Governments Must Confiscate Gold


The gold market is getting highish again,and is looking up with higher highs and higher lows, although progress is not stellar.

There are two or maybe three problems with this.

The price is being set up for a fall, which will create many losers eventually with a few big winners who sell out in time.

One day the price will have to return to more normal levels, if anyone is ever going to buy any jewellery ever again, the main part of the gold market, which employs millions across the world in making and selling. All these jobs are currently under threat. Gold prices are already putting jewellery beyond the level of most peoples’ affordability.

The gold bull market is temporary, but will do great damage to many peoples’ livelihoods while it lasts. What’s the point?

The next problem is the effect that gold price psychology has on the economy. In the Middle Ages in Britain, gold became part of the coinage as advocated for today’s world by many ‘Ron Paul’ types. The effect was that people did not spend their money. They hoarded it.

This caused a slowdown in the economy, which hurt many people. If money becomes too loveable, it ceases to be the tool of economic growth, and becomes the agent of depression. Money has to circulate to benefit the majority, not be hoarded by the rich.

The excuse is that inflation is coming back. It isn’t. Money supply in the USA is falling by 10% a year, and prices are barely rising. Deflation is breaking out across the world, not inflation. The sums being sent by governments on QE are dwarfed by the debts accumulated over the last decades. The scaling back of debt is far more powerful. Inflation is dead for years to come.

The politics of gold has not even started to be an issue in most peoples’ minds, yet it should. China are a great nation of gamblers, and the ending of their real estate boom has released a lot of investors looking around for the next bubble to take a ride on. The Chinese government has stated that they don’t see gold as an important part of their reserves. The gold market is simply too small to play a significant role in the modern economy. They are starting to talk gold down, at last realising the dangers that a bubble would pose.

The Chinese government doesn’t want the tail end of the property boom to feed into another bubble in gold, and they could easily decide to restrain the market in one way or another. The price has risen from $350 to just under $1250 in less than ten years. Demand for gold jewellery in Britain is already down 85% in the same period. If gold goes up from here, the closure of jewellery shops and manufacturers, already of concern could become a torrent. In a market which is already distressed, any further rise will be a killer blow.

Is there a case for intervention? In the 1920s Depression, gold was confiscated by the US government to stop hoarding of the metal with its attendant negative effects on the economy. I can see that happening again. Meantime, there will be much suffering from the firms that depend on gold trading to make their living.

It would not take a lot for sentiment to change against gold hoarding and for governments worldwide to take steps to stop the bubble from developing any further, with all attendant negative effects.

The state of government finances is dire. Britain’s government revenues were £606 billion in 2008. £496 billion in 2009. I haven’t even seen the figure for 2010, but it must have been around £450 billion. The costs of the recession are rising as unemployment moves towards the 3 million mark, let alone the millions who live on government support, who qualify for the ‘disabled’ category. The hole in government finances will only get bigger.

One way to ensure people have to lend to the government at low interest rates to secure their savings from crashing stock markets will be to seal off other alternatives, such as gold. Stock markets will be tumbling again soon enough. The 1920’s are coming back, folks, and gold will be back on the hit list once the real financial trouble becomes just a little more visible.

Gold will become a political issue. She is the sister of Fear and needs to be kept indoors until the storm is past. Governments should act. Gold Licensing should be brought back in as existed in the UK until 1977 for people to buy gold bullion (Limited to manufacturers and banks). Tax should be added to gold coin sales (as it is to jewellery already), or with the obvious moves to Tax and License avoidance that would follow, illegally held metal should simply be confiscated. In essence control is needed, and urgently.

The Tap Blog is a collective of like-minded researchers and writers who’ve joined forces to distribute information and voice opinions avoided by the world’s media.
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14 Responses to “Governments Must Confiscate Gold”

  1. Alex Porter says:

    Hi,

    Interesting view but having to take a radically different stand:

    Gold goes up in an inflationary and a deflationary environment. There has been an increase in the money supply but it has been kept by the banks to try to cover their debts. The real economy has not seen this money yet and when it does there will be inflation. The gold price is going up in anticipation of this and because of current deflation because gold is not about jewellery it is about a having a store of wealth now that fiat currency is failing to perform that function.

    The reason gold was confiscated in the 30s was because the government was going to change the price of gold. They confiscated it and then put up the price thus transferring wealth from the people to institutions. The negative economy caused people to use gold to help them survive indepenendently.

    When the government prints and prints more money and central banks lend more of it to speculators for free the more the people’s wealth is being confiscated. They have no choice but to seek refuge in gold. This insane monetary policy has driven manufacturing overseas and so hollowed out the economy. By giving free money to speculators the governments have created a bubble in the stock exchange and in fiat currency. The gold market is a hedge against the imminent collapse of both. Stocks have less and less earnings yet we see stocks rising, why? Large institutions trading with free taxpayers money.

