Lately in various gold and silver newsletters we read, we’ve seen a few queries on the topic of confiscation of gold in the USA.
A reader of ours also posed the question about the confiscation of gold in New Zealand. From J.M…
“I just wanted to know if you had any info on if the NZ Government has the ability to ‘confiscate’ investors gold & silver. I have read some articles about this happening in the USA in the thirties and wonder if our govt. has the power/laws to do so?”
Gold Confiscation: A (Very) Short History Lesson
Firstly, a little background in case you didn’t know.
What J.M. is referring to above is the 1933 Executive Order (pictured to the right) issued by U.S. President Franklin D Roosevelt (FDR). This effectively outlawed the ownership of gold bullion for US citizens. They were required to turn any gold bullion and coins (collectible coins were excluded) into the Federal Reserve under penalty of, what was for the times, a massive $10,000 fine or 10 years imprisonment.
The effect of this law change was it allowed the US government to devalue the US dollar over the next few months against gold, having also increased the US Treasuries gold hoard.
The idea was basically to force people into spending their paper money and thus end the depression. It just happened to be at the expense of the citizenry and as a result of theft but hey, government will be government.
There’s plenty of information on this across the “interweb”. If you want to learn more just Google “gold confiscation”. Also James Rickards book Currency Wars is perhaps one of the best summaries of this period and is highly recommended as a history lesson.
So Where Does New Zealand Stand on Gold Confiscation?
Firstly there was no gold confiscation in New Zealand at the time of FDR’s Executive Order in 1933. Why was this?
Well, Britain left the gold standard in 1931. New Zealand (along with Australia) had, prior to 1931, already left the Gold Standard. So it could be argued that there was no need for the government to confiscate gold. As it had been removed from the New Zealand monetary system already. They were free to devalue their currency as the likes of France had done in 1925 and as Britain later did in 1931.
No Confiscation of Gold in New Zealand’s History
So for starters we have got history on our side. There has not been a confiscation of gold here in New Zealand to date.
No Gold Confiscation Law in Place in New Zealand
Secondly, there is no gold confiscation law in place in New Zealand. Unlike Australia, which already has a gold confiscation law written but not enacted (for more detail on these Australian gold confiscation laws see this comprehensive explanation by Paul Behan).
Of course, the fact that a gold confiscation law doesn’t currently exist in New Zealand, doesn’t preclude it from being written in to law at some point in the future.
But, with any luck, it would at least mean there would be some warning. Whereas in Australia, it would merely take a stroke of the pen from the Governor General to enact the existing provision.
The Difference Between Today and the US Confiscation of the 1930’s
The US Dollar Was Still Backed by Gold in 1933
Unlike today, the dollar was still gold backed in 1933.
So taking gold from the people enabled the US Government to devalue their currency. Then following the confiscation with the stroke of a pen, the people then had no recourse. They could no longer take their dollars to the bank and swap it for gold.
Whereas today, Governments the world over are free to devalue their nations currency to their hearts content. All without needing to confiscate gold from their citizens.
People Less Trusting Of Government Today
Another difference is that citizens today would seem to have a lot less trust in government than they did in the 1930’s.
By all accounts most people followed along with FDR’s Executive Order in 1933.
Whereas, perhaps today with the internet and social media, there would likely be a backlash of sorts against such a move? (Although this is perhaps balanced out somewhat here in New Zealand by the fact that holders of gold still seem to be pretty few and far between).
What Else Might the G-Man Resort To?
This article on SovereignMan.com discusses 3 things that the government may do to discourage gold ownership:
Step 1: Just make gold ‘harder’. To buy. To transport. To own. Think about the changes we’ve seen over the last two years; government-regulated exchanges are continually hiking their gold margin requirements, increasing investors’ burden to buy.
On the physical side, the US government buried some insane regulations deep within last year’s healthcare bill. The new rules required a mountain of paperwork such that anyone who purchased a single ounce of gold from a coin shop would have to submit a special 1099 form to the IRS.
(The rule was later modified under intense pressure from various lobby groups, but it still gives you a good idea of what these people are thinking…)
Then there’s the new Dodd-Frank legislation that makes it nearly impossible for US citizens to trade securities and commodities from overseas accounts beyond the reach of the federal government.
Then there’s the Liberty Dollar debacle in which the US government used obscure counterfeit laws to seize millions of dollars of silver coins that were owned by the firm’s customers!
Then earlier this year, the Financial Crimes Enforcement Network (FinCEN) issued new guidance requiring that US taxpayers who hold gold in certain offshore financial accounts report such holdings on their annual FBAR. Conveniently, this ruling put up a barrier for Americans to use GoldMoney.
Step 2: Plant seeds of doubt [via economists and media]…
Step 3: Tie gold to terrorism. Plant evidence.Source.
However the counter balance is that in New Zealand gold does pass under the radar significantly more than in the USA. There is no GST on pure gold or silver bullion either. Plus none of the instances mentioned in the above SovereignMan.com article have occurred in New Zealand to date.
What About Silver Confiscation?
Another consideration is that silver was not confiscated in 1933. Although according to this article a year later it was…
“Silver also suffered the fate of gold. On August 9, 1934 a Presidential Proclamation ordered all silver bullion surrendered to the Treasury within 90 days and a 50 percent tax was levied on any profits from the sale of silver. The sellers were paid 50.1 cents per ounce.”
However, until 1964 silver certificates in the USA could still be redeemed for silver. So if gold was confiscated in the future, you could argue that silver may well be at a slightly lower risk than gold.
Other Options to Hedge Against Gold Confiscation?
The 1933 Executive Order excluded numismatic or collectible coins. So you could consider holding some of these.
The downside is these coins often sell for a large premium over the spot price of gold. So you will pay for this hedge against confiscation. Plus of course if it were to happen there’s no guarantee numismatic coins would not be targeted this time.
So, What are the Odds of a New Zealand Government Gold Confiscation?
Who knows really?
The government are unlikely to cut spending significantly. So the odds are the they will need to grab more revenue in the future. This revenue grab could be through higher taxes, higher inflation, and who knows what else?
But given the current low rate of people holding gold here in New Zealand, it would perhaps be more likely they would go after “wealthy” property investors with a new tax.
After all the government did just that in 2011 with a rejig of property depreciation rules. Since then we have also seen other changes to the taxation of real estate. The “bright line” test means any property sold within 2 years would be taxed. This was extended to 5 years in March 2018.
Or maybe just keep following the current trend of ever higher taxes on petrol?
So in summary, like most everything these days it’s anybody’s guess. When rules aren’t set in stone, making financial plans can be difficult. But, if we had to make a guess with a gun to our heads, we would say the odds would be against gold confiscation in New Zealand.
But, either way we believe we’re better off having some gold (and silver) than not. As the risks of not having any gold (e.g. currency devaluation, sovereign debt, negative real interest rates, etc), seem much higher than the risk of holding some.
Plus, if we didn’t act because of a possibility of something occurring in the future, then it’s likely we’d make no decisions in this life!
See this article for more on this topic: 4 Reasons You Should Store Some Precious Metals Outside of New Zealand >>
If you’d like to know the exact process for selling gold and silver see: Sell Gold & Silver Bullion, Bars or Coins >>
Editors Note: This article was first published 17 January 2012. Updated 16 March 2018 to include new taxes implemented on fuel and property, and corrected links to various source articles. Last updated 25 February 2020.