Untitled Document

Coins & bullion since 1973


Client Memorandum

Preparing for a Potential Gold Confiscation

  • Introduction
  • Appendix I
  • Appendix II
  • Appendix III
  • Appendix IV
  • Appendix V
  • Bibliography

by George R. Cooper, J.D.

Client Note:

Gold confiscation remains the subject of much debate. We view confiscation as a possibility, rather than a probability, and see pre-1933 gold coins as an important hedge for those interested in addressing those concerns within their gold holdings. This memorandum documents the special treatment accorded pre-1933 gold coins under U.S. law -- a chronicle that began in 1933 when the newly elected Franklin Delano Roosevelt issued a presidential order confiscating gold bullion followed by an additional order exempting gold coins "having a recognized special value to collectors of rare and unusual coin." A subsequent Treasury Department regulation (1954), as shown in this memorandum, broadened that definition to include all gold coins minted before 1933 -- a classification which clarified the exemption and established precedent for similar treatment in the event of a future of gold confiscation.

It should be emphasized that there is a whole genre of pre-1933 gold coins that still can be acquired at moderate premiums over contemporary bullion coins. These items track the gold price and enjoy strong global liquidity. Over the years, and particularly since the beginning of gold's bull market in 2002, our firm has placed tens of thousands of these items with concerned gold owners.

Last of all, we do not in any way intend this to be a formal legal opinion, but rather an overview to help you form your own opinion on whether or not pre-1933 gold coins should be included in your hedging plan. Furthermore, we are not stating categorically that pre-1933 gold coins would survive confiscation, nor are we stating that another confiscation is likely or imminent.


"Presidents should get the power to declare economic emergencies along the lines to declare war, said former Federal Reserve Chairman Ben Bernanke on Monday. While the Fed retains the authority it needs to respond to another financial crisis, financial crises 'tend to have a certain chaotic element to them,' that no one can predict, Bernanke said during a panel discussion sponsored by The Hutchins Center on Fiscal and Monetary Policy. In light of this, it might make sense to give 'the president some ability to declare emergencies or take extraordinary actions and not put that all on the Fed,' Bernanke said at a conference. 'The constitution gives the president significant flexibility to respond to military situations,' in part because they are chaotic, he noted." – MarketWatch report, Greg Robb, March, 2015

USAGOLD note: President Franklin Delano Roosevelt justified his executive order seizing private citizens' gold in 1933 by declaring an "economic emergency" akin to a state of war under the Trading with the Enemy Act (1917). As a result, some would argue that the president already possesses the authority Mr. Bernanke suggests. His comments are particularly relevant in the context of what you are about to read below.

"Speaking at the FT [Financial Times]Silver conference in London yesterday, lead-off speaker John Levin, HSBC Bank's Managing Director, Global Metals and Trading (HSBC is one of the world's top precious metals traders and its vaults in the U.S. and Europe hold huge holdings of gold and silver bullion) recounted conversations with some of the U.S.'s top asset managers controlling massive amounts of capital asking if HSBC had the capacity in its vaults to store major gold purchases. On being told that the bank's U.S. vaults had sufficient space available he was told that they did not want their gold stored in the U.S.A. but preferably in Europe because they feared that at some stage the U.S. Administration might follow the path set by Franklin D. Roosevelt in 1933 and confiscate all U.S. gold holdings as part of the country's strategy in dealing with the nation's economic problems." -- Larry Williams, MineWeb

"At any rate, I'm personally torn between putting all my assets into bullion gold coins or leaving half in gold and half of my assets in US dollars. In their demand to making Fed notes the only legal tender money, I believe the Fed (and the government) would stoop to any trick or law or machination to ensure that Americans must accept Fed notes as the only legal tender money. The government (Congress?) could pass a law outlawing any transactions in gold or silver or any precious metal. The government could halt the trading of gold or gold ETFs. Or there might be a dozen tricks that the government could use that would outlaw the use of gold as legal tender." -- Richard Russell, Dow Theory Letters

'But in 1933, gold was taken away from Americans. The government paid them $25 and after, they revalued the gold to $35. So, basically what the government can do once again, and that is a possibility. They could artificially depress, manipulate the price down and then say 'Gold is illegal to be held. We have to collect all the gold from the citizens.' Say if they manipulated the price down to $1,000. They could collect it at $1,000 and then revalue to $10,000." -- Marc Faber, Gloom, Doom, Boom Report