    When the taxpayers money is gone and when QE stops there will be no financial sector and gold will be the only solution. Gold will be the only freedom people have to keep any wealth they have and perhaps even for mobility.

    If we are seeing the end of fiat currency which looks likely gold may well go to the moon. It’s not gold going up, it’s paper collapsing that’s the cause of our economic problems. So, I wouldn’t confiscate gold from people, I’d confiscate the printing press from the government..

  2. Alex Porter says:

    Oh, and while I remember. China has been trying to buy as much gold as possible. Indeed, the promise to buy gold on its dips has lead to the coining of the term ‘the beiging put’. The reason they would be talking it down are to help hold up the dollar because a lot of their debt is in dollars and secondly because they want to buy it as cheaply as possible and know fine well that people around the world are following everything they do..

    Sorry about the jewellers. Many sectors are being slaughtered because of the QE or money printing. I would think that as the price of gold goes up the super wealthy will want to buy very expensive jewellery, no?

  3. tapestry says:

    The money supply is not a government printing press, Alex. It was (now collapsing) a credit boom of corporations issuing credit with the permission of governments when longterm banking controls controls were removed. WE’ve had the resulting inflation.

    Money supply in the US is now falling at 10% a year as credit is no longer so easily available. Inflation is back to 1966 levels. Deflation is knocking prices of most things to the floor.

    Gold is a tiny market relative to currency. It would have to rise a hundred times to back up the world’s issued money, which is a very small part of the total of money in circulation.

    The value of money is based on human sentiment – just as with everything else. Right now the sentiment for gold is going nuts.

    First the excuse was non-existent inflation. Then it was the falling $. Then it was the falling Euro (while the $ rose!). If the Euro recovers once more, for a phase, then the excise will be something else.

    This is just a bubble – based on a combination of fear, and gambling spirits. Your long explanation provides no reason why a commodity which costs $500 to produce, not in short supply, but hoarded, should have a value of $1500 or higher over the long term.

  4. tapestry says:

    I agree that the market is being managed up by holding levels, and is not moving up and down in waves, which suggests intervention, not impulse buying.

    The other part of the act is the dissemination of pro-gold propaganda such as ‘the dollar is finished’, or ‘fiat currency is finished’ etc.

    China declared this week that they will not be buying gold for reserves, as it is too small a market.

    It is an intervention-supported bubble, encouraged into being by the mining industry, but which is running out of control, and which is in danger of doing great damage. Governments will have to intervene to smash the process, as it will make their efforts at creating stability much harder.

    If the Chinese speculators are stopped by the Chinese government, and there is some evidence of a change of heart over gold from that quarter, the market might go into a correction and become less of a problem.

  5. Twig says:

    @Tapestry

    1. The chinese govt are talking it down for the same reason that you are – they want to buy it.

    2. a) “It would have to rise a hundred times to back up the world’s issued money”.
    b) “a commodity which costs $500 to produce, not in short supply, but hoarded, should have a value of $1500 or higher over the long term”

    It’s not the cost of production that determines it’s value, but rather supply and demand (refer to sentence (a)).
    +++

    Your idea would be reasonable if it were in respect to essential supplies such as food and water, but gold is not exactly one of life’s essentials.

    I don’t know why but the subject brought to mind the Danny Devito speech in “Other Peoples Money“.

    If people loose faith in paper currencies, the they will look elswhere to store the value of their life’s endeavours, it’s how the free market works, however I’m sure our (€uro printing) rulers in Brussels would love to adopt your suggestion.

  6. tapestry says:

    Your idea would be reasonable if it were in respect to essential supplies such as food and water, but gold is not exactly one of life’s essentials.

    Confidence in the financial system is essential to the maintaining of law and order, of peace, and ultimately of life. Allowing price manipulators to propagate stories of financial meltdown and the end of fiat currency is extremely dangerous. You don’t need food or water if you are dead from political causes.

    Deflation and depression are the start of the negative patterns of human behaviour. Hoarding of wealth is not good for society and humankind. Gold is its natural focus. It grants power to its holders.

    Governments should ensure they are in power, (not the EU), but the British and American governments, and any others overly affected by talk of the collapse of government.

    I am not a buyer of gold. It has risen only by 50% in two years in US$, while stock markets rose 70% in one year.

    I have done far better than that in other investments and will do so again in the next twelve months by following the advice of Robert Prechter, who believes gold will crash back to its starting point once the current bubble cannot find any new suckers, and its holders have to sell to raise cash.

