Investing

Why Buy Gold If the Government Can Just Take It?

taking a bar of gold

One of the reasons many people choose to buy gold is because they don’t trust that their assets are safe in the financial system. Whether they fear a banking collapse and want to protect their cash, or they fear a stock market crash and want to protect their tax-advantaged assets with a gold IRA, they’re looking to gold as a safe haven.

For many people afraid of loss, even a gold IRA is of little comfort, as they’re afraid of the government coming to try to take their assets. After all, if the government could ban gold ownership in 1933, why couldn’t they do the same thing today too?

That’s certainly not an unreasonable fear, especially given the direction our country seems to have been going over the past several years. Even safe deposit boxes don’t seem to be as safe from the government’s clutches as they once were.

But fears of a national-level gold confiscation are overblown. If you own gold today, there’s little reason to worry that the government might just take it, and here’s why.

Money Then vs. Now

In April 1933 President FDR issued an executive order banning the private ownership of gold, with limited exceptions. Congress went on to rubber stamp that legislation in 1934 with the passage of the Gold Reserve Act Act of 1934.

These two actions prohibited the private ownership of any gold, but exempted amounts of gold under $100, numismatic objects (collectible coins), and gold jewelry. With gold at the time valued at $20.67 an ounce, this meant that private individuals couldn’t hold more than about 5 ounces of gold.

But remember that back in the 1930s gold was money. The US dollar was backed (at least in theory) by gold.

Despite that, however, gold coins didn’t circulate very freely, as their value was far greater than most everyday purchases. Silver coins were the currency of daily commerce, and in the event that large sums had to be paid, banknotes were often favored to gold coinage.

No one minded using banknotes rather than gold coins, because the bank notes were redeemable for gold on demand at the bank. So gold coins largely stayed in bank vaults while paper money circulated.

FDR took advantage of this fact to seize gold, because it was all conveniently held either in bank vaults or in the vaults of the various Federal reserve banks. So all he had to do was order the banks to turn over their gold to the Federal reserve banks, and Federal reserve banks to hand their gold over to the US Treasury and voila!… all the gold in the country was now the property of the US government.

If you’ve ever wondered where all the gold at Fort Knox came from, much of it came from coins seized from the American people. That’s why so many of the gold bars there aren’t the minimum 99.5% fineness (.995) required for the international gold market, they’re 90% fine (.900), the fineness of American pre-1933 gold coinage.

But that concentration of gold holdings in a few strategic places exposed to government pressure was what allowed the government to seize gold back then. That doesn’t exist today, which is why the government can’t just take gold today like it could back then.

Why The Government Wouldn’t Be Able to Seize Gold Today

Gold ownership today isn’t as concentrated as it once was. Gold coins and bars owned by Americans are held all over the country, in safes inside people’s homes, in bank and non-bank safe deposit boxes, and at bullion depositories around the country and even around the world.

From a practical standpoint, the logistics of trying to seize all that gold would make it nearly impossible. The cost of trying to track down every single privately owned gold coin or gold bar wouldn’t be worth it.

Just imagine a similar scenario with guns. Could the US government go door to door seizing all 400+ million guns owned today? Not at all.

But could it seize guns if all those guns were stored in government-chartered storage facilities? Yes, it could.

The former is the situation as it exists today, and the latter is a parallel to how things were with gold in 1933.

There’s also the fact that the US monetary system is no longer backed by gold, nor does gold form any underpinning or backing for the US dollar.

In 1933, seizure of gold allowed the FDR regime to unilaterally devalue the dollar, changing the value of the dollar from 1/20.67 ounce of gold to 1/35 ounce of gold almost overnight. That allowed the government to start spending a lot more dollars than it otherwise would have been able to.

Today we have a fiat monetary regime in which the Federal Reserve can create money out of thin air at the stroke of a keyboard, conjuring billions and even trillions of dollars into existence instantaneously.

The federal government has long since abandoned any fiscal constraints, as there is no gold standard to keep its spending in check. The federal government spends with reckless abandon and issues debt to fund its deficit spending, hoping that either bond markets or the Federal Reserve will mop up the excess.

In short, gold doesn’t play any role in monetary or fiscal policy today, unlike in 1933. So seizing gold wouldn’t benefit the government in any appreciable way in terms of enabling looser monetary policy or greater amounts of spending.

Minimizing Your Risk

Of course, that isn’t to say that some future government might not target gold, particularly since gold ownership is overwhelmingly something that conservatives favor, not liberals. But the risks of government gold seizure are minimal right now.

Still, if you’re worried about the government seizing your gold, it can’t hurt to diversify your gold holdings. Gold IRAs can be a beneficial tool for owning gold, particularly given the tax advantages that IRAs convey.

But because gold coins or bars owned by a gold IRA are stored in a bullion depository, some people worry that depositories might be targeted by the government. So why not buy some gold to store at home too?

Direct cash purchases of gold can be done quickly and easily, and sent directly to your home. You can store that gold in a safe and keep it away from prying eyes.

Physical gold at home is much like physical cash at home. No one has to know you own it, and no one knows how you spend it. While you still have to comply with any tax laws when you sell that gold, you don’t have to report to anyone that you hold it, nor does anyone know how much gold you own.

Each method of owning gold has its own advantages and disadvantages, which is why diversification can be so helpful. And if you want to learn more about the different ways to buy gold, the experts at Goldco can help you.

With over $2.5 billion in precious metals placements and over 6,000 5-star reviews from our satisfied customers, Goldco has worked hard to make itself one of the biggest and most trusted gold companies in the country.

Call Goldco today to learn more about why so many Americans have trusted Goldco to protect their financial well-being with gold.

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