We’ve been focusing on gold all week here at Markets and Money.
Jim Rickards’ latest book, The New Case for Gold, is now available. And we’ve spent all week banging on about it.
Enough is enough you say?
Well, I disagree.
In my near decade long experience in the markets, I’ve been constantly surprised by the number of people that don’t consider gold important. I’ve met many people over the years that don’t give the shiny metal a second thought.
I’ve had every dismissive line thrown at me about why investors should stay away from gold. Things like, ‘it’s pays no yield’, ‘it doesn’t do anything,’ and, ‘smart people know that’s not where the money is made.’
Here’s a personal favourite, from a long time ago. In explaining the place gold should have in the monetary system at a dinner party one night, a very wealthy expat South African investor told me, ‘it’s just like apartheid darling, we’ve moved on from that.’
I’m not going to tackle smug remarks today. Jim goes through these — and more — in his first chapter in The New Case for Gold. Then he gets onto the real reasons why you should have gold, and why the governments need to return to a gold standard.
But all this gold talk has led to some interesting subscriber questions. The one that caught my interest, though, is the possibility of the Australian government activating a dormant policy to confiscate personal gold holdings.
As I explained yesterday, there are no statistics on gold ownership in Australia. There are guesstimates, and that’s pretty much it.
The closest I can get are some vague numbers from the Perth Mint.
In 2016 Perth Mint claimed it stored around $2.5 billion in allocated and unallocated gold. And more than three quarters of the mint’s customers chose unallocated gold. This could be because unallocated storage is cheaper. Of that, over half of those customers are located in North America.
A much older statistic, from 2008, says over 45% of all Perth Mint gold stores belong to international customers.
Unlike India and China — as I explained yesterday — Australians aren’t a population that hoards gold.
However you feel about Aussies’ lack of gold holdings, it does make it pretty much pointless for the government to raid Aussies’ personal gold holdings. Because, clearly, we don’t even bother with it.
But there is one dormant clause that could see the Aussie government walk away with more gold than any other country in the world.
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Australian gold mines pumped out 285 tonnes in 2015 financial year. Although that’s nothing compared to the 462 tonnes of gold from China during the same period.
This makes the mines a perfect target.
All of this is laid out in Part IV of the Banking Act 1959.
The Reserve Bank of Australia have the ability to set the price of gold at any time.
Which means the RBA could tell the mines what they are going to pay for the gold, and set whatever price they like. A topic Jim has discussed in detail in Strategic Intelligence.
Once this is in place, the next step is to nationalise the mines, leaving any gold dug up property of the RBA.
And in those two moves, the Aussie government would completely control the gold market in Australia.
One interesting clause though, is Section 47. Apparently ‘wrought’ gold is not included in the any gold confiscation plan. The loose legal language implies that jewellery and gold ornaments are exempt from any wealth stealing.
The loophole means that the government may take bullion and coin, but not the chain around your neck.
Also, this act only refers to gold, and not silver.
Now, these laws are currently ‘suspended’.
In truth, they’re probably forgotten, as well. There’s no imminent danger of the pollies in Canberra dusting off the good ‘ole banking act from six decades ago. But it’s important to remember, that yep, these laws are in place. And there’s no need for public discussion about it.
If you’re worried about the government coming after your bullion stash one day, there’s a far more tempting pot for them.
Before I started writing today, I asked Paul Engeman, the director of Ainslie Bullion, what he thought of this dangerous legislation. As he explained to me in an email, I need not worry:
‘Like many archaic pieces of our constitution we do still have confiscation of gold provisions, harking back to days when our currency was actually backed by gold. Whilst this is real it needs to be looked at in the context of today.
‘Gold bullion still makes up a relatively small part of Australia’s invested wealth. On the other hand we have over $2 trillion sitting in super funds now, an amount that would pay off our national debt many times over.
‘The enactment of any confiscation provision is both draconian and comes at the expense of serious political capital. If a government of the day is that desperate for cash, logic would dictate they will go for the biggest and easiest win.
‘There are plenty of precedents already in the world where governments have taken superannuation or pension funds. For a government to mandate the large institutional and industry super funds into, say, a “national infrastructure fund” and pay a dividend on tolls etc is a very real threat.
‘Gold bullion goes in the “too hard” basket for confiscation.’
Paul makes an excellent point. Why would the government ask you to hand in your physical gold? Given the return they would get, it’s just not worth it…yet.
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