"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Thursday, February 17, 2011

Gold Confiscation Chatter once again

It seems as if there is some sort of universal law, akin to gravity or centrifugal force, that whenever the price of gold is moving higher, talk MUST surface about it being confiscated by the US government. I do not know whether this is also related to the tides or activity on the surface of the sun but it seems as if it is designed to create a sense of near panic among those who want to buy the metal against an inevitable devaluation of the US Dollar.

Rather than spending untold hours of precious time answering individual emails, I decided to just post a short response to this here.

First of all, there is no need for the US government to confiscate gold because they do not need it. The reason it was confiscated in the early 30's by the Roosevelt administration was because they needed more gold in order to ramp up the money supply. While the domestic gold standard was killed, the US was still on an international gold standard. Balance of trade payments was still handled in gold and it would either flow in or flow out of nations depending on how that trade balance rose or fell with its trading partners.

Today, there is no gold standard which is also the reason that there exists such massive  trade imbalances among nations.

Secondly - the US monetary authorities do not need gold to ramp up the money supply. Think two little letters:  "Q" and "E" and put them together:   "QE".

QE1 was $1.25 TRILLION and QE2 is $600 billion or $900 billion if you count agency debt. Has the Fed needed a single ounce of gold to add $2 trillion in new "money" to the system?

Thirdly - there is no shortage of gold among the US holdings in the sense that we have a significant amount. Reported holdings of the US are over 8,000 tons. Of course we do not really know how much gold we actually do have because we cannot audit the stuff and have to trust our masters not to lie. But that is besides the point. The real point is the US government officially values the sum of our gold holdings at the ridiculous price of $42.22 when the market price is closer to $1,400.


Fourthly - If the US would merely change the way it accounts for its gold reserves to reflect the current market value of the metal, that alone would solve a number of problems. More particularly, if the authorities would let the price of gold rise to its own natural equilibrium point, which would be multiples of its current price, it would take care of a host of difficulties.

Fifthly - at some point in the future I believe that this is exactly what is going to happen. Gold will be brought back into the monetary system in some form and will trade at a permanently higher level, which level it will then fluctuate around but will no longer trend. In other words, we will not see a repeat of the late 1979 - 1980 period which after it had rallied to then all time highs, embarked on a 20 year bear market. The current monetary system is showing severe signs of stress and all this talk coming from the emerging economic powerhouses about changes to the system and the Dollar as the sole reserve currency is not idle but reflects where we are headed. This obviously is not something that is going to happen overnight but I believe the die is cast and it is inevitable, especially now that the Fed has embarked on its path of madness euphemistically known as Quantitative Easing.

There is nothing written anywhere in stone that states the US Dollar must remain the sole global reserve currency. One can easily point to the history of Pound Sterling. During its heyday and at the height of British economic power, any such talk suggesting it would be dethroned must have seemed absurd at the time. Yet, history shows us that is exactly what did happen, for much the same reasons that are now plaguing the United States. Bretton Woods was supposed to have solved all that but it too has failed, thanks to the weakness of men.


  1. What you've written makes eminent sense. Thanks for helping to deflate the fears stokes by Trader Rog over at the Korelin report.

  2. Thanks for your clear head, at a time when many of us on fixed incomes are in a state of panic!

    Really appreciate your work, Dan!

  3. Brilliantly concise and succinctly written...you're the Man, Dan

  4. strong hands must stay strong. they'll take the guns before they'll take the gold.

  5. any body know why Turd;s board is down? been down for two hours.

  6. all realy good points. confiscation is highly unlikely unless the dollar totally collapses and we have no way to pay for oil imports. I doubt that will happen.
    another point is that they don't need to consicate our gold because they are already our silent partner. That's right sell your gold and pay 28% cap gains tax to the feds plus whatever your second partner gets -10% here in CA. So they come out OK.

  7. Dan,
    Here's a recently passed bill related to transactions of precious metals:

    At the very least, Uncle Sam wants to know how the metals are moving, it looks like.

  8. The best argument I've heard is that they don't need to because they've got a much bigger target: our 401ks


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