Precious Metals Strategy: Bullion Or Jewelry?

Bullion confiscation has been a risk and concern which has been analyzed in previous commentaries and examined from different angles , so it’s not surprising that this was also the subject of a recent reader question. Part of the answer to that query raised a new topic: the “anti-bullion confiscation” strategy.

What is the easiest way for silver- and gold-holders to avoid the harm and impact of any bullion confiscation decree which might be announced? The answer is to not hold bullion, or rather, not to acquire all your precious metals holdings in the form of bullion.

By now, most readers are aware that historically, the world’s largest bullion market and thus largest repository of bullion is found in India, distributed amongst its enormous 1+ billion population. Indeed, the comically fraudulent attempt by the bankers to “liberate” some, most, or all of the 20,000 tonnes of gold estimated to be held in India was the subject of a recent commentary .

Despite the large income and wealth disparity in India, the majority of gold and silver held in India is distributed amongst its massive peasant/agrarian population. The majority of this population either refuse to use (or trust) banks, or simply lack access to such financial services altogether.

As a consequence of this reality, the modest amounts of wealth accumulated by these families is invariably held in silver and gold. However, Indians don’t carry their silver or gold in the form of coins, or even store it in the form of bars. They wear it, in the form of jewelry, typically hung around the necks of Indian women.

In North America (and the West, in general), “jewelry” and “bullion” are essentially entirely independent concepts. We buy jewelry for vanity, or to earn the favour of females; we exchange our paper currencies for silver or gold bullion as a preferred strategy for wealth preservation. Perhaps it is time for our populations to eliminate that distinction and merge these two activities into a single strategy.

Regular readers are fully aware of the criminalized nature of our governments and economies, with the nexus of all that corruption emanating from the financial sector (under the control of the banking crime syndicate ). The actions of these regimes have become increasingly lawless, with the theft-of-assets known as “the bail-in” being the most extreme example to date.

In such societies, it is no wonder that the concern of bullion confiscation becomes an increasingly larger issue in the minds of precious metals holders. For this reason, “diversifying within the sector” has been a frequent theme of previous commentaries. Hold silver and gold. For those who consider themselves competent to engage in equities investments, spread some of your precious metals holdings into the extremely suppressed and undervalued gold and silver miners as well.

Now we have another example and means of diversifying within the sector: holding our physical silver and gold in the form of bullion and jewelry. We should remember that previous acts of bullion confiscation in Western societies (by the US government in 1933 and 1934) focused exclusively on bullion: coins and bars of gold and silver.

Numismatic coins were exempted from seizure. However, “bullion certificates” were included, thus in any modern confiscation, all bullion held in “funds” or “accounts” would be the first bullion seized. We cannot be certain that numismatic coins would be exempt in any future seizures.

However, there was certainly never any thought given to confiscating silver or gold jewelry in those US seizures. Even the most lawless of regimes would be extremely hesitant to attempt to invoke a jewelry confiscation as part of any broader bullion confiscation perpetrated against our populations.

The arguments against attempting to perpetrate any sort of jewelry theft or confiscation are numerous and powerful, and they begin with our still-strong cultural attachment to the world’s only form of Honest Money. Thanks to decades of anti-bullion brainwashing, only a tiny percentage of our populations currently have the prudence to store some or most of their wealth in the form of silver or gold bullion.

Conversely, all of us, except for the growing population of desperately poor, have at least a few items of gold or silver jewelry in our possessions. Indeed, with respect to the married majority, gold engagement rings and wedding bands are regarded by most as an essential symbol of that commitment. As well (particularly for the younger and/or more avante-garde segment of the population), body-piercing is now endemic in our culture.

Much of our population retains a literal physical attachment to their gold and silver. Meanwhile, for the more affluent, there is perhaps an even stronger wealth attachment to jewelry. For the wealthy of the West, just as with the peasant population of India, gold jewelry (in particular) is a symbol of wealth and status.

For these reasons (and more), it is virtually unthinkable that Western corruption would descend to the invasive extreme of any sort of jewelry confiscation. And for that reason, precious metals holders may decide that now is the time to consider acquiring jewelry as part of their overall wealth preservation strategy.

Here it must be understood that there are pros and cons involved, so even those who are most fearful of bullion confiscation — or simply most enamoured with jewelry — would not want to take this strategy to an extreme. The first con to consider here is cost (and thus efficiency). Swapping our paper for gold or silver jewelry inevitably yields far fewer ounces-per-dollar, as we pay for the craftsmanship involved in the fabrication of the jewelry followed by a retail mark-up that is usually higher than what we experience in swapping our paper for bullion.

We also need to consider the reduced liquidity of jewelry. If one needed to “raise cash” for an item of jewelry today, the options range from bad to worse. Selling jewelry back to a jeweler inevitably has a steep discount attached, meaning we lose for a second time in our paper-for-jewelry strategy. Sinking even lower, we can head to pawn shops to attempt a jewelry-for-cash swap and experience an even greater price shock as we are told what our gold or silver jewelry is (supposedly) worth.

Faced with those concerns, larger and/or wealthier precious metals holders may see foreign storage of their bullion as a means of avoiding both the risk of domestic confiscation and the transaction costs involved in storing our wealth in the form of jewelry. Yet here as well, there is no perfect strategy available.

For even those individuals who choose most wisely in shopping for a “safe” jurisdiction, the risk of bullion confiscation in this second jurisdiction will still be greater than zero. A government which appears honest today could morph into something more sinister tomorrow, or simply a new election can result in a complete change in the political landscape.

Then we have a different form of liquidity concern. Not only is there time (and cost) involved in choosing to retrieve one’s bullion held in a different jurisdiction, but we could face a far more serious impediment as we think through such a strategy.

Suppose we choose to store some of our precious metals holdings overseas, and we do so to escape a potential bullion confiscation event, and then such a seizure does occur. If we cannot legally hold gold or silver bullion, we certainly will not be able to legally ship such bullion back to our own jurisdiction (and possession) if or when we require some of that bullion to satisfy immediate liquidity demands.

Storing a large portion of our wealth overseas essentially implies a commitment to relocate, in any worst-case scenario. If we couldn’t bring our bullion home (over the foreseeable future), then we would need to move to wherever our bullion was stored. No matter how we engage in our diversification-within-the-sector strategy, we find no perfect answer.

Our governments have clearly abandoned the Rule of Law, as witnessed by the systemic, financial crime in which they not only facilitate, but participate. Given this reality, no matter how carefully we plan, we cannot be immune from all potential (lawless) acts administered with brute force by fascist regimes.

We have liquidity concerns. We have safety concerns. We have cost and efficiency concerns. We diversify within the sector, because no one strategy can possibly address all of these concerns. It is thus important for readers to become fully apprised of all their options (and the risks involved), and then to allocate their wealth amongst those options in a manner most personally optimal.

[Personal disclosure: I hold silver/gold bullion, as well as shares in silver and gold mining companies]

About Jeff Nielson

Jeff Nielson is co-founder and managing partner of Bullion Bulls Canada; a website which provides precious metals commentary, economic analysis, and mining information to readers/investors. Jeff originally came to the precious metals sector as an investor around the middle of last decade, but soon decided this was where he wanted to make the focus of his career. His website is www.bullionbullscanada.com.

Precious Metals Strategy: Bullion Or Jewelry? by Jeff Nielson, Sprott Money

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