Throw me a question about gold.
Go on. No, I really do mean it. Drop me a line here if you have a question about gold.
I promise you, after more than a decade talking and writing about gold for a living – and investing in it for even longer – I’ve heard them all before. And if I don’t know the answer, I’ll find some who does.
One of the things I find most fascinating, though, is that of all the questions I get, there’s one that comes up every six months, like clockwork.
Surprisingly, it’s not “How do I buy gold?” which is very common when gold makes its way into the headlines (pro tip: never buy gold when it’s in the headlines).
It’s much darker than that.
Around twice a year, someone will ask me: “What are the odds of the government confiscating our gold?”
Teeny. Tiny. Miniscule even.
I mean, never say never. But hear me out.
Importing an American fear
I have no idea what the depths of the depression looked like. I’d wager that most people born after 1950 couldn’t say either.
Yet a major event during the Great Depression still makes people nervous when it comes to investing in bullion, and that’s the government’s confiscation of gold.
Before we get to the odds of it happening in the United Kingdom, let’s have a history lesson.
Executive Order 6102 was signed by President Franklin D Roosevelt in April 1933, demanding citizens exchange their personal gold holdings for the fixed sum of US$20.67.
People who didn’t swap their gold for US dollars would face US$10,000 fines or prison.
Naturally, under that kind of pressure, some Americans obliged.
While we re-tell the story of gold being “seized” from Americans, it was a very clever propaganda campaign to get people to willingly hand over their gold… or be fined or jailed if they didn’t.
The thing is, it wasn’t a confiscation, rather a nationalisation.
Pay attention to the language difference. People were compensated for handing in their gold, as opposed to this being the outright theft of personal property.
Given that the price of gold was revalued by the US government in January 1934 at US$35, the move by the Roosevelt government was an outright assault on the private wealth of Americans. Something we’ll delve into another time.
Nonetheless, we repeat Executive Order 6102 as a story of confiscation rather than nationalisation. But almost a century on, the fear still lives deeply within Americans.
And when people buy gold or silver bullion, this fear can creep in even here, despite a nationalisation of gold having never occurred in the UK.
So, what is the likelihood that it could happen?
Very slim. And there’s a reason for that…
It’s easier to tax you than take your gold
The odds of the UK government coming for your gold are about as close to zero as I’m legally allowed to say.
For starters, the government simply doesn’t get it.
As Nigel Farage noted in last week’s podcast, the famous Brown’s Bottom. In July 1999, then- Chancellor Gordon Brown sold half the UK’s gold reserves, right around the time the gold price bottomed for that decade. Of course, two years later, the gold price started to move upwards and now’s it’s a punch line to prove just how little governments understand the yellow metal.
Not much has changed. The British government still doesn’t get it.
All the more reason why a “confiscation” scenario is unlikely.
Remember, governments are extremely lazy. Seizing gold would be an intensive human capital exercise.
Also, it’s unpopular as a mainstream investment, with perhaps 1% of the UK owning investment-grade gold, give or take half a percentage. And owning physical bullion tends to be a deeply personal decision; people aren’t going to brag about having a few ounces stashed away.
In addition, the City of London may be home to much of the world’s gold, but the people in Britain don’t really have the same connection to the precious metal that those in India or China have, for example.
However, significantly more people in the UK own houses than gold.
It’s much, much easier to seize your wealth through inflation, increasing – or even coming up with new – taxes, than run a campaign to seize gold.
You’d scoop up a much wider portion of the country’s wealth through taxation than any amount of gold would bring.
Never say never, but it’s highly unlikely the that UK government would issue a 6102-style decree.
Gold requires storage, melting and re-casting. It’s an enormous exercise when so few people have precious metal bars to their name.
It would be far easier for to jack up taxes and suck your wealth out of you that way.
Until next time,
Contributor, Fortune & Freedom