He Who Ignores History is Doomed to Repeat it

Unfortunately, the only way Gold can have a successful role is when its key qualities are allowed to reign. Those who have not ignored history over - not simply the last couple of centuries - but through the last six thousand years of its history agree that these qualities shine in stormy times of stress - breakdown - war. There is no doubt that a great number of highly competent observers have realised we are about to enter at least one - if not all three of these situations and that gold cannot lie dormant in the shadows of international finance for much longer.

For gold to serve us well - we need to look back in history - to a time when gold was a successful, a vital shining element during the dark days of monetary history. Indeed the use of gold in the timeframe we are about to examine was perhaps the most effective, pragmatic demonstration of just how Gold should be used in the difficult days we foresee in the near future.

The Early thirties
We now go back to 1933 - when President Roosevelt then President of the United States passed: - FDR Executive Order, April 5, under "The Emergency Banking Act of 1933.

This order banned exports of gold from the States - barred convertibility of gold to $ bills - and under Section 1 (b), stated:

"all gold must be turned in to any Federal Reserve Bank, "except...gold coins having a recognized special value to collectors or rare and unusual coins."

In addition - President Roosevelt set up a daily price for gold - then set about purchasing all the gold the U. S. government could for what was - with the benefit of hindsight - a recovery chest as well as a war chest! As a result the U.S. Gold Reserves rocketed to well over 20,000 tonnes, a situation that pertained through to 1952.

These were the days when the Depression was in full swing and Germany was rebuilding itself - after its Weimar Republic's Hyperinflation and subsequent Depression through the building of a massive war machine. This was eight years before the U.S. entered the war. It was a time of recovery in the States. The dramatic times suited the use of gold perfectly - a time when values - nations - institutions and paper were regarded with at least scepticism and eyes were on climbing up from the level of mere survival.

After FDR forced the U.S.Citizens to turn their gold - bear in mind that this was under a threat of a ten year prison sentence and / or a $10, 000 - at $20.67/ oz in April IN APRIL, 1933, he raised the price to $35per oz. just nine 9 months later (January 30 1934). Sad to say those obedient citizens who sold their gold to the Government did not benefit from the 69% price increase. Whilst those who had not yet given up their gold - could now bask in the joy of a 75% profit -when handing their gold over and enjoyed the role of true patriots However, the price increase in itself did restore the U.S. $ to the realms of a credible world currency. In a period of Depression - followed by war - the time had arrived for a war chest to be filled in preparation for a conflagration of never before seen magnitude.

How did this impact on Mr Joe Citizen. A very sharp 70 year old, Arizona Gold Coin Dealer - Jack Weber [of Golden Eagle Enterprises 1866-GOLD-4-YOU, or 1866-4653-4-968 e-mail: [email protected] - phone him to get the picture of those days!] - from 1968, the early days of Gold's breakout - highlighted to us how many U.S. citizens viewed the acquisition of Gold by the U.S. Government in 1933. He told us that the FDR Executive Order, April 5, 1933 Section 1 (b), set a precedent that he expects will be repeated in our day. Imagine if you will you are a gold 'aficionado' and you receive the following news: - "all gold has to be turned in to any Federal Reserve Bank, "except...gold coins having a recognized special value to collectors or rare and unusual coins." As a consequence Gold ownership was and is as Jack points out - in the United States and elsewhere - a temporary and revocable privilege, not a fundamental right. This privilege was taken away during the Civil War and two other times prior to the signing of the U.S. Constitution.

As this act has been administered during times of national crises - and whether the crisis is precipitated by problems in the banking system, a stock market crash, or a collapse of the derivatives market, wars, crises together with the possibility of wars between 'Religion and Politics' will happen again (natural or contrived), and gold will probably again be confiscated - should the government deem the situation warrants it! Jack sees the likelihood of another (it will be the fifth in US history) confiscation of gold bullion bars and gold bullion coins. He turns to a safe investment for himself and other U.S. citizens to the types of coins that the government has already declared to be exempt from such confiscation - namely coins minted prior to 1933 and which sell for more than 15% above the spot price on the investor's date of purchase. These two qualifications distinguish a person as being a "collector" rather than a "hoarder" under the 1933 Executive Order of President Roosevelt. How can one escape having one's profits commandeered by one's government? Bitter experience points us to one safe road that Jack recommends as he quotes from an article published by ICTA (Industry Council for Tangible Assets, Inc.), entitled, "Numismatic or Bullion?":

"Are numismatics still defined as 15% over intrinsic value? In the proposed 'Broker Reporting' rules which were published in the Federal Register of 1/5/84, ICTA had succeeded in getting a 'definition' of numismatic vs. bullion material included...example...If the gross proceeds from the sale of a gold coin (such as a Krugerrand, Maple Leaf, 50 Peso or 100 Crown coin) do not exceed by more than 15% the bullion value of the gold in the coins, the coin is a commodity (and so subject to confiscation) under paragraph (a)(5)(i)(D) of this section and is not excluded by paragraph (a)(5)(i)(D) of this section...The IRS example clearly states the '15%' criterion for distinguishing a precious metals numismatic item from a reportable commodity...For future legislative or regulatory purposes, this will remain a valid reference point."

Hence - Bullion coins - such as the currently minted American Eagles, Canadian Maple Leaves, South African Krugerrands, etc. will be deemed as not numismatic. Coins which Jack believes will not be subject to confiscation are the pre-1933 Liberty, St. Gaudens and Indian Head gold coins. All others are suspect unless they cost more than 15% above the spot gold price, as defined by the IRS. In addition - these coins allow and did allow one - to enjoy several privacy and tax advantages that persist in the hard days when gold ownership is restrained but that are not possible with bullion coins. Indeed if this is the only way to hold gold The current premium on them is likely to rise well above the premium when these restraints were absent.

Moving back to the big picture we have to note that governments too - can face similar gold confiscation - but only if they lose the war!

The result of the accumulation of gold by the U.S. Government was to adequately equip the U.S. for the present and future tribulations - the war chest accumulated by the States then - proved over time to be more than adequate to fund the WW2 and the rebuilding growth period following it to the early to mid fifties. Thus the thirties saw the beginning of a period in which the use of gold in its monetary role was completely effective - in a monetary role!

The States recovered from the Depression and - undamaged in the war - enjoyed it's spoils through its funding of the recovery of the defeated nations. The 'Marshall Plan', as it was called - allowed the US to, not only benefit from the profits of rebuilding - but through the major shareholding [ownership] and its attendant profits that arose from the pre-condition that U.S. goods had to be used in the restoration of those countries. The Dollar was always respected and valued in this recovery. This policy of "Financial" conquest has continued - where possible - since then. The continuation of "Dollar Imperialism" led to the defeated nations growing to be amongst the most successful nations in the world - building new industries for a new world - from scratch The concept and application of gold in the system as a solid backer of paper - at higher prices in a restricted capacity - had worked wonderfully! It gave the critical element of national support to its inherent wealth preservation qualities in uncertain times. As the nations moved out of these disruptive then reconstructive times its secondary quality came to the fore. This was its ability to highlight the demeaning of the value of paper! This was soon to be seen as the flaw and was responsible for its removal from a formal role in the system.

In the Final episode:- …Like a Phoenix, gold will return and the Conclusions and features of Gold's Role in the Monetary System.

Julian D.W. Phillips
www.authenticmoney.com