Call Center Tales: Gold Confiscation Myths

Fueled by fears and expectations of strong price increases, unscrupulous firms are making big profits by tricking investors into believing that more expensive collectible gold coins are more profitable than modern bullion coins. Gullible investors may overpay or invest in the wrong coins. This article will help you protect yourself and your funds.

Many gold and silver salespeople contribute to the spread of myths, misunderstandings and outright lies about buying and selling precious metals. Typically, these mythological stories have two origins.

  1. First, the allegedly possible confiscation of gold from the population by the government, as in 1933.
  2. Secondly, the allegedly higher income potential of collectible and rare coins compared to investment ones.

Gold confiscation

The most commonly used cheating method to promote overvalued coins is the issue of confiscation. Many telemarketers tell investors that old American and European gold coins are “not confiscated,” giving the impression that modern investment coins are. Consequently, many investors buy old US gold coins at prices that are significantly higher than the actual value. The idea of ​​acquiring items of yellow metal that cannot be confiscated sounds like a powerful argument, but on closer inspection it loses its meaning.

Many precious metals companies claim that old American gold coins, proof sets, and commemorative coins are “collectibles” and cannot be removed. Some say that premiums of 15% or more automatically make coins collectible. Others believe that coins that are one hundred years old or older are antiques and therefore not suitable for confiscation. One large company dealing with the sale of rare coins shared its opinion on this matter.

Under current federal law, investment gold can be confiscated by the government during a national crisis. Like collectibles, rare coins are not covered by these provisions.

However, no federal law or Treasury ordinance supports these claims.

The myth that certain types of gold coins “cannot be confiscated” stems from the 1933 Executive Order issued by Roosevelt. The decree excluded “gold coins with a designated special value for collectors of rare and unusual coins”, but it does not specify what is meant by special value, collector, and, of course, collectibles. However, telephone marketers distributing old American coins help perpetuate this myth because it promotes overvalued selling.

Roosevelt’s exclusion of “gold coins with designated special value” does not mean that any future withdrawal will not include collectibles. If such a situation occurs, this order will have no legal effect, since on December 31, 1974, by means of Executive Order No. 11825, President Gerald Ford canceled the Roosevelt Order of 1933. This was necessary because, on the same day, Congress restored American ownership of gold, and in 1977, Congress abolished the president’s authority to regulate gold transactions during a national emergency other than war.

Even if the law did protect certain coins from possible confiscation, the government would change this law. Unfortunately, the authorities often ignore laws. Dealers who sell so-called “non-confiscated” gold have no grounds for such claims.Gold Standard Myths

For the sake of further discussion, imagine that the government begins to seize gold from the population and organizations. Will the old US gold coins, which make up the bulk of the “non-confiscated” market, be confiscated? Probably not, as they are considered regular coins. (Among old US gold coins, the most common are the Liberty and St. Gaudens, also known as the Double Eagle, in denominations of $ 20. The $ 10 coin is called the Eagle, $ 5 is the half eagle, $ 2.5 is “Quarter of an eagle”).

Although the Roosevelt Executive Order required Americans to surrender gold coins and bullion, foreigners continued to buy paper dollars for the yellow metal until August 15, 1971, when President Nixon closed the golden window. From the end of World War II to 1971, the gold reserves were cut in half.

It is generally accepted that all the drmmetal coins handed over at the call of Roosevelt were melted or formed into bars of .999 purity. It is not true. It was profitable for the government to give foreigners gold coins instead of ingots.

With the official gold price of $ 35 per ounce, for 35 million paper dollars, the foreign bank received 1 million ounces of bullion. However, if the Treasury provided gold coins with a total denomination of $ 35 million, it gave away only 967,500 ounces, saving 32,500 ounces.

Each Liberty and Double Eagle $ 20 coin contains .9675 ounces of gold. Smaller coins contain the same proportions. Thus, it was more profitable for the Ministry of Finance to exchange precisely the yellow metal coins. In addition, before the Roosevelt Ordinance, millions of old US gold coins had already left for Europe.

Thus, given the government’s policy of supplying “confiscated” coins to foreign governments, how can a seller of old American coins claim to be selling “non-confiscated” gold when its commodity may be part of the precious metal seized in 1933?

Traders rarely talk about the origin of the coins. They claim that their merchandise somehow survived the 1933 confiscation. Coins may have arrived from Europe a few weeks earlier. Some large numismatic wholesalers have offices in Europe where you can find entire stocks of old American coins. Some companies talk about daily deliveries from Europe, while others talk about offices in Brussels, Paris and Zurich.

