In 1932 the U.S President Franklin D. Roosevelt made it illegal for private citizens to own physical gold and confiscated gold. Gold confiscation is part of a history that many people still remember even though many did not live through it. It is important that investors have some kind of view on confiscation of gold by governments. Surely if they could do it once then there is a possibility that they may do it again. But why would government confiscate gold? They would do so to strengthen their reserves, especially if their currency weakens. This has happened in countries like Venezuela.
Most of the time the topic of confiscation is US-centric but it is a subject that any strategic investor needs to know about and at least have some sort of view about it. It is an issue that governments consider if they fear the deterioration of their economy and the hostile world environment. If we look at Australia, we can note that Australia exports a lot of raw materials that other countries want, so we can say Australia is a commodity currency. We make up for what we lack with our capability to draw iron ore out of the ground. As far as being self-sufficient, Australia is more self-sufficient than most western countries. It is unlikely that the government will be knocking on private citizens’ doors to confiscate private gold when there are mine turning out 200 to 300 tonnes of gold per annum. The real threat is the government wanting to control mining output (or setting an “official” price) or the nationalisation of mines.
Australian law has a mechanism that requires the delivery of gold to the Reserve bank – Part IV of the Baking Act of 1959.
It should be noted that the Act mentioned only applies to gold and not silver. In a gold confiscation scenario people would flock to silver to protect their wealth if they can no longer do so with gold. This means the price of silver will rise rapidly relative to gold.
To protect yourself as a gold investor, you would likely move your gold to another country, but section 41 will not allow you to do so. Section 42 deals with exemptions. You will be exempted if gold is part of your profession or you have gold that is less than $50 in value. This means if you are a jeweller, you will be exempted because you need gold to do your work. Section 42 refers to “gold content” and not the face value. The US confiscation exempted gold holdings below $100. This means the small investor or small wage owners could largely keep their gold, but hoarders or people with large amounts of gold sitting in the vaults were the target.
Would you be paid something if your gold was taken? According to section 44 of the act the Reserve Bank of Australia (RBA) will set the price and it can set a crappy price. You will not get market value for your gold. In the U.S when confiscation took place the price of gold actually went up effectively means previous gold holders were denied the benefit of that price increase and the Reserve Bank was the only body making money – which was kind of the point of confiscation.
According to section 45, you cannot purchase or sell gold without authorisation by the RBA. You need to remember that unallocated gold has already been bought and the mint can allow clients to collect this gold on the assumption that these “good citizens” will be handing it over to the RBA.
In Summary, the subject of gold confiscation in Australia is one that a lot of people don’t like to think about. Most people believe that it is unlikely to happen. The laws have a lot of loopholes that may be easily missed by bureaucrats, but the mining industry will make it hard for the RBA to confiscate gold. It does not hurt, however for serious investors to be more aware of the laws that apply to gold ownership.