Roosevelt Redivivus

By: Silver Analyst | Sun, Aug 28, 2005
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Or as the Good Book says, "He being dead yet speaketh."

So it was that two recent events brought back to mind the date of April 5th 1933. It was on that day that Franklin D. Roosevelt took the United States of America off the gold standard and initiated a general calling in of all gold bullion and coinage. But seventy-two years later, the hand of FDR reaches from beyond the grave to remind us that confiscation is still very much the prerogative of big government against the little guy on the street.

First, it emerged that for about a year, the US Treasury had been holding ten more of the legendary 1933 double eagles having seized them from the estate of a private collector. To anyone familiar with coin collecting, the 1933 double eagle is the numismatical equivalent of the Maltese Falcon. Having issued his confiscation edict, all of the newly minted 1933 coins were melted down except for two coins earmarked for the Smithsonian Institute.

However, more than two survived as rumours of the theft of an unknown number entered numismatical folklore. True to Executive Order 6102, the government set the confiscation machine into motion in 1944 as their secret service agents were assigned the long task of recovering as many stolen $20 coins as possible. By 1952, nine double eagles had been recovered with the tenth one in the possession of King Farouk of Egypt, the legendary coin collector who amazingly got his through the incompetent granting of an export license in February 1944.

But like a terrier with a rabbit in its mouth, the US Treasury would not give up and tenaciously pursued that tenth coin across the decades until it was seized in an operation with agents posing as buyers in 1996. This coin went out in a blaze of glory by being remonetized and sold for over $7 million at auction on July 30 th 2002. Being monetized and true to government bureaucracy, a payment of $20 from the proceeds was made to the Treasury to balance their books.

The entire timeline of this fascinating story can be found at this treasury link as well as an entertaining account here.

Now with this latest news, the US government displays its confiscatory zeal again by seizing the coins without any compensation being offered to the owners. The government says the coins were stolen from the US Mint and therefore are illegally held. The family's lawyer counters that the government cannot prove they were stolen or that the coins were subject to forfeiture. Further details can be found here.

Which brings us to the second item in which the US Treasury Department recanted on a previous letter to GATA dated December 17 th 2004. In that letter, they stated that they no longer had the power to force the redemption of gold bullion coins at face value. In a 12 th August letter, they admitted the power to confiscate had never left their grasp, it just depended on the political and economic circumstances whether confiscation ("forced redemption or compensation") would be enacted.

I won't go into any deep analysis of that statement, but anyone who believed that big government never claimed such rights must have died a hundred years ago. I myself wrote on confiscation a few months back here and feel somewhat vindicated that the machinery to do it is very much in place. We saw it in practise as the Treasury seized those 10 double eagles without recourse, and we read it in theory in last week's GATA press release.

In that article, I stated that a fiat crisis induced by Peak Oil would force government to first seize gold and possibly silver to shore up failing paper reserves and finally to remonetized gold and silver when it became apparent that all confidence had been lost in electronic and paper money. I would add that Peak Oil is merely the favourite in a number of catalysts to propel this monetary crisis.

Meanwhile, Western governments have sold or lent the vast bulk of their gold and silver either to manipulate or finance various operations. But they are confident of getting as much as they need back. Why do I say confident when they are depleting the very assets in question?

The reason is quite simply because they can take it all back via confiscation. Anyone who thinks the central banks are going to be caught with their pants down underestimates the grasp and reach of government in perilous times. They will imprison, fine, torture and kill to get it back. It seems that government regards private gold holdings as their own but lent to us until the time of the "common good" arrives.

How much gold is stored in the COMEX warehouses? According to the NYMEX website, 5,949,338 ounces of fine gold. To that we can add the 444,742 ounces held in the iShares ETF (most of this is held in London). Further add the gold held in private allocated gold accounts, bank safety deposit boxes, industrial inventories, scrap recycling, jewellery and then the annual output of American-based gold mines (itself over 9,000,000 ounces annually). All of these tens of million of ounces are available for the US Treasury to force redemption on in return for depreciating dollars at any crisis time. Would they do it? Of course they would! The only question would be how much would they confiscate?

As for silver, the total in the COMEX alone is over 111 million ounces and the mines churn out half as much again every year.

And let us not forget the recent Federal Reserve study which suggested that a liquidity crisis could be circumvented by the Fed not only buying up government bonds, but anything from gold, silver, mining shares down to supermarket goods - anything to force money to circulate and avoid a deflationary spiral.

So the government wouldn't just buy up the entire gold and silver production of America, they would nationalise the mines by printing up the necessary tens of billions of dollars and forcing a share buyout. There's nothing like a bit of coercion to get your way!

Perhaps after all this metal massacre, one may feel bereft of any inclination to hold gold or silver. Perhaps you feel a bit of "midnight gardening" is the only way to ensure safety or keep it offshore thousands of miles away under a government you hope is more lenient.

As with all things, there are warnings signs. Not signs when to buy gold or silver, but rather when to get rid of them. Roosevelt's actions happened over 3 years after the beginning of the 1929 Wall Street crash. Britain going off gold in 1931 gave nearly two years warning to Americans and silver owners even had the luxury of an extra year to mull over the implications of executive order 6102 before the Silver Purchase Act of 1934.

Government is powerful and can act in unstoppable ways. The trick is not to stop the elephant coming towards you, you only have to see it coming and move out of the way. The wise investor prior to 1933 would have moved out of the elephant's path by using his gold coins to buy gold mining shares.

Today, we have the grace of a few years to build our precious metal holdings at cheap prices before the warning signs to change direction come and we can exit at profitably expensive prices. Currently, one may hold all the various forms of precious metal investments, be it equities, ETFs, coins or bars. One just has to be sure they are not holding the wrong form of gold and silver when the government comes knocking.

Roland Watson writes the investment newsletter The New Era Investor that can be purchased for an annual subscription of $99. To view a sample copy of the newsletter, please go to and click on the "View Sample Issue Here" link to the right.

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