Is Your Gold In The Wrong Hands?

| June 28, 2010 | 0 Comments

For more than three years, I’ve been telling everyone to buy gold.  I wrote an article encouraging everyone to buy gold when it was trading for just $700 an ounce.  Since then, gold prices have jumped significantly!

I still think there’s tons of upside in gold… but a strange risk has floated to the surface… and I think you need to be aware.

The risk I’m going to tell you about was first brought to my attention by a number of my contacts in London.  As you may know, I’ve been spending a lot of time thinking about Europe.  I’m reconnecting with old contacts and developing some new ones.

Why the focus on Europe?  Not only because it’s my job, but because I have a vacation planned.  I’m going to Europe to see the sights and also to get a first-hand look at their economy.

You can bet when I find something interesting, you’ll be the first to know.

Getting back to gold…

I was on the phone with a few friends based in London.  We were talking about the markets and tossing trading ideas back and forth.  That’s when our conversation turned to gold.  Apparently, demand for gold is surging in Europe.

No surprise there… but what they said next hit me upside the head like a two by four.

I asked them if Europeans buy the Gold ETFs traded on the US markets. Their answer floored me.

They won’t touch the stuff.

The gold market is poised to rally higher.  Inflation, international turmoil, sovereign debt problems, and possible currency devaluations are staring investors square in the eye.  Gold is the best hedge against these risks.

Why won’t the Europeans buy US Gold ETFs?

The fear on the other end of the phone was palpable.

They’re afraid the US government is going to start seizing gold again.

I almost laughed.  Then I realized they were serious.

Gold traders shouldn’t be riding a wave of fear… they should be looking at the markets and getting greedy.  Just look at the price of gold.  It’s literally “off the charts”.

Gold prices are now trading at record highs… While the value of gold is rising almost every day, some gold bugs are becoming more and more afraid.

They’re afraid the US government will take their gold.

I did a little research.  Let me tell you, the idea isn’t so farfetched.  It took me less than five minutes to find some information on the United States Treasury website.  Here’s what I found:

April 5, 1933 – President Franklin Roosevelt issued an order making it illegal to hoard gold coin, gold bullion or gold certificates.  Violation of this order was punishable by a $10,000 fine or 10 years in prison, making it a felony to own gold.

Roosevelt was trying to control the economy.  He issued this order in an attempt to solve our economic problems.  By the way, this order wasn’t repealed until the 1970s.

It’s scary to realize what our government is capable of doing in the midst of an economic recession or depression.  We’re seeing some of it today. Entire industries are being taken over by the government.  In an attempt to help, the government is making things worse.

I could go on for pages about government failures… you can start with the TALF and the TARP, and then look at the homeowner assistance programs.  These programs are all failures.  But that hasn’t stopped reckless government spending.  It hasn’t stopped the government from trying to manipulate various industries or the entire economy.

Now I know why the gold bugs and my friends in London are so scared.

During the Great Depression, the US government seized people’s gold. What’s to stop them from doing it again?

How real is this fear?

Real enough that many Europeans won’t hold gold in US accounts.  They’re only buying gold held outside the United States… and they recommended I do the same.

In the modern world of electronic records, the government can easily track down anyone who purchased gold coins or gold bars.  And the Gold ETFs are an easy target.  The gold held by some of these ETFs is located right here in the good old USA.

The government could very easily tell the banks holding gold to turn it over… or face being taken over themselves.  Let’s face it, bank CEOs won’t really put up a fight.  They don’t want to miss out on their million dollar paychecks and country club perks.

If the government wants it, your gold is as good as gone!

In reality, the likelihood of the US government grabbing your gold is slim… but notice I didn’t say none.  I’ve learned real life can be stranger than fiction… and governments do strange and stupid things.

So how can you protect yourself?

Now, I’m not a lawyer or CPA, but it seems to me you can simply hide your gold and break the law.  You could also open up an international bank account and hold your gold there.  But that’s not practical or convenient.

Here’s a simple solution… buy Gold ETFs holding physical gold in international locations.

One Gold ETF is worth a strong look, ETFS Physical Swiss Gold Shares (SGOL).  They buy physical gold and place it in a Swiss bank account. Here’s the best part… the ETF trades on the NYSE.

In theory, SGOL places your gold beyond the greedy reach of the US government.

While the odds of the government seizing your gold is slim, you can’t go wrong by protecting yourself.  Investing in SGOL gives you the chance to capture further upside in the gold market… and it provides a little extra peace of mind.

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Category: Currency Trading

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The Dynamic Wealth Report works with a number of staff writers and guest experts who specialize in everything from penny stocks to ETFs to options trading. These guest analysts post under the 'staff writer' moniker for ease of use.

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