Is Our Gold Safe

July 12, 2003

I promised to share with you some of the terrific letters I’ve received in response to my query about whether we should be worried about restrictions on gold ownership. The question was inspired by a reader who asked whether it might be safer to own mining shares rather than physical gold, which, as many of you will already know, was confiscated in 1933 by order of President Roosevelt. Lest anyone think our discussion is merely academic, and before we get to a letter from a very wise old-timer who insists he is not a gold bug, let’s ponder Roosevelt’s edict, in his own words:

“I, Franklin D. Roosevelt, President of the United States of America, do declare that said national emergency still continues to exist and pursuant to said section to do hereby prohibit the hoarding gold coin, gold bullion, and gold certificates within the continental United States by individuals, partnerships, associations and corporations and hereby prescribe the following regulations for carrying out the purposes of the order:

“Section 1. For the purpose of this regulation, the term 'hoarding’ means the withdrawal and withholding of gold coin, gold bullion, and gold certificates from the recognized and customary channels of trade. The term ‘person’ means any individual, partnership, association or corporation.

“Surrender Your Gold”

“Section 2. All persons are hereby required to deliver on or before May 1, 1933, to a Federal Reserve bank or a branch or agency thereof or to any member bank of the Federal Reserve System all gold coin, gold bullion, and gold certificates now owned by them or coming into their ownership on or before April 28, 1933, except the following:

“(a) Such amount of gold as may be required for legitimate and customary use in industry, profession or art within a reasonable time, including gold prior to refining and stocks of gold in reasonable amounts for the usual trade requirements of owners mining and refining such gold.

“(b) Gold coin and gold certificates in an amount not exceeding in the aggregate $100.00 belonging to any one person; and gold coins having recognized special value to collectors of rare and unusual coins.

“(c) Gold coin and bullion earmarked or held in trust for a recognized foreign government or foreign central bank or the Bank for International Settlements.

“(d) Gold coin and bullion licensed for the other proper transactions (not involving hoarding) including gold coin and gold bullion imported for the re-expo rt or held pending action on applications for export license.”

There was more to it, but you get the gist. And let’s admit it: You were somewhat surprised to learn how overweening the U.S. government had been in its demands -- perhaps even shocked to realize that such demands could have become law in America. But they did, with the result that some citizens will never again trust the government to protect economic liberty in times of severe crisis. Which brings us to this letter, from an old-timer whose distrust runs deep:

A Survivor Remembers

I am not a Gold Bug [as you have suggested]. I lived through three Wars -- WW II, Korea and the Cold War -- which was hot for me. I learned my lesson in 1941. I wanted to buy a Winchester 94 to go deer hunting. My father had me buy a Defense Bond instead, [but by the time I cashed in the bond after the war, the price of the gun had jumped from $37.50 to $79.95]. An ounce of Gold will not buy such a gun today.

“You are not going to survive hiding behind sacks of Gold coin. There is more to it than. It is too heavy to lug anywhere to survive. A Gold bug invests in Gold to grow in an economy, and it is not an investment if you do not own 25,000 ounces of Gold. It is not a store of value. There is always the hope you can convert your Gold to money. But money supports Gold, Gold does not support money. When money ceases to support Gold you have eventual chaos. A Gold standard is an easy thing to create. The Government outrageously overprices Gold so only a fool will turn his paper money into Gold. You cannot have “free Gold,” as modern technology has made Gold cheaper but not in relation to population. You never know wh en they’ll be able to take Gold off the Pacific Ocean floor, or out of seawater, or out of the granite of the Smokie Mountains. The Government controls the price of Gold by its usury. In 1928 you gave the Government $110 worth of Gold and they gave you $100 in coin.

Buy Gun First, Then Gold

“Before I would buy an ounce of Gold I would buy a .308-caliber M-14 with a goodly number of clips and Teflon Coated FMJ ammo and a prayer book. It is nice of you to give your children Gold coins, but they had best not live in a city and be static, since you cannot move a significant amount of Gold from place to place. I do not think you know what Gold weighs, but bread weighs more. As far as Gold stocks a re concerned my [Goldcorp shares] cannot be sold in a day or a week. I have more shares than were traded so far this week. There are 158 million outstanding and options and all that other bull___t. There is more to War than Hollywood, and more to survival and investment survival than I have ready anywhere. A gun is important but not as important as a bayonet with some guts behind it. God help your readers when they throw the light switch and the lights do not come on.

“As far as investing in stocks or bonds, go to a casino that has electronic blackjack or a [multi-deck] boot. I am sorry, but I have been there and done that. I have more holes in me than Swiss cheese. So far I have been burying my friends and I have at the most a few years; but I have my Zippo. Michael D.”

Market Wise Black Box is published on weekdays 240 times per year. ©Copyright 2001-2003 by Market Wise. It's now a FREE email newsletter. To sign up please go here www.marketwise.com/MW_WiseG/BBSubscription.asp. All information was gathered from sources believed to be reliable. The risk of loss in futures, stocks or options can be substantial; therefore only genuine risk s should be used for such trading. Futures, stocks and options may not be a suitable investment for all individuals, and individuals should therefore carefully consider their financial condition in deciding whether to trade. Commodity option traders should be aware that the assignment of a short position will result in a futures position.

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The world’s largest gold nugget is 61 lbs, 11 oz and is on display in Las Vegas.