"[T]he cheapest source and perhaps the largest source of gold a nation has is the gold of its own citizens. In such times of monetary need we have no doubt that, out of concern for the nation's financial security, the confiscation of their citizen's gold will happen." -- Julian Phillips, Gold Forecaster

"I think it's possible for both gold and silver [to be confiscated]; and I know many people who are worried about it. I remember asking panelists on the Gold Commission for assurances that the federal government would never again resort to confiscating gold, and nobody would commit to it. It may seem a bit far-fetched today, but we should remember that governments always assert emergency 'powers' during economic crises, as our own government demonstrated in the 1930s. Few Americans understand the true causes of the Depression even today, and still believe FDR's government programs magically cured the economy. So we should understand that public anger in the event of another economic depression may well be misdirected, and gold could be made a scapegoat." -- Congressman Ron Paul

"I am afraid that one day the government will indeed call gold in. Gold bullion will be subject to confiscation. This is one big advantage to numismatic gold, such as the double eagles. It is an idiosyncrasy of governments that although they may prohibit ownership of gold in any form, they are reluctant to touch collections of numismatic gold coins. Today, there are some forty-nine countries which forbid ownership of gold by their citizens, but do allow holding gold coins for numismatic purposes. Even Soviet Union and Eastern European countries legally tolerated the acquisition of numismatic gold coins. So these are the only gold holdings that could be kept in your safe deposit box without any fear of confiscation." -- Dr. Franz Pick, The Triumph of Gold, 1970


Questions and Answers

This Q&A is an overview. For a more thorough treatment of this subject matter, we recommend a complete reading of the attached appendices which include a full legal chronology and related documents.

Question: Who was Dr. Franz Pick and why quote him?

Answer: Dr. Pick was a famous Austrian economist and currency expert who passed away in the 1980s. His work is important to us with respect to gold confiscation because he survived both Nazi and Communist dictatorships as a citizen in Eastern Europe -- neither of these governments, as you probably already know, had a favorable disposition towards private gold ownership. "The Triumph of Gold" was his most notable work and remains must reading for any serious student of gold and economic history. As you can see from the quote above, based on his life experience and reading of modern economic history, he thought gold confiscation was an option all too readily embraced by governments. It is interesting to note the group of notable commentators above who expressed a similar view in the contemporary era.

Q. Is Dr. Pick correct about the likelihood that collectible gold coins would be exempted from a confiscation?

A. Historically, as this memorandum demonstrates, collectible gold coins have been treated differently under U.S. law than bullion. As Dr. Pick says, "It is an idiosyncrasy of governments that although they may prohibit ownership of gold in any form, they are reluctant to touch collections of numismatic gold coins." In the United States there are some very particular reasons, based on Constitutional principles, why it exempted certain items between 1933 when the federal government confiscated gold and 1975 when it lifted the ban. It all comes down to a matter of definition.

Q. Doesn't "collectible gold" translate to a coin that sells for prices far above -- often multiples of -- the gold content?

A. Surprisingly not. Few people know that there is a whole genre of so-called "collectible gold" coins which can be obtained at moderate premiums over contemporary gold coins. These items are very liquid internationally and track the gold price, but are technically defined as "collector items" in various federal government rulings stretching back to the 1930s and 1950s. (This subject is treated in more detail further on.)

Q. Why do governments have such an intense dislike for gold?

A. "The modern mind," quipped philosopher Joseph Schumpeter, "dislikes gold because it blurts out unpleasant truths." Those unpleasant truths usually have to do with a currency debasement or an economy about to go into the inflationary or deflationary tank. Essentially by buying gold, the citizen is voting against government economic policy with his or her checkbook. Most of the confiscations that have occurred in history were implemented to stop capital flight and bank runs in times of economic hardship. The best known is the U.S. seizure in 1933, but Great Britain also banned gold during a run on the pound in 1966, and Australia banned it in 1959. Liberal democracies, we can gather from this, are as vulnerable to draconian capital controls in times of stress as the most strident dictatorships.

Q: Why did the U.S. government call in the gold in 1933?

A: In 1933, the economic problems became severe enough to threaten the viability of the entire banking system. At the depths of the Depression, over 10,000 banks had closed and people were turning in their paper money for gold coins, and then putting those coins in safe deposit boxes and in the drawer at home. Big investors, perhaps reading the handwriting on the wall, were exporting bulk amounts of gold to Europe in bullion form. Dr. Walker Todd quotes a Treasury report in early 1933 which stated "Gold held in private hoards serves no useful purpose under present circumstances. When added to the stock of Federal Reserve banks it serves as a basis for currency and credit. This further strengthening of the banking structure adds to its power of service toward recovery." (See Appendix I.)

