Gold News

Gold Confiscation: A Real Risk?

Just how serious is the possibility of a 1933-style confiscation of US-held Gold Bullion...?

recovery isn't looking good, says Julian Phillips of the

The G8 meeting this weekend saw divisions that could lead, as the IMF put it, to losses of trillions of Dollars and millions of jobs. Now it is reported that Ben Bernanke and his close allies at the board in Washington are worried by signs that the US recovery is running out of steam.

The leading indicator published by the Economic Cycle Research Institute has collapsed to a 45-week low of minus 5.7 following the most precipitous slide for half a century. Such a reading typically portends contraction within three months or so.

Furthermore, money velocity is slowing. Broad M3 has contracted at an annual rate of 7.6% over the last three months, so we may well face a huge bout of money printing again? If that is the case, confidence in currencies (and not just the Dollar) will lurch lower again.

Perhaps that's why, in a recent gold conference, HSBC's top gold and silver trader John Levin pointed out that some top US asset managers were genuinely fearful of the possibility of government confiscation of gold. Bottom line, gold still represents the ultimate form of payment, it is always accepted. In a world drowning in debt, gold's debt-free nature appeals even more strongly and will particularly to governments whose currencies are failing to retain confidence.

As Levin explained, on being told that the bank's US vaults had sufficient space available for their gold, he was told by more than one manager that they did not want their gold stored in the USA, but preferably in Europe. Because they fear that at some stage the US Administration might follow the path set by Franklin D. Roosevelt in 1933 and confiscate all US gold holdings as part of the country's strategy in dealing with the nation's economic problems. Are their fears well grounded? Has the G8 taken steps towards the day when governments would their citizen's gold in their vaults again? Surely this view is a bit extreme? And why do top US asset managers want gold in the first place?

The job of asset managers is to seek the greatest return but with prudence. They have to see what may lie ahead and guard against dangers that may threaten the assets under their wings. They are highly qualified and capable men (and typically men) who understand the ins and outs of investment management. They were carefully chosen for their capabilities and good investment management sense. They have built up a body of knowledge that places them on top of the investment world. Such knowledge usually encompasses monetary matters of the sort that would include gold. As such we would suggest their opinions do have value. But surely the US is in less danger financially than Europe?

Well, no. It was recently reported that forty-eight US states will be in deficit this year and the combined shortfall will probably exceed $300 billion. That puts Greece's expected 2010 budget shortfall of around $28 billion into perspective. Greece's shortfall is put at around 13.6% of GDP, whereas there are a good number of US states anticipating deficits of more than 20% this year, including some, like California, New York, Florida and Illinois, with far bigger economies than Greece.

There are around a dozen US states with bigger economies than Greece and most of these anticipate 2010 deficits at this kind of level! And look what news of the Greek deficit, once it was generally publicized, did to the markets! Fears of currency inflation and falling confidence in the US Dollar are very real when seen in this context.

Often, gold market observers focus only on the buying of gold by central banks. But of equal importance is the visible fact that the signatories of the Central Bank Gold Agreement (exclude the IMF from this for this purpose) are no longer selling gold anymore. They want to keep their gold. The times that now lie ahead will bring to the fore why central banks hold gold in the first place.

Central bank buyers of Gold Bullion are those that have far too low a percentage of gold in their reserves and are doing what they can to buy more. China is now contracting with foreign mining companies directly for their gold ore. This silently shouts that gold is wanted by central banks across the world. Extend that one step further and the only gold easily available to a government is that of their own citizens.

The meeting this weekend of the G8 did not convince observers that governments are going to resolve the global economic crisis, nor send it firmly on the road to recovery. Yes, deficits will be reduced, but growth will suffer badly. Europe will affect the US economy. With the velocity of money slowing and the M3 money supply shrinking, we are now alarmed at the probable crises that are on the horizon, because of this incomplete performance of politicians.

It may well be that we have taken a step towards confiscation of gold. How many more steps are there before this happens? Will they too, be taken?

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JULIAN PHILLIPS – one half of the highly respected team at – began his career in the financial markets back in 1970, when he left the British Army after serving as an Officer in the Light Infantry in Malaya, Mauritius, and Belfast.

First he worked in Timber Management and then joined the London Stock Exchange, qualifying as a member and specializing from the beginning in currencies, gold and the "Dollar Premium". On moving to South Africa, Julian was appointed a macro-economist for the Electricity Supply Commission – guiding currency decisions on the multi-billion foreign Loan Portfolio – before joining Chase Manhattan and the UK Merchant Bank, Hill Samuel, in Johannesburg.

There he specialized in gold, before moving to Capetown, where he established the Fund Management department of the Board of Executors. Julian returned to the "Gold World" over two years ago, contributing his exceptional experience and insights to Global Watch: The Gold Forecaster.

Legal Notice/Disclaimer: This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Gold Forecaster/Julian D.W. Phillips have based this document on information obtained from sources they believe to be reliable but which it has not independently verified; they make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Gold Forecaster/Julian D.W. Phillips only and are subject to change without notice. They assume no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, they assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information, provided within this report.

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