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Gold Scams Exposed

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Table of Contents

Part 1 (All of Part 1 is included in this "Bonus Report")

Intro: So You Want to Buy Gold…One: Gold Scams Exposed

— The Biggest Scam: Numismatics and “Collectible” Coins

— The Numismatics Salesman Will Tell You This…

—“Gold” in a Retirement Account

Part 2 (None of Part 2 is included in this "Bonus Report", go to

http://GoldScamsExposed.org for the full version)

Two: Paper “Gold” versus Gold —Gold Exchange-Traded Funds (ETFs)

—Margin Accounts

—Gold on the Stock Market

—Gold Mining Company Stocks

—Gold Bullion Trust Stocks

— Gold Bank/Vault/Storage Specialty Companies

—Online Gold “Banking” Services

—Gold Storage-Vaulting Services

—The Perth Mint (A Government Sales and Vault Service)

Three: Buying Gold the Best Way —Taking Personal, Physical Delivery

—Knowing the Right Price to Pay

—What Coins to Buy

—Choosing the Right Dealer

Four : Securing Your Gold Investment —Seal and Bury

—Using a Personal Safe

—A Word on Insurance

Conclusion: Life, Liberty, and Property




Chapter One

Gold Scams Exposed

The Biggest Scam: Numismatic and “Collectible” Coins

One of the biggest mistakes an inexperienced gold buyer (and many experienced ones) canmake is to fall for the lure of collectible gold coins instead of standard bullion. Collectible coinsare often called “numismatic,” “antique,” or plainly “collectible.” Some dealers will include awider range of coins in this class. Almost all numismatics pushers will include “old” or antiquecoins (over 100 years old). Others will include “proof” sets, or special-edition commemorativecoins. Whatever they include, the basic working distinction of “numismatic” refers to thecollectability of the coin rather than just the basic gold content (although, as we will see, this isactually not quite accurate). A numismatic will be priced based upon its perceived value as acollectible, not as a mere precious metals investment. And the collectible value will almostalways be much higher than the basic value of the gold contained in the coin.

Now, many readers will already see the downside to “investing” in collectible coins insteadof bullion. Collectibles are highly speculative and based on dealers’ subjective valuations,whereas bullion prices track a very broadly traded market and traditional demand-driven

valuation. You may have decided already to avoid the speculative traps and pitfalls that comewith numismatics. But you should be aware that numismatics dealers are very good marketersand have some persuasive-sounding arguments to peddle their wares. Reading the information below will prepare you to understand the tactics and potentially save yourself thousands of dollars.

Investing in numismatic coins is a bit like investing in baseball cards. Most of the addedvalue comes in the rarity and in the very selective, special market for certain types of coins.Many problems arise in such selective markets. First of all, the subjective reasons behind valueare always highly fragile. What makes any given coin wildly collectible on one day coulddisappear and render its excessive value absolutely moot on the next.

In the past, people have invested huge sums in “collectible” things that now seem trivialtoday, simply because the underlying assets seemed valuable—and certainly had willingmarketers ready to sell—at the time. The great “Tulip Mania” of the seventeenth century saw people trade huge tracts of land for a single tulip bulb, single contracts for plants sell for tentimes an average worker’s annual income, and several other extravagant exchanges. They believed the bulbs would hold value and gain until the next buyer. When the whole thing crashedin the space of a couple weeks, some people lost their entire livelihoods—all because they had bought into the hype about the collectible value of, believe it or not, tulip bulbs.

Likewise, during the middle ages, pepper was so highly prized they called it “black gold.”

Some anecdotes tell that it actually traded pound-for-pound with gold, making it a delicacy onlyfor kings. Today you can find this food of kings on every table at MacDonald’s and buy it by thecase at Sam’s. I eat like a king every night, peppering everything I want without spending afraction of gold.




The issue of volatility for collectible value is especially true during depressed markets. Intimes when people’s greatest needs are reduced to food and heat, they will concentrate effortsand what diminishing resources they have on acquiring these essential items. You will find therewill be reduced demand for other things, including precious metals.

This will be all the more true during times of a complete dollar meltdown. If paper currencyand digital credit totally collapse, trade will be extremely limited. In fact, such a situation woulddestroy the modern division of labor as well as trade, and millions of people in urban areas

would starve to death. Most people, even those preparing for disaster, don’t realize how bad itwould be. Nevertheless, in some rural areas remote and protected enough to escape the hordesstreaming out from the cities, there may remain enough of a market to trade with gold and silver.In such a situation as this, you can be very sure that farmers or traders will have absolutely nointerest in any alleged “collectible” value of an old gold coin. They would consider themselvesfoolish to fork over a sack of grain or corn, or a goat, chicken, or other extremely preciouscommodity in exchange for a numismatic coin simply because some slick says that coin is really worth ten times the gold content—especially when such old coins don’t usually display their gold content, and often contain much less real gold than modern bullion coins. In such ascenario, city slickers will learn just how savvy the good ol’ boys really can be.