In order to stop what amounted to a run on the dollar as people withdrew their savings from the banks and converted it to gold, President Roosevelt issued his now famous Executive Order (see Appendix II) which confiscated gold held by American citizens. From 1933 until 1975 it was illegal for U.S. citizens to own bullion gold. Citizens could, however, own gold in the form of pre-1933 gold coins.

There is another very important point to consider why Roosevelt took the action he did. Under the auspices of the "economic emergency", i.e. the Depression, he did not want any competition for the dollar which he felt should be positioned as the international reserve currency. He knew that if he could set the price of gold instead of letting the market set the price, then he could go about fulfilling his political agenda without worrying about an attack on the dollar.

There have been stories told about Roosevelt and then Treasury Secretary Andrew Mellon setting the gold price over a poached egg breakfast every morning--something which makes the statist heart sing but does little for those of us who champion free markets and an auxiliary role for the government. When gold trades freely, citizens can vote on economic policy simply by purchasing gold. This is why, even under the current system of free-floating currencies, former Federal Reserve chairman Alan Greenspan professes to have watched the gold price so closely. It is an indicator how the financial community is receiving the Board's monetary policies.

Q. What are the chances of a gold confiscation today?

A. Of course, that is the ultimate question and the subject of much debate and conjecture. Google "gold seizure" and among the many entries posted you get a pretty even split between those who believe it could happen again and those who do not. The fact of the matter is that no one knows. The nature of gold ownership is such that there is a lingering suspicion it could happen, but this is a conclusion each investor must reach on his or her own.

Q. What was the actual mechanism of the 1933 gold confiscation?

A. A series of Executive Orders was issued in early 1933 prohibiting private gold ownership (see Appendix II) and instituting a long list of other economic controls. Penalty for noncompliance was 10 years in prison and a $10,000.00 fine -- a hefty fine for the time. The official gold price was $20.67 per ounce. Once the gold was safely tucked away, Roosevelt set the price at $35, cutting the government an immediate 69% profit on its holdings and devaluing all private dollar holdings by 60% (see Appendix III).

Q. What was the outcome for those Americans who refused to obey Roosevelt's executive order?

A. Most turned in their gold, but there were two approaches by those refusing to obey the order. Some challenged the constitutionality of the law in the courts. They lost every case even though some cases dragged on for years. Others simply hid their gold. If they were caught, they faced the tough penalties mentioned above. Furthermore, it appears that there was not much to be gained by keeping gold bullion. There was no black market. There was no secondary market. As a citizen, you were effectively closed out of the gold market except, as previously mentioned, if you happened to own "rare and unusual" gold coins. (See Appendix II.)

Q. What is the best course of action for people to take in the event of another gold confiscation?

A. Obeying the law should be first and foremost. It makes no sense to become a criminal when there are alternatives which are legal and still get the job of asset preservation accomplished. There is an old saying: Don't get mad, get even. The way to get even is by beating them at their own game. You can structure your portfolio in the event of a confiscation down the road without incurring an onerous cost
in so doing.

Q. On what basis do you support your contention that pre-1933 gold coins are the best option for those concerned with a potential confiscation?

A. There is a long history of legal precedent protecting collectors' coins dating from 1933 forward, beginning with language in Executive Order #6260 which exempts "gold coins having a recognized special value to collectors of rare and unusual coins." Most important to our clientele, however, was the broadening of the definition through Treasury regulations issued in 1954. Donald Hoppe provides an excellent synopsis of this expanded designation in his 1970 essay, "Investing in Gold Coins."

In it he says:

"In 1954, the Treasury Department recognized at last that the time had come to legitimize the numismatic gold market. Consequently, an amendment was made to the Gold regulations, to the effect that all gold coins minted prior to 1933 would subsequently be presumed to be rare and of recognized special value to collectors, without the necessity of further specific determinations by the Treasury."

In other words, all gold coins dated before 1933 would be automatically classified as collectors' items, regardless of how rare or unusual they were individually. A subsequent regulation in 1962 confirmed this distinction when it allowed for the importation of all pre-1933 gold coins as collectors' items. These two rulings removed any remaining ambiguity about what constituted rare and unusual items in Roosevelt's original executive order. Now, all gold coins dated prior to 1933 would fall under the definition of "rare and unusual."

