Ranting Andy’s Thursday Afternoon Wrap-Up 2/16/2012

Ranting Andy’s Friday Morning Commentary 2/17/2012

Gold Confiscation

In 1933, in his first official act as President, Franklin Roosevelt declared a “bank holiday” and decreed confiscation of gold from all U.S. citizens.  Under the authority of the Emergency Banking Relief Act, FDR issued Executive Order 6102, mandating all privately-owned gold be sold to the government at the fixed price of $20.67/ounce.  However, the order specifically exempted coins having a recognized ‘special value’ to numismatic collectors.  Given today’s economic chaos, and increasingly imminent demise of the dollar as “world’s reserve currency,” the following questions are being asked by greater numbers each day:

1. Could privately owned gold held by Americans within the U.S. be confiscated again?

2. What if Congress enacts currency exchange laws, which prevent Americans from moving U.S. Dollars (or gold) offshore?

3. Could the President make it illegal for Americans to own gold?

In 1982, Congressman Ron Paul was a member of the House Gold Commission, a group he organized to discuss the potential benefits of returning to the Gold Standard.  In his “Case for Gold,” Paul wrote:

If it gets bad enough, they’ll declare a national economic emergency.  They’ll take over the banks, all business and industry.  They may even try to confiscate our gold.  I served on the Gold Commission for eight or nine months while in Congress, along with fifteen other members.  I brought up the subject of confiscation.  The power to confiscate gold is still on the books as the law of the land.  I urged the full Commission to recommend Congress repeal the power to confiscate gold in an economic emergency.  We pushed it to a vote and I was the only one that voted to recommend to Congress that we never again contemplate taking the gold of the American people.  The fifteen other members voted it down.  The power is still there on the books, and they can do it any time they wish. 

In other words, the answers to these questions are yes, yes, and yes, despite the logical conclusion that such an act makes no practical sense.

U.S. Gold Numismatic Coins

When most people hear the term “gold bullion,” they think of the large bars supposedly held at Fort Knox.  However, the most common bullion products are one ounce coins, such as the American Eagle, Canadian Maple Leaf, South African Kruggerand, Austrian Philharmonic, and Australian Kangaroo.  These are all “coins of the realm,” but have never been circulated as legal tender.  Additionally, the U.S. government defines “gold bullion” as foreign coins that were once legal tender in their respective countries – such as the British Sovereign, Swiss Franc, and French Franc – but are no longer today.

Currently, 49 countries allow their citizens to hold numismatic gold and silver coins without fear of confiscation, so long as they are in good enough condition to be considered collector’s items. The thought process behind such “numismatic exemption” is that It preserves the country’s history, but such exemptions DO NOT include numismatic coins from other countries. And America is no different.

That is why I am bullish on “lightly circulated” numismatic gold coins.  These are the old $20 Liberties, $20 St. Gaudens, and $5 and $10 Liberties that were U.S. legal tender from 1850 to 1933. If they are in good enough condition to be considered collector’s items, they are considered “numismatic gold” – non-reportable and exempt from confiscation.  In the event of a new confiscation decree, there are no guarantees that such exemptions won’t be removed, but as of now, this is the letter of the law.

Numismatic gold coins in the lightly circulated grades – Very Fine (“VF”), Extra Fine (“XF”), and Almost Uncirculated (“AU”) – have slight wear, essentially undetectable to the untrained eye. They are in excellent condition, but because they have slight wear, the premium is more moderate than the high Mint State-graded coins.  In my view, there is no reason to pay high premiums for “superior quality” numismatic gold coins, as both the high Mint State- graded coins and lightly circulated numismatic coins are both considered collector’s items, exempt from confiscation.

Record Low Premiums

Generally, I don’t endorse numismatic coin purchases because the risks of confiscation exemptions being repealed is too high to justify the premiums over melt value, especially high Mint State-graded coins due to their extra-ordinary premiums.  However, TODAY’S PREMIUMS ON LIGHTLY CIRCULATED NUMISMATIC COINS ARE THE LOWEST I HAVE SEEN IN MY 22 YEARS IN THE BULLON BUSINESS.

I have NEVER seen lightly circulated $5, $10, and $20 gold coins at prices equal to, or in some cases lower than their bullion counterparts, as is the case now.  Circulated $20 gold pieces are being offered at basically the same price as one ounce gold bullion coins, and unbelievably, the more scarce pre-circulated $10 Liberty is selling for 2%-3% less than a brand new ½ ounce gold eagle.  I believe this rare situation reflects the current market lethargy, providing a unique opportunity to exploit an anomaly I do not expect to continue for a material amount of time.  Basically, there is no opportunity cost involved with buying the older coins, just benefits!

Please call your Miles Franklin representative today at 800-822-8080 and grab some of these in-stock historic coins at the best price I have EVER seen in relation to gold melt value, while supplies last.