The same farmer, however, would probably be willing to trade for gold irrespective of anyflaccid claims to collectability. Maybe. Keep in mind, in such a dire situation as this, millions of people will be in search of food. Gold has little value to starving people. In times of a currencymeltdown in the modern age, unfortunately, food will be more valuable gold—Cheerios will bemore valuable than gold coins. Gold will funnel into the coffers of those who have abundance of food to sell (assuming anything like the rule of law remains in effect). You can’t eat gold, after all. But for those with food who survive the era, it could be a time to clean up. This is exactlywhat happened in Zimbabwe when the government destroyed the currency: people who hadloaves of bread were selling it for a day’s worth of gold dust mined from the river banks.Likewise, those who survive holding on to their gold will emerge into a new world of opportunity. But that’s a different manual.

In a situation not so bad as the one just mentioned—a situation of high inflation andeconomic stress, but not absolute collapse—you may find it useful to do some trading in the formof precious metals. This would include some direct bartering of your gold and silver for other needed commodities, particularly food. In such a situation, I would actually prefer to haveseveral bags of “junk” silver on hand. Junk silver is pre-1965 U.S. minted coinage—dimes,quarters, half-dollars, and dollars—that were minted as 90% silver. You can purchase these in bags of $250, $500, or $1000 face-value. A $1000 face-value bag sells, at current silver spot prices (at the time of writing, $17.70/oz), for roughly $13,250. A $250 bag would bring a tiny premium (for buying less), and would sell for under $3,400. But this would give you strong bartering power: $250 face value in dimes would be 2,500 dimes, representing about $1.39 eachin dollar value currently. This would be much more in a time of high inflation. But a greater number of coins gives you greater distribution of your purchasing power, and thus dimes would be preferable to quarters, half-dollars, or dollars, since there would simply be more of them. Thiswould help you make smaller purchases and more purchases if necessary, while retaining theability to consolidate your coins and make large purchases if necessary. This advice concerning a particular use for silver does not, of course, mean that I recommend silver bullion over gold




bullion in general for investment and wealth preservation. It mostly pertains to instances whenand where barter becomes viable.

Numismatic coins require a specialized market, which means among other things that theyrely on the need for another rare buyer in order for them to realize their “value.” This specializedmarket includes the fact that markups on numismatic coins are much, much higher than for bullion. With bullion you may pay a premium, but it should be only a standard premium. Thisshould be somewhere in the neighborhood of 2% to 3.5% give or take, and will not vary much

over time. It remains somewhat consistent because it is dictated by a continually exchanging andrevolving market. With numismatics, however, the markup appears in a much more subjectiveway: a dealer sets his price based on what he thinks the collectible coin is worth (or what some“grading” agency says), or based on the price of the few recent sales of a similar coin. Thisintroduces all kinds of relativism into the market, especially when dealing with extremely rarecoins. Since these don’t sell like bullion on a continually recurring basis (because there is not aswidespread demand for them), the price is dictated as much by the seller’s marketing and persuasive abilities as by the market demand.

Granted, something is only worth what someone will pay for it, and if people buynumismatics at all, the seller is somewhat justified in saying such and such a coin was “worth”

whatever price it sold for. But the buyer will not be able to say the same thing later if he or shecannot find another buyer to sell at the same price or above. When a buyer buys a numismatic,they are expecting the collectible value to go up in the future, which is to say they expect there to be someone out there who will want the coin more than they did for the price they paid. They believe someone out there will buy the same coin from them at a higher price than theythemselves paid originally. This is called, classically, the “Greater Fool Theory.” It represents anadmission that it was foolish to buy a coin at such an inflated price to begin with; and yet persistently believes against the odds that someone exists out there who will make an even morefoolish decision—to buy the coin at an even more inflated price than the first fool.

The Numismatics Salesman Will Tell You This…

Numismatics dealers will employ a few standard arguments in order to persuade their clients.By far the most prominent one is the scare-tactic of government confiscation. While no oneultimately can predict what a covetous government will do, the likelihood of confiscation todayis much less than it was in the past. Some would argue it is almost non-existent.

