I just finished reading "The ABCs of Gold Investing" by Michael J. Kosares (ISBN=1-886039-29-1), and I thought you all might be interested in some facts from his book. Like most of the material I've read on gold so far there is a definite element of fanaticism in the author’s writing (though more subtle than most), but I was also able to glean some very practical information from this book that I can apply in a more dispassionate investment strategy.

For example, Mr. Kosares suggested that investing in gold stocks may work during a general bull trend, but during a true economic crisis they tend to follow the market downward. He also recommended buying coins rather than bars. Apparently, there has been a lot of counterfeiting of bars, and the gold brokers will require a chemical analysis of the bar to verify its authenticity. This slows the liquidation process, and makes them more difficult to use in an emergency.

Probably the most interesting section of the book discussed the 1933 confiscation of gold in the U.S. by President Roosevelt. Apparently everyone in the U.S. was required by law to turn in their gold coins and bars for a government set price of $20 per ounce, or face 10 years in prison and a $10,000 fine ($200,000 in today’s dollars). The author notes that the only exception to this rule was to collectors of rare coins. Based on this, he covers a strategy of buying gold coins just rare enough to be collectors items, but common enough that they track the price of gold rather than their numismatic value.

Here is an article by the author that you can download for free:

http://www.usagold.com/ConfiscationMemo.pdf


Quote from above article:
“A series of Executive Orders was issued in early 1933 confiscating private gold (see Appendix II) and
instituting a long list of other economic controls. All safety deposit boxes were sealed and could not be
opened except in the presence of an IRS agent. Penalty for noncompliance was 10 years in prison and a
$10,000.00 fine--which in today’s dollars would be closer to $200,000. The official price was $20.67 per
ounce. Once the gold was safely tucked away, Roosevelt set the price at $35, cutting the government an
immediate 69% profit and devaluing all private dollar holdings by 60% (see Appendix III). Modern economists, such as Llewellyn Rockwell of the Von Mises Institute, believe that this devaluation severely deepened the Depression and that Roosevelt’s real intent in confiscating gold was to clear the way for a dollar devaluation.”

I purchased this book from www.usagold.com using a special offer price that they give you after requesting a free info packet. It’s much less than amazon.com. I haven’t invested in gold yet, so it would be great to hear what some of the more experienced folks out there have to say about this.

Marc,

I'm not familiar with the author or his book, so I can't comment on the book.

There are a lot of fanatics among gold bulls. You know, the "buy canned goods and weapons and turn your home into a fortress" crowd. These people were just as bullish at $800 an ounce as they are now.

That's not where I'm coming from. I'm bullish on gold simply because I think it's an undervalued asset that will probably do very well in the type of economic environment that I envision for the future. But if circumstances were different I would just as soon be bearish.

I agree that it is probably better to own the coins than the bars primarily because of convenience. Gold Eagles, Maple Leafs, Krugerands, are all pretty liquid.

But right now, at least early in the bull move, I like the shares of the mining companies better than anything else. You get a lot of leverage because it doesn't take much of a move in gold to affect the earnings of these companies dramatically.

Larry