Note: In Appendix IV, we include a comprehensive legal chronology from Henry Mark Holzer, J.D. (Ayn Rand's attorney) and extended and updated by George Cooper, J.D. from the research gathered for this memorandum.

Q. How do you explain Roosevelt's exemption of coins defined as collectors' items?

A. As a starting point, these items are protected under the Constitution's Fifth Amendment which states: "[N]or shall private property be taken for public use without just compensation." This is the well-known Eminent Domain Clause of the Constitution which the founding fathers felt to be an important inclusion. They knew all too well what happens when government is allowed to seize property without restriction. They had experienced these types of problems with respect to English sovereignty in the American colonies. What this means is that the individual can use the Eminent Domain Clause to extract a "fair" price from the government for coins that are subject to confiscation. "Fair" price connotes market price, in today's understanding, and not an artificially set price by the powers in Washington.

The Roosevelt administration probably envisioned countless lawsuits clogging the court system just to determine the value of someone's coin collection. The country was in a depression and its resources needed to be spent on reviving the economy and not on getting bogged down in litigation. So it was not really a matter of the government winning the battle (because the outcome had already been determined by the Eminent Domain Clause), but rather it was a question of how much it would have to pay. Government advisors knew this fact and probably advised Roosevelt accordingly. Thus, the amendment to his Executive Order was issued. (See Appendix II.)

Secondly, coins defined as collectibles represented a small fraction of the overall above-ground gold. Roosevelt was most concerned about flight capital and massive amounts of bullion being shipped out of the country by major players. Don't forget that the real goal in a confiscation is to curtail gold trading as a speculation against the currency and keep depositors from fleeing the banking system and other financial institutions.

By simply confiscating bullion, establishing price controls, and stemming the outward flow of gold bullion, the Roosevelt administration met its objectives. These so-called collectors' items were an annoyance more than anything else. It was easier all the way around to simply leave these items legal.

Q. In the event of a gold confiscation, what price could a person expect to receive?

A. Technically, the official government gold price today is $42.22 per ounce (see Appendix IV) but practically speaking, for compliance purposes, the government would have to confiscate gold at something closer to the current market price. Gold investors sometimes comment that they are not concerned with a confiscation because the government will offer fair value in paper currency for the metal. This was not the case in 1933, Roosevelt confiscated gold at $20.67 an ounce. The administration then raised the price to $35.

Q. What items would be included in a future government confiscation?

A. There is no way to accurately predict what might be included. However, if the government's goal is the same as it was in 1933, that is, to stem the flow of capital out of the financial system, the answer is fairly logical. They would want to target the gold products that serve as destinations for large pools of capital, as well as those that could be valued easily and broadly (limiting eminent domain push back). Products that possess these qualities include: Exchange traded funds, pool and storage accounts (allocated and unallocated), gold IRAs, bullion bars of all sizes, gold bullion coins like South African Krugerrands, U.S. Eagles, Canadian Maple Leafs, Austrian Philharmonics, and any other item that trades based on its gold value alone. Any call-in is likely to include any and all gold held overseas. In addition, silver would probably be called in as they wouldn't want to imprison gold only to let its best known side-kick run free (to that point, silver bullion was also confiscated in 1934). In short, the most logical course of action would be to target the largest, easiest to value areas of the precious metals market. In doing so, the government would achieve the greatest impact while applying the least amount of time, energy and resources.

Q. What about rare numismatic items in the case of a confiscation?

A. Very rare collector coins or "true" numismatics were exempted in 1933. Keep in mind though, that numismatics is a complicated and different market entirely from the more commonly traded items. True numismatics has to do with collectible, or rarity, value that far exceeds the gold content -- an area detached from the real gold market and should be approached by specialists who are very knowledgeable.

Q. There are a number of gold firms that counsel their clients that the only true confiscation hedge is very rare coins that trade at values far in excess of their gold value. Is that true?

A. David Ganz, an attorney who specializes in gold-related legal matters, says it best: "FDR's presidential seizure of gold specifically exempted rare and unusual coins. That didn't mean expensive, and it was not a synonym for pricey." In 1954, that primary criteria became the date 1933 and earlier, not the rarity, or rarity premium. The argument that a high priced coin is the only true confiscation hedge is believed to have been born from proposed regulation 26 CFR 1.6045-1 on page 647-648 of the Federal Register, Vol. 49, No. 3, 1/5/1984. In it, numismatic coins were defined as coins carrying premiums in excess of 15%. Bottom line, this proposed regulation never passed and is not part of the current law, and therefore has no bearing on what is defined as rare and unusual.

