HardAssetsInvestor

Written by Amine Bouchentouf  |

July 24, 2012

The Commodity Investor: Is Your Gold Safe From Government Seizure?

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While some may think gold seizure by government is preposterous, there is precedent for this controversial move when it comes to restoring a nation’s liquidity.

Gold prices have certainly been receiving plenty of attention of late. Whether they go up or down, market participants as well as casual observers are paying keen attention to the yellow metal’s daily and weekly movements.

Gold seems to be one of the rare asset classes that can capture the gyrations and fluctuations of multiple markets simultaneously, such as the debt crisis in Europe, inflation in Brazil or a slowdown in Chinese economic output. Gold is a reflection of activities in almost every important global market and, as such, attracts attention from all corners of the investment universe.

When traders become anxious about the threat of a Greek sovereign debt default and its potential cascading effects on global equity markets, or when they start fretting about China’s economic slowdown and decrease of cheap exports worldwide, gold is the go-to vehicle to express these anxieties and to hedge trading positions. As such, gold may be the most global asset class out there.

Highlighting the importance of gold as an asset class is the $10 trillion that investors have allocated in gold bullion—and that number is increasing. When you plot a graph of gold availability and the price of gold, both lines move upward in parallel format as more gold is mined and as more investors put money in the asset class, thus driving prices even higher. Therefore, gold’s place in international capital markets is a crucial one.

You’d think that a $10 trillion global market would be safe from governmental intervention and interference. Well, think again.

Despite its size and importance, many investors are fearful that governments might start cracking down on gold ownership altogether. There’s a fear among certain investor groups that governments could criminalize gold ownership. While you may think this falls in the realm of far-fetched conspiracy theories, you might be surprised to know that owning gold was at one time a criminally punishable offense—in the United States, of all places!

Criminalization Of Gold Ownership

American citizens were once prohibited from owning gold. During the Great Depression, President Franklin Roosevelt signed Executive Order 6102, which banned all U.S. citizens from owning, trading, selling or investing in gold assets. Signed on April 5, 1933, the executive order forbade “the hoarding of Gold Coin, Gold Bullion, and Gold Certificates within the continental United States." This order not only applied to U.S. citizens, but also to any American enterprise, corporation or partnership.

To understand why the president of the United States made it illegal to own gold in the continental United States, we must look at the economic context in which this executive order was applied. During 1933, the U.S. was smack in the middle of the Great Depression, one of the most difficult economic periods the nation had faced in its history. The federal government was initializing all manner of government programs to attempt to jolt the economy back into recovery. Unfortunately, the government was woefully unsuccessful at these attempts.