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Gold Confiscation: Will it happen again?
In the Event of a Monetary Crisis, It’s Better to Own Rare Coins than Bullion.
Although private ownership of gold in the United States was legalized on August 15, 1974, the power to confiscate gold remains in the hands of the President. The President still retains the right, under the Emergency Banking Relief Act, to "investigate, regulate or prohibit...the importing, exporting, hoarding, melting or earmarking of gold" in times of a declared national emergency. It is highly unlikely that either the Courts or Congress would successfully argue that confiscatory powers are not implicit in the Emergency Banking Relief Act if a currency crisis or other fiscal emergency prompted the President to, once again, nationalize gold.
Relevant laws exempt rare coins from the confiscation provisions. Rare coins are private and do not require the filing of information returns with the Internal Revenue Service, as does reportable bullion. Although rare coins and gold bullion both increase in value during any period of inflation, rare coins also appreciate during periods of economic prosperity.
The benefits of including tangible assets in an investment portfolio have been confirmed in an independent study done for the Joint Committee on Taxation of the House and Senate. That 2004 study, conducted by Raymond E. Lombra, Professor of Economics at Penn State, found that the inclusion of rare coins and precious metals in a diversified portfolio of stocks and bonds both increased overall returns and reduced risk. In fact, a portfolio of stocks and bonds that included rare coins and gold would have had higher returns and lower risk than the same portfolio of stocks and bonds without rare coins and gold.
When gold prices go up, rare coin prices go up even more. Since rare coin prices are affected as much by affluence as they are by inflation expectations, prices also rise during periods of low inflationary prosperity even while gold is falling. A perfect example is provided by the period from 1987 to 1990, when rare coins appreciated more than 200 percent at the same time that the price of gold was falling from $500 to $360 an ounce.
Until recently, the buying and selling of rare coins was an expertise-intensive business whose profitability was dependent upon the grading and negotiating skills of the investor or his advisors. However, since 1986, the introduction of sonically-sealed coins evaluated by independent grading services has permitted the emergence of a sight-unseen market, in which "bids" and "asks" are placed on coins which may be traded without the necessity for inspection.
Electronic trading networks function precisely the same as NASDAQ with a series of published bid and ask prices and last trades. Trades are entered on these electronic networks in the same manner as trades are entered on NASDAQ, with confirmations provided by the trading exchange. These transactions are binding upon the parties. Just as investors can track the value of their stock and bond portfolios in the newspapers, coin investors can also access rare coin prices, which are reported by the Associated Press and Bloomberg Financial Services to major metropolitan newspapers.
Since the Treasury Department's 1954 Amendment to the Gold Regulations has been repealed, and the proposed expansion of the definition of rare coins for purposes of exemption from confiscation has never been enacted into law, an investor's gold holdings should include "gold coins having a recognized special value to collectors of rare and unusual coins." The best approach for such investors is to put together collections of rare coins. Such collections offer a number of advantages, which include exemption from confiscation, aesthetic satisfaction, and potentially significant investment returns, since well-designed sets of rare coins are often worth significantly more than the sum of their parts.
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