As noted above, a prerequisite for non-seizable gold lies in the Roosevelt Ordinance, which excludes “gold coins of particular value to collectors of rare and unusual coins.” Are old US gold coins “rare and unusual” today? No. PCGS and NGC, the two dominant grading companies, have evaluated and weakened hundreds of thousands of coins.

Between 1850 and 1907, American mints minted over 100 million Liberty coins in denominations of $ 20. Between 1908 and 1933, about 65 million Double Eagles were produced with the same denomination. No one knows how many of them have survived to this day, but undoubtedly their number is in the tens of millions, most of which are in European bank vaults.

With stocks of old American gold coins in Europe and huge premiums, this commodity is a dangerous investment. As the price of gold rises, European banks may become sellers, causing old US yellow metal coins to fall in value.

Or banks in Europe may decide to increase their gold reserves by selling old US coins at a high premium, after which the proceeds will be used to purchase bullion. Such a move, of course, would put downward pressure on the prices of American coins of the past years.

FDRs Gold Confiscation

Since 1989, PCGS and NGC, two of the most famous companies by value, have slapped millions of MS-60 or higher grades. These services currently value between 200,000 and 300,000 coins per month. Millions of coins in lower grades (VF to BU) are not even subject to change, and are nevertheless sold as “non-confiscated” semi-dumismatic coins. Coins with the least degree of preservation, which have no real collectible value, are called semi-dumismatic. The VF / XF double eagles are definitely semi-humus coins.

Add in the older coins of lower denomination (ten dollar, five dollar eagles, etc.) and the number of available US coins will increase even more. Thus, coins that are positioned as “not subject to confiscation” do not have “designated special value for collectors of rare and unusual coins”.

The concept of “non-sealed” gold is fabricated. The idea lives only because dealers support it in their interests. Uninformed investors cannot oppose this, but now the readers of this article are informed, and therefore armed.

Investors looking to buy gold can look at bullion coins such as the American Eagle or Krugerrands. They are easy to buy, sell, and trade. Tracking their value is also easy. This does not require an expert eye as is the case with the $ 20 Double Head or Liberty.

However, it happens that old US gold coins that have not been evaluated by a third party are sold at investment prices. This has been the case for several years in the 1990s and into 2017. Before making a purchase, be sure to ask your broker about the premiums on old US gold coins. Sometimes old gold coins from the United States are a great asset.

Higher Profit Potential

Sales executives claim that older US gold coins (or any other commodity of them) have higher upside potential due to several factors. According to them, such coins are collectible and always bring more profit in bull markets. Sometimes it does, but this rule does not work when you pay a premium in the price of 20-30%.

A few decades ago, a study emerged showing how old US gold coins were profitable during the rising price of precious metals in the 1970s. However, honest dealers analyzed the report and found that the coins used were “handpicked”. However, telemarketers are still turning to this research when promoting so-called collectible coins.

Old Gold Coins of Europe

Sales professionals often argue that European yellow gold coins minted before 1933 will not be subject to possible government seizure. Imported coins most commonly advertised as non-confiscated include:

  • French coins “Rooster” and “Angel” in denomination of 20 francs;
  • British sovereigns (usually with images of Queen Victoria, Edward II, or George V);
  • Swiss twenty francs (also known as “Helvetica”);
  • “20 Francs Leopold II” of Belgium;
  • Swedish and Danish 10 kronor (with the image of a mermaid);
  • Swedish and Danish CZK 20;
  • 10 Netherlands guilders.

    The arguments put forward by sales agents are meaningless. If the government decides to seize the gold again, it will confiscate all coins except the genuine numismatic coins, which are truly one of a kind. Containers of European coins sold at a 30% mark-up are subject to confiscation.

    Telemarketers are very successful in selling old European coins. So successful that on the website of the CMI resource they are almost always on sale, and not with premiums of 20 or 30%, but at the prices of investment coins. After all, European coins are indeed investment coins. They are available for purchase, as marketers rarely fulfill their promise to buy them back.

    European coins are not worth the money the salespeople ask for. Regardless of the year of manufacture, they cannot avoid confiscation. In addition, they have little, if any, numismatic potential. A feature of collecting coins is that they are valued by numismatists only in their countries of origin. Americans collect US coins; the British collect British coins; the Japanese collect Japanese coins, etc.