Q. What about the old U.S. Twenty Dollar gold pieces as a confiscation hedge?

A. Many Americans prefer to hold the pre-1933 U.S. $20 gold pieces as a hedge against confiscation and we do not see this as a problem. However, the investor needs to know that the old Double Eagles carry substantially more premium than the European coins. In the end, we leave choices like this to the client.

Q. Beyond the hedging aspect, are there additional advantages to owning pre-1933 gold coins?

A. Typically the pre-1933 European gold coins track the gold price. However, there is the potential for a double-play profit, based on future scarcity value, that should not be overlooked. Over the years, there have been a number of occasions where the demand for pre-1933 gold coins forced premiums substantially higher. This occurred in the late 1990s when excessive demand because of the Asian Contagion and the ramp up to 2000 pushed the supply to its limits. It happened again at the height of the 2008-2009 financial crisis. If there were ever a gold confiscation, pre-1933 gold coins would be the only legal form of monetary gold ownership. In such a situation, the premium could react accordingly.

Attorney/author, Henry Mark Holzer, in his monograph "How Americans Lost Their Right to Own Gold and Became Criminals in the Process" (see Appendix IV) refers to an article in Barron's on page 9 which appeared May 31, 1971. Holzer states in footnote 3 to his work that:

"[T]he value of certain gold coins had increased substantially over the prior three years. For example, in May 1968, the U.S. 'Double Eagle' had been selling at a premium of about 45% over the actual gold content of the coin, the official rate then being $35.00 per ounce. In May 1971, the premium was 69%. In May 1968, the German Mark piece had been selling at a 75% premium; in May 1971, the premium was 175%."

Q. What about liquidity?

A. Pre-1933 gold coins are liquid nearly anywhere in the world.

Q. Is gold ownership in the United States a "right" or a "privilege?"

A. The following opinion was published in the Boston College International & Comparative Law Review. From the article entitled "State Attempts to Tax Sales of Gold Coin and Bullion in the United States: The Constitutional Implications," we quote:

"The private ownership of gold is a privilege, not a right. Congress revoked the privilege of private ownership in 1933 and restored it in 1974. Congress could easily revoke the privilege again. In fact, at no time during this century has the U.S. government recognized the right of private gold ownership. The Trading with the Enemy Act, which President Roosevelt invoked in 1933 to restrict private gold transactions, remains law. The government could reactivate the machinery, which the Trading with the Enemy Act established, to implement gold confiscation." 5 Boston College Int'l & Comp. Law Review 287, 320 (1982).

(Also, please see Representative Ron Paul's quote in the masthead, and Appendix V: Treasury Department Opinion Letter [2005] on Gold Confiscation, Press Release - Chris Powell, Gold Anti-Trust Action Committee)

Q. What are USAGOLD's recommendations on portfolio allocation?

A. If you believe a confiscation is possible, we recommend diversification of your gold holdings to include pre-1933 gold coins. How aggressive you diversify depends on your level of concern. At USAGOLD, we believe in targeting this diversification by procuring the least expensive pre-1933 gold coins possible. Our goal is simple: Get the absolute most gold for your money while constructing your portfolio to weather a range of possibilities and uncertainties. Pre-1933 gold coins are a "diversification within a diversification," and by minimizing the cost of acquisition, you end up with a gold portfolio that moves directly with the gold price, while providing the extra layer of protection you are seeking.

George R. Cooper, J.D. has long been an advocate of precious metals ownership. He did his undergraduate studies at Albert-Ludwigs Universitaet in Freiburg, Germany and also at the University of Chicago where he graduated with honors. He is an attorney who studied law at Exeter University in England and at the University of Denver. He is listed in Who's Who in the West. Presently, Mr. Cooper is an Account Executive with USAGOLD.
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Legal Disclaimer
This booklet is distributed with the understanding that it has been prepared for informational purposes only and the Publisher or Authors are not engaged in rendering legal, accounting, financial or other professional services. The information in this booklet is not intended to create, and receipt of it does not constitute a lawyer-client relationship, accountant-client relationship, or any other type of relationship. If legal or financial advice or other expert assistance is required, the services of a competent professional person should be sought. The Authors disclaim all warranties and any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein.

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