In addition to the risks of most other investments -- prices can go down, companies cna go out of business -- gold is subject to one other unique risk that doesn't affect most other investments: Gold can be confiscated, and in fact it has been, particularly by authoritarian governments such as those of the former Soviet Union and Communist China and even the United States.
Gold has been confiscated in the U.S. four times.
Most recently, in the wake of massive bank failures and a subsequent run on the banks, on April 5, 1933, President Franklin D. Roosevelt issued the following executive order:
"I, as President, do declare that the national emergency still exists; that the continued private hoarding of gold and silver by subjects of the United States poses a grave threat to the peace, equal justice and well-being of the United States; and that appropriate measures must be taken immediately to protect the interests of our people."
"Therefore, pursuant to the above authority, I hereby proclaim that such gold and silver holdings are prohibited, and that all such coin, bullion or other possession of gold and silver be tendered within fourteen (14) days to agents of the Government of the United States for compensation at the official price, in the legal tender of the Government. All safe-deposit boxes in banks or financial institutions have been sealed pending action in the due course of law."
Although many citizens resisted, thousands lined up in front of Federal Reserve banks to "return" their gold to the government.
Lessons From Roosevelt's Gold Confiscation
There are important lessons you can learn from Roosevelt's confiscation of gold.
Lesson 1: Many forms of gold were exempt from confiscation.
Roosevelt confiscated only gold bullion - bars of gold and bullion coins. Numismatic coins were exempt, as were gold jewelry and semi-numismatic coins (those with a premium of 15%+ over the price of gold).
These three forms of gold also were exempt from previous gold confiscations in the U.S. - during the Revolutionary War and Civil War. They are the only forms of gold that are relatively safe to store in your safe deposit box.
Also exempt from Roosevelt's gold confiscation were gold mines, gold mining stocks, gold nuggets and dust, gold art objects, and gold held by U.S. citizens outside America.
Lesson 2: Gold soared.
Despite Roosevelt's gold confiscation, gold bullion and stocks soared during the 1930s. Bullion went up 70%. Homestake Mining shares increased nearly 700%.
Lesson 3: Don't leave a paper trail of your purchases.
Under Roosevelt, known owners of large quantities of gold were severely harassed and threatened with imprisonment if they didn't turn their gold in. The names of some were even published in newspapers - with disastrous consequences for their businesses and careers.
But the government cannot seize what it does not know about.
There is no required registry for gold purchases and no need for you to reveal what is not required of you. You also can purchase gold overseas and keep it there in a bank vault or foreign safe deposit box.
The IRS and Offshore Gold Ownership
There is currently no IRS reporting requirement if you own physical gold, silver and other precious metals so long as it is not held in a financial account such as a foreign savings or checking account.
The IRS requires U.S. citizens to report all foreign bank accounts.
However, there is no reporting requirement for gold, silver, cash, etc., held in foreign safe deposit boxes. The easiest way for most Americans to do this is to set up a safe deposit box in Canada, London or Switzerland. It is important to note that if you sell your gold, you must report your profit or loss on your federal income tax form.
Why bother? Primarily because having assets outside the U.S. gives you an added layer of privacy. In the event that gold is again confiscated, foreign safety deposit boxes may well be exempt, as they were under Roosevelt's confiscation. Further, it will be much more difficult for a third party to confiscate your gold if it is outside the U.S.
For additional protection, open your foreign safe deposit box in the name of a company or a family trust. Neither has to use your name in the title.
If your net worth is high and you wish to store gold offshore, the recommended way to do so is to establish a relationship with a Swiss bank. Swiss banks are used to buying gold for the world's billionaires and governments.
As an added incentive, if you purchase $1 million or more, the Swiss banks will store this gold either in their vaults or with the Swiss Central Bank. Most large banks allow you to borrow up to 80 percent against the value of the gold. Amazingly, because the Swiss view these loans as so secure, your total interest and servicing fees may be as low as 1 percent or less. A wealthy, savvy investor worth $100 million could conceivably invest $5 million in Swiss Gold.
The bank may allow the investor to borrow $4 million against this deposit. You could arbitrage those moneys in government bonds or high-yield dividend stocks that pay 5 percent or more, netting you 4 percent or more on your "insurance" gold sitting in the Swiss bank. Even better, the gold may appreciate as well, adding even more value.
But the bottom line is that by keeping gold offshore in a place like Switzerland you will have wealth preserved offshore. In a worst-case scenario here in the U.S. you would be able to travel to Switzerland and cash in some or all of your gold at some point in the future. Isn't that comforting?
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