    There are better ways to play bear markets than get sucked into a bubble which will ultimately crash.

    If the bubble gets a new spin from China, governments should act to stop it. I don’t hold with your view of the Chinese government. They want their currency to be the focus of value, not gold. They mean what they say.

  7. Twig says:

    How can you expect people to have confidence in a currency where a goverment can create another 200,000,000,000 by just creating an entry on a computer ledger?

    I read “Conquer the Crash” Prechter recently, and he advises investing in gold in times of uncertainty. He even lists websites of companies where you can buy the stuff and store it in Switzerland. Has he changed his mind?

  8. tapestry says:

    His top safety tip is short dated Treasuries. Gold he notes was confiscated in the last depression, and he suggests that confiscation could be part of governments’ actions again once they become desperate. They could confiscate Treasuries also, but must keep paying out the interest payments guaranteeing a 4.2% annual return currently. Gold pays no income and in fact costs money to store and secure.

    Personally, I would buy gold at $400, and not not above $700. In the shorter run, he advocates shorting the S&P 500 for a year or two. The later years of the crash he says require moving money into the most secure places such as lending to governments on short dated gilts/treasuries.

    Right now you can, as it were, double your money as a shorter of stock markets. His short term advice on gold allows for a possible extension to $1350, but sees a fall as imminent as the market has 95% of investors already bought in on the bullish side.

    His longer term reading of gold and silver is that the current upwave is part of a bear market, still correcting the 1981 highs, with a downwave to follow, and a very low bottom in about 2015c, with deflation (a desperate need for cash to meet outstanding debt obligations) driving gold down.

    Gold can be just as easily confiscated in Switzerland as anywhere else, by international agreement between governments.

  9. tapestry says:

    Twig, governments have always had access to the issuing of new money from privately owned Central Banks. Usually such large issuance is associated with prosecution of war. Only a Labour government would use such massive amounts in trying to win an election – and then failing!

    We now have a Conservative government which according to previous record, will run the economy with a respect for markets. There is hope.

  10. Alex Porter says:

    Here’s an excellent article on the dynamics of gold –

  11. tapestry says:

    That’s odd. It’s disappeared. Can you send it again, Alex.

  12. tapestry says:

    Or read this for an alternative view –

    Many gold bugs say that because gold was a good investment during the Great Depression, it is a “deflation hedge.” We addressed this topic in At the Crest (p.357) and Conquer the Crash (pp. 208-209). At the time, government fixed gold’s price, so it didn’t go up or down relative to dollars. Gold was a haven during that time, the same as the dollar was, since they were equated by law. But gold served as a haven because its price was fixed while everything else was crashing in price during the period of deflation.

    Gold bugs like to claim that gold would have gone up during that period had it not been fixed, but the crashing dollar prices for all other things suggest that in a free market gold, too, would have fallen. It would have fallen, however, from a higher level given the inflation of 1914-1929 following the creation of the Fed. So gold became worth more in dollar terms than it was in 1913, which is why it began flowing out of the country. In 1934, the government finally recognized the new reality by raising gold’s fixed price. Since 1970, markets have been in a large version of 1914-1930, except that gold has been allowed to float, so we can clearly see its inflation-related, pre-depression gains.

    In 1970, things changed dramatically. Investors lost interest in stocks and preferred owning gold instead, for a period of ten years. The same change occurred again in 2001, and so far it has lasted seven years. But, as we will see, recession had nothing to do with either of these periods of explosive price gain in the precious metals.

    EW International.

    My advice for what it’s worth. Buy US$ 10 to 30 Year Treasuries, but shorten the dates after a year or two to consolidate any gains. They rise as the S&P falls.

  13. tapestry says:

    Gold rose in the inflationary 1970s to top off at $850 in 1981. Since then it has fallen and is still lower than it was then relative to other prices. That’s 30 years of down. Not a great investment. Equities have risen X10-20 or so in the same time period.

    Silver is covered by EWI as well but I don’t know the copyright status of the article to publish it all. Silver, though, is even worse than gold as an investment over 30 years hitting $40 an ounce in 1981. It’s less than half that 30 years later, and a mere fraction in real terms. Inflation was 20% then. It’s minus % now in the USA. As EWI says inflation drives up asset prices. Deflation shrinks them, including gold and silver.

    As in the 1929 onwards depression, the $ has been strong. Treasuries are starting to rise.

    Gold is the con, not the fiat currencies and other financial investments. The propaganda is solely directed onto gold. Why? It’s a way of maintaining optimism that wealth can be preserved while shares are falling. But gold fell when shares fell recently as did silver. They are affected by cash, like everything else.

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