The Confiscation Con

If you've spent enough time in the gold community, you might be under the impression that the most imminent threat to the average American isn't terrorism or unemployment, but rather gold confiscation. Starting with the fact that FDR confiscated gold during the last Great Depression, and continuing to the quite accurate forecast that we are headed into an even Greater Depression, unscrupulous coin dealers have been pushing investors to buy expensive "numismatic" or "collectible" coins that they claim would be protected from government seizure. The only problems are that the original motive for confiscation no longer applies and the "protection" offered by major coin dealers wouldn't actually help you keep your gold.

THE TYRANT'S ORDER

In 1933, President Roosevelt issued Executive Order 6102, prohibiting the private holding of gold and requiring US citizens to turn over their gold bullion or face a $10,000 fine ($167,700 in today's dollars) or 10 years imprisonment.

For private citizens, the order listed the following exemption:

Gold coin and gold certificates in an amount not exceeding in the aggregate $100[about 5 troy ounces at that time]belonging to any one person; and gold coins having a recognized special value to collectors of rare and unusual coins.

Seizing on this "rare and unusual" language, many coin dealers try to convince unsuspecting customers that regular bullion coins are not safe, and that it is worthwhile to pay extra for "numismatic" or "collectible" coins that would be exempt from a Roosevelt-style confiscation.

CALL THE MYTHBUSTERS The reality is that almost all coins sold as "numismatic" or "collectible" by our competitors are really quite ordinary coins sold at high mark-ups to make these dealers extra profits. If we were in 1933, these coins would absolutely not fall under the definition of "rare and unusual."

True numismatics are extremely rare or one-of-a-kind coins that collectors purchase for their historical and aesthetic qualities. These coins might retail for $100,000, while only containing $1,400 worth of gold. Most dealers charge a huge premium, so the coin may have to appreciate 30-50% before the buyer can even hope to make a profit. It is a speculative endeavor, and one that is likely to get even riskier as the US descends further into economic depression.

True numismatic coins, like pieces of high art, do well in good times, when people are getting richer and adding to their collections. In bad times, collectors are forced to sell because they need cash. With many collectors in the same boat, prices plunge. Even if the value of the gold in the coin rises, the gold content is only a small fraction of the coin's value. Since premiums are contracting, the value of the coin falls. So, if you are buying gold due to fear of an economic collapse, you should buy bullion, not numismatics.

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