Is the Confiscation of Gold by Certain Central Banks likely?
Julian D.W. Phillips, August 7th, 2009
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This contribution to CNC is a snippet from a recent issue of the Gold Forecaster with Subscriber-only parts excluded. To read more visit: http://www.goldforecaster.com
As part of a series we first look at this question: "If the U.S. decides to confiscate gold in the future, what impact might that have on Gold Shares and the COMEX Gold Futures prices?
We assure you, this is not a fatuous question. Is it possible you may well ask under what circumstances did this happen in 1933? [We will answer that more fully in a later part of the series]. What we can confirm is that in 1933 the U.S. government banned the ownership of gold by U.S. citizens and purchased all but rare gold coins from the U.S. Public They did this, at $20 an ounce. Two years later they revalued gold to $35 an ounce, a 75% revaluation. So, there is a precedent! [In a later part of the series, we will examine the reasons behind this first confiscation and compare these with today to see if we can expect the same in the months to come?]
So we continue this part on the basis that a confiscation will take place. And we further assume that the rare gold coins [trading at a large premium to the gold price] are excluded. This means that high caratage gold bars and coins trading at close to the gold price will have to be handed over to the Fed and sent to a place like Fort Knox.
Gold Share Markets.
It may sound strange to say this, but investors in gold Exchange Traded Funds will concur but gold shares have little to do with the gold price, except to define what a gold mining company will earn from its gold production. Buyers of gold shares don't expect to influence the gold price when buying gold shares. They are buying equities only, with all the risks of any corporation. The way the gold price affects them is through the price received over the space of the half year and year when the results are published. This makes the average gold price of prime importance to these shares. Of course there are many who based on their forecasts of the average gold price will discount this average and reflect it in the price of the shares. Many believe that gold shares are six months ahead of that average.
