not a very liquid asset, and is it really safe? Someone with a metal detector could easily locate a buried stash.
You have two basic solutions. You can either store it yourself or you can have someone else store it for you.
If you feel comfortable with it, go ahead and store some metal at home or work, or wherever you think it may be safe and if you think it is not at risk. But don’t put all your eggs in one basket, and don’t store all your metal in the country where you live.
Also, if you’re about to move more than $2,500 worth of physical metals in or out of the country, you should take pains to have a properly completed SED form to accompany the gold or other precious metals you’re transporting. It may also wise to obtain an appraised-value document certifying the value of your property.
Finally, make sure to carry documents that authenticate your ownership of any precious metals you want to transport.
This article has been republished from Money Morning. You can also view this article at Money Morning, an investment news and analysis site.