[Editor’s note: Your usual editor Shae Russell is currently away on annual leave and will be back on deck next week. While she is away, we will continue to publish her most popular articles from 2020, this one is from 19 November.]
Throw me a question about gold.
Go on. (No for reals. Click here if you ever have something to say.)
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.
There is no question you can ask that I haven’t heard before. And because of the incredible network of people I have access to, if I can’t answer it, I’ll find someone who can.
However, out of all the questions I get asked, there is one that rears its head almost every six months like clockwork.
I’m not actually sure what the trigger is. Perhaps it has something to do with the gold price reaching new highs that brings this old question out.
Surprisingly, it’s not ‘How do I buy gold?’ which is common when gold makes its way into the headlines.
It’s much darker than that.
Around twice a year someone will ask me: What are the odds of the government confiscating your gold?
Really, really, really small. Never say never, but hear me out…
Importing an American fear
We don’t remember what the depths of the depression looked like.
Most Melburnians forget as recently as the 1930s there were shacks in CBD streets housing a family of eight with no indoor plumbing. Just a communal tap and toilet options for a laneway of 30 or 40…
Yet even though gold confiscation never happened here — and it was over 90 years ago — Australians seem to have this fear that the government is going to come for your gold.
Gold confiscation is an American fear we’ve imported.
Before we get to the odds of it happening in Australia, a history lesson first.
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 orprison.
Naturally, under that kind of pressure, Americans obliged.
While we retell 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.
It was not a confiscation, rather a nationalisation.
Pay attention to the language difference. People were compensated for handing in their gold, as opposed to an outright theft of personal property.
Given that the price of gold was revalued by the US government in January 1934 to 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. Almost a century on and the fear still lives deeply within Americans.
And Australians have adopted this fear, despite this having never happened to us.
So, what is the likelihoodit could happen here?
The Australian Banking Act of 1959 is a little vague regarding the government’s powers here.
In fact, there are provisions in Part IV of the Banking Act that allow gold to be delivered to the central bank if the government declares it. The person who first discovered this vague language has told me it’s most likely a forgotten phrase from an era when money was backed by gold.
More to the point, while the language is vague and disconcerting, it’s far more likely that it refers to gold miners as opposed to individuals who hold gold.
And there’s a reason for that…
It’s easier to tax you than steal your gold
The odds of the Australian government coming for your gold are about as close to zero as I’m legally allowed to say.
For starters, the Aussie government simply doesn’t get it.
A recent ruling against the Australian Tax Office (ATO) of hounding bullion dealers for GST obligations because both the ATO and the Australian government did nothing to close a legal loophole should give you some insight to their inept understanding of bullion.
A problem, I might add, that was created in the year 2000 when GST came into effect.
Still, the Australian government and ATO did nothing about it until 2016. Four years after they first found out about the problem.
To boot, the Reserve Bank of Australia sold two-thirds of Australia’s gold back in 1999. Even though the price is 6.5 times higher since then, they’ve done absolutely nothing about increasing the 79 tonnes on the RBA’s balance sheet.
That, and given the vagueness of the wording, you could melt down your physical bullion bars into jewellery. Because jewellery is exempt from the requirement to hand over to the government.
The short version is our government doesn’t get gold.
Again, let me stress how unlikely a ‘confiscation’ scenario is.
Remember, governments are extremely lazy. Seizing gold would be an intensive human capital exercise.
Barely 1% of Australians own investment-grade gold. It may even be closer to half that.Less than half the investment-grade gold minted and sold in Australian remains here.We ship it off to countries where they value the precious metal.
Significantly, more people in Australia 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 Aussie government would issue a 6102-style decree.
Gold requires storage, melting and recasting. It’s an enormous exercise when so few people own precious metal bars to their name.
It would be far easier for to jack up the taxes you pay and suck your wealth out of you that way.
Until next time,
Editor, The Daily Reckoning Australia
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