    European gold coins are often compared to older US gold coins, which justify the premium, but tend to be conventional bullion coins, hardly worthy of a genuine numismatic mark-up. Some of the coins have been around for a hundred years and have always been sold for just a few dollars above the value of their gold contents. This is why telemarketers advertise them. They buy European coins at prices close to the investment price, providing themselves with a large profit.

    Finally, there is one more feature specific to European coins: they contain an unconventional amount of gold, for example, 0.2674, 0.2354 or 0.1947 ounce. Americans prefer coins containing a full ounce or fractions of an ounce, such as 1/2, 1/4, or 1/10. However, when old European coins are available at margins comparable to the 1 ounce gold Eagles, these are good buys.

How “Old Money” keeps its Fortunes

Although America considers itself a classless society, the reality is different. Americans are obsessed with the idea of ​​social status in all its forms, whether based on media fame, artistic or athletic achievement, or simply money. Despite the fact that America does not have titled nobility, the status of our economic nobles, such as Bill Gates and Warren Buffett, is as high as that of any English duke or earl.

When it comes to status, we look not only at the size of the bank account, but draw distinctions based on the relationship between money and social status. Hence the contrast between “old” and “new” money. The former involve several generations of life on country estates and education in (elite) Ivy League universities, while the latter is something bright and conspicuous. The Astor family has been wealthy for over 200 years, and in fact is the standard of American “old money”.

Outside the US, however, there is even older money, real dynastic wealth, that has been in some families for 300 years or more. This type of wealth has not only successfully survived business cycles, but also wars, invasions, empires, revolutions and natural disasters. To maintain a family’s well-being for so many years and carry it through all adversity, you need more than ordinary investment skills. Such rare success in preserving wealth requires a more global vision, imbued with a sense of history, and the thrill that worst-case scenarios too often become reality.

Americans may find it difficult to accept this idea, as Wall Street salespeople constantly harass them with slogans about investing in “long-term” stocks. No wonder – brokers are more concerned with commissions than client welfare. Stocks can do great long-term performance, although the major indices have barely budged in the past 12 years. Stocks, bonds and cash are always promises from third parties and therefore have credit risk in addition to the already accounted market risk. The investor is always at the mercy of the issuer. Companies end up going bankrupt. Bonds are eventually defaulted. All paper currencies in history have lost all their value at some point, and there is no reason to believe that the same fate will not await the current kings – the dollar, the euro and the Japanese yen.

But the land, gold and paintings have intrinsic value. If you own them, they are yours. There is no issuer who can suddenly make your land disappear or turn your gold into confetti. A painting cannot go bankrupt. Of course, a totalitarian regime or an enemy army can confiscate your property. But even for such cases, there are previously successfully used strategies.

Gold can be collected and tucked into a saddle bag, or sewn into the lining of a jacket and transported to another location. Pictures can be taken out of frames, rolled up and transported in luggage. The land cannot be moved, but if the family has title deeds and patience, they can demand the return of the confiscated property after the regime change. Many Cuban families in South Florida are awaiting the return of their lands confiscated by Castro in the late 1950s following the collapse of his regime, and they may well be doing well.

There are no perfect portfolios without risk. However, we too often use a narrow definition of risk and ignore the most serious risks in the form of financial disaster, social chaos, regime change, and emergency decrees. Warren Buffett looks at gold with disdain because the yellow metal has no profitability. And he has no profitability, because he has no risk. Profitability is what you get when you take risk. Gold has no credit risk, foreign exchange risk, default risk, and no risk at all. It’s just gold.

When you ask the members of these families and their representatives about what it takes to maintain wealth over the centuries, not just cycles, you will often hear the answer: “One third, one third, and one third.” This is the formula for dividing a fortune into one third invested in earth, one in gold, and one in fine art. Obviously, some money is needed for day-to-day expenses, and some can be used for speculation. But the central idea that land, gold, and art outlive and outperform riskier assets such as stocks, bonds, and cash seems perfectly reasonable when viewed from the perspective of centuries rather than years or decades.

If we measure the value of Buffett’s Berkshire Hathaway shares not in dollars, but in ounces of gold, we will see that it has fallen in price by about 75% since 2000 – from 280 to 70 ounces per share. In other words, someone who bought gold and not Berkshire in 2000 can buy four times as many Berkshire shares for the same amount of gold today. Paintings have risen in price to the same extent. We admit that this is a sample example. Nevertheless, for centuries it is hard, not paper, assets that retain their value, despite all the disasters. The old money knows about this, because they have seen all this more than once.