Gold Confiscation: Lessons From The 20th Century

December 07, 2012

Three nasty examples of how people lost the gold they owned.

 

[This article previously appeared on BullionVault and is republished here with permission.]

 

Today’s chatter in the trading rooms says some gold owners fear a punitive US tax hike in New Year 2013, with the Obama government targeting precious-metal investors.

Hence this month's sell-off (or so the tittle-tattle says)—akin to the move by Japanese households to sell gold in late 2011 ahead of new reporting rules for precious-metals dealers.

In truth, such a US move looks very unlikely. Ahead of needing cross-party support to fix both the fiscal cliff and debt ceiling disaster, it would be clearly partisan. (Not all US gold investors are Republicans, but very few are Democrats in our experience.) And besides, gold already attracts the higher 28% rate of capital-gains tax in the US, since it is deemed a "collectible". Easier to raise CGT rates across the board, and whack anyone trying to grow their savings in fair measure. It would raise far more revenue, too.

Still, this chit-chat does highlight a key point about gold – the fact that, within living memory, it got special ill-treatment from government everywhere. Western households were blocked from owning gold bullion for 30 years and more after the end of WWII. Over the 20 years previous, their gold had been variously nationalized, compulsorily purchased and stolen.

Not just investment-grade bullion. And not just gold belonging to private citizens either.

1935: Mussolini nabs 35 tonnes of gold wedding rings

The United States "confiscation" of 1933 is well-known (in fact a compulsory purchase, made at the then-price of $28 per ounce before the price was raised to $35.) But with gold still central to the monetary system, many governments were looking to acquire more. With a smile, of course.

December 1935 saw popular Fascist dictator Benito Mussolini appeal to the patriotism of Italy's wives, urging them to swap their gold wedding bands for steel rings instead. Yes, really. On Wednesday the 18th, La Stampa gave over its entire front page to this financing drive:

  • "The most noble rite of 'faith' joins all women in Italy in one heroic will" ('fede' meaning both 'wedding ring' and 'faith' – clever, eh?)
  • "The Queen lays down her wedding ring upon the Altar of the Homeland"
  • "The proud and moving offer of the women in Turin"

 

Italian women were so "encouraged" by this popular show of patriotism that, fifty years later, they were still ashamed at being forced to part with their wedding rings. Mussolini got 35 tonnes all told. He ended upside down, hung on a meat hook from the roof of a petrol station.

1939: Nazi Germany steals Czech gold in London
You didn't need to be a private individual, nor keep your gold at home, to lose precious metals in the 1930s. Little-recalled today, the Nazis' theft of Czechoslovakian gold reserves caused such fuss in the British press in mid-1939 that the public was fully prepared for war by the time Germany invaded Poland in September.

The Bank for International Settlement had been established in 1930 to try and manage the fast-collapsing international Gold Standard. Based in neutral Switzerland, it was supposed to be above politics, and although its senior staff were all senior central bankers in their home countries, they played by a "gentlemanly" code of mutual support and respect. Unelected both then and now, central bankers held themselves to be noble and independent from the dirty business of democracy or dictatorship.

So when, on 20 March 1939, just after the Nazis marched into Prague, a message was sent to the BIS apparently by the Czech National Bank, the BIS duly passed the message on. It asked the Bank of England (then, as now, the world's premier clearing point for physical gold) to move the metal held in BIS account No.2 to a new BIS account, No.17.

Never mind that the Czechs had already sent word that any instructions would come "under duress" and must be ignored. Never mind that the British parliament had put a freeze on all Czech assets, to defend them against Nazi theft. And never mind that the Bank of England knew BIS No.2 contained Czech gold, and that No.17 was held for the German Reichsbank. Because the Bank of England's governor, Montagu Norman, was also a director of the non-political BIS. And he'd do anything to protect the noble independence of central bankers, applying their "gentlemanly" rules and so appeasing the Nazis one last time, by feigning ignorance of whose gold sat in those two anonymous BIS accounts.

The transfer was done before anyone outside the central banks knew, and the gold was then sold in just 10 days. By the time the story broke in May, the £6 million in proceeds was long gone. (We can find no reference to the transfer, nor to the national scandal starting in May, in Norman's personal diary.)

 

 

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