Australians must be alert to the potential peril that their personal physical gold holdings may be at risk of mass gold confiscation by the Australian Federal Government.
Across the economy, an increasing number of Australians are losing confidence in the Parliament of Australia and other federal agencies such as the Reserve Bank of Australia to manage the economic affairs of the nation.
This comes against a backdrop of:
record and escalating Australian and global debt;
an outbreak of inflation in the developed and developing world;
rising global interest rates;
increased restrictions on the use of physical cash; and
an increasing chorus of warnings from prominent economists and wealthy billionaires that systemic economic risk is increasing.
Within this context, an ever-increasing number of countries (including central banks) and high net worth individuals across the world are seeking to shelter their wealth through the purchase and storage of physical gold bullion and shares in gold mining companies.
However, always lurking in the back of the minds of gold owners and investors is the safety of their physical gold holdings and of the value of their gold mining investments particularly given recent and historical episodes of gold confiscation.
For Australians who are part of this growing group gold owners and investors, maintaining the physical security and ownership of their gold continues to be of paramount concern given Part IV of the Banking Act 1959.
Part IV contains legislative provisions providing the Governor-General with the legal power to sign a proclamation requiring all gold in Australia, except for gold coins or ‘wrought’ gold, to be handed over to the Reserve Bank of Australia (RBA), within a month, in exchange for legal tender.
Such legal tender would be in the form of either physical or digital fiat currency, with the amount exchanged based on an RBA-prescribed gold price.
These confiscation provisions can be triggered in order to ‘protect’ the value of the Australian dollar or the Commonwealth’s ‘public credit’.
Historically, several of these provisions were legally active up until 30 January 1976 whereupon the then Federal Treasurer, the Honourable Philip Lynch announced that the Governor-General (i.e. His Excellency the Administrator in Council) suspended Part IV of the Banking Act.
The 20th and 21st century world history is littered with examples of governments, whether they be communist, fascist or democratic in nature, either limiting the ownership or confiscating mass quantities of gold when running out of money, or when confidence in their issued currency collapsed from runaway inflation.
Such confiscation has extended to both the nationalisation of gold mines and gold mining companies as well as the physical voluntary and involuntary acquisition of physical gold bullion.
For example, during the 1930s and 1940s, Joseph Stalin tortured soviet citizens to obtain their gold, the Nazis stole large quantities of gold across Europe to fund their war machine and Mussolini raised 35 tonnes of gold by convincing Italian women through nationalistic propaganda to hand in their gold wedding rings in exchange for steel wedding rings provided by the government.
Moreover, American President Roosevelt in 1933, issued Executive Order 6102, making it illegal for Americans to own gold. The order confiscated approximately 22 per cent of all American gold in circulation. Legal gold ownership in America was not formally restored until 1974.
In recent years, the world has seen new attempts at both voluntary and involuntary gold confiscation in order to re-establish confidence in their national currency and banking system including in Venezuela and Turkey.
In the case of Venezuela, the government has taken numerous actions over the past 10 years which have undermined the physical holding of gold as well as the private investment in gold mining activities, including:
restricting the ability of companies and citizens to export gold out of Venezuela; and
the nationalisation of the gold mining industry, including government control of property and mining rights of all Venezuelan gold.
The nationalisation of gold mining companies in Venezuela such as with Canadian company Rusoro Mining Ltd resulted in protracted legal battle over compensation between the Venezuelan Government and gold mining companies which has resulted in a depressed share price and therefore investors have not been able to obtain direct access to their wealth.
Alternatively, in the case of Turkey, the Central Bank of the Republic of Turkey in 2017 sought to confiscate physical gold from its citizens through the issuing of ‘gold bonds’ which allowed Turkish citizens, on a voluntary basis, to hand their gold to the government in exchange for paper bonds that yielded payable interest with a notional promise that bond holders would be repaid in gold upon maturity.
In these contemporary as well as historical examples of gold confiscation, the respective government tends to compensate gold owners and investors with only a fraction of the real value of their physical gold or gold mining shares.
Unfortunately, Australia is not immune from its own history of gold confiscation. After declaring war on Hitler and needing to fund the war effort, the Australian Parliament enacted the Gold Tax Act 1939 imposing a 50 per cent transactional tax on gold delivered to the Commonwealth Bank Government above 9 Australian pounds per ounce.
This tax, while not confiscating gold outright, confiscated a proportion of the gold used by Australians when redeemed for physical cash. The gold tax was not repealed until 1947.
The existing legal threat of gold confiscation which exists by virtue of Part IV of the Banking Act is currently having distortive effects on the Australian economy. Individual Australians, in order to avoid a repeat of history, are:
purchasing physical silver bullion given that silver is not mentioned within the Banking Act 1959;
purchasing gold and having it stored in international locations where the risk of gold confiscation is lower than Australia;
investing in international gold mining companies where the risk of nationalisation is lower than Australia; or
taking specific steps to avoid government detection.
On this latter point, some Australian gold owners are purchasing physical gold bullion in quantities of less than $AUD 5,000 in order to avoid their transaction being recorded by the bullion dealer as required by the Anti-Money Laundering and Counter-Terrorism Financing Act 2006.
Under this legislation, bullion dealers are required to record the identities of individuals involving the purchase or the selling of gold, irrespective of payment, greater than $AUD 5,000. These records can be solicited by the government upon request.
Several owners of physical gold remain concerned that if the Australian Government is desperate to obtain large quantities of gold, relatively simple legislative amendments may be enacted in the future that allows the government to solicit gold transaction records for purposes other than anti‑money laundering or counter terrorism.
Such Australians point to the introduction of the 1928 national German gun register under the Weimar Republic which was later used by the Nazis to target political enemies or the 1938 Register of Jewish Property which was used to confiscate gold owned by German Jews.
In order to quash such paranoia and conspiracy theories, the Federal Parliament can restore confidence within the Australian gold community by:
balancing the federal budget through spending reductions;
instituting sound money policies including raising interest rates from current historic lows;
strengthen the capital adequacy of Australia’s financial institutions;
ending the war on physical cash;
repealing Part IV of the Banking Act 1959; and
legally prohibiting Commonwealth institutions from confiscating all forms of physical precious metals as well as the shares of precious metals mining companies.
Tyranny and theft is only one signature away.
John Adams is an independent political and economic analyst and commentator