We should first note that hardly any (if any) of the guys making this argument have anytraining in law. They are not lawyers or legal scholars. Few if any, likewise, are trainedhistorians. This does not disqualify their opinions on the matter, however, but should give us pause over the fact that they are making a prediction based one fine point of American legal

history.

So if these guys are not trained lawyers or trained historians, then what are they? They arehighly trained and experienced salesmen. They know exactly what to say to drive you to buy




what they have, and they have said and sold it a thousand times. The following is a look at whatthey say.

Government Confiscation

Numismatic dealers, when talking about government confiscation, almost always refer to the

confiscation of gold coins by Franklin Delano Roosevelt’s administration in 1933. Based onwhat happened at that time, they will argue that “Collectible gold coins are (or would be) exemptfrom government confiscation,” and therefore you should buy numismatics instead of bullioncoins. I had a woman at a conference I spoke at ask me this very question: “Aren’t numismaticssafer than bullion coins since they are exempt from government confiscation?” Since thisargument is used so often and potentially affects so many inexperienced gold buyers, it deservesdetailed attention.

The argument at least begins with a historical fact: FDR’s 1933 government-imposed goldswap/confiscation. The president’s Executive Order 6102 claimed to combat the “hoarding” of gold, and stated the following:

All persons are hereby required to deliver on or before May 1, 1933, to a Federal ReserveBank or a branch or agency thereof or to any member bank of the Federal ReserveSystem all gold coin, gold bullion and gold certificates now owned by them or cominginto their ownership on or before April 28, 1933.…1

The Order made certain exceptions, including “ gold coins having a recognized special value

to collectors of rare and unusual coins.” Legal technicalities required FDR to issue a secondOrder to the same effect, Executive Order 6260. This second gold-confiscation Order remainedin effect with minor exceptions until 1974. It allowed four exceptions to gold confiscation:

(a) Gold coin, gold bullion, and gold certificates in an amount not exceeding in the

aggregate $100 belonging to any one person;

(b) Gold coin having a recognized special value to collectors of rare and unusual coin;

(c) Gold coin, gold bullion, and gold certificates acquired or held under a licenseheretofore granted by or under authority of the Secretary of the Treasury; and

(d) Gold coin, gold bullion, and gold certificates owned by Federal Reserve Banks.2

We have already covered the economic scam against the American people carried out in thisExecutive heist. Here we are concerned with the attention numismatics dealers give to theexception FDR gave for “gold coin having a recognized special value to collectors of rare andunusual coin.” You need to be fully educated on the ins and outs of the relevant laws here.

1 http://www.presidency.ucsb.edu/ws/index.php?pid=146112 http://www.presidency.ucsb.edu/ws/index.php?pid=14509




First of all, one simple fact alone defeats the myth. Numismatics dealers never tell their clients that a later Executive Order, 11825, issued by Gerald Ford completely revoked FDR’s1933 Order 6260 by name (along with several others). This Order, titled “Revocation of Executive Orders Pertaining to the Regulation of the Acquisition of, Holding of, or Other Transactions in Gold” declared FDR’s previous Orders “hereby revoked.”3 Ford signed this in1974. So no Executive Order gives any special protection to numismatic coins today exceptinsofar as current laws allow the ownership of all forms of gold as a commodity.

Yet another reason that virtually annuls the distinctions made in FDR’s order comes from thesubsequent actions of the courts in response to it. Time magazine on November 27, 1933,reported the following: “Federal Judge John Munro Woolsey that the Government has theconstitutional right to compel hoarders to report and surrender their gold. Reason : ‘The right of the Government to take private property of any kind when it is deemed necessary by theappropriate authority for the public good.’”4 Whatever distinctions FDR originally made, thecourt decided that the government could, if it wanted, confiscate any kind of property, and thiswould certainly include numismatic gold. And this decision occurred already in 1933 itself, long before Ford annulled FDR’s Orders also. So FDR’s rules for gold confiscation have beendoubly-annulled.

So if a government confiscation of gold is unlikely, buying numismatics to avoid it is pointless. Likewise, if we suffered a government confiscation, they would probably take most if not all allegedly collectible coins as well, or at least we would have no guarantee thatnumismatics would again be immune. Therefore, buying numismatics would still gain you no particular advantage. It remains, then, that numismatics have no advantage over bullion, and yetthey cost much, much more. The advice of this manual is to avoid them.

NOTE: For a much fuller treatment of the “Confiscation” scare-tactic used by numismaticsdealers, see my bonus report, “U.S. Government Gold Confiscation: Fact and Fiction.”

Do You Have To “Report”?

Numismatics dealers will sometimes tell you that numismatic coins provide better privacy because by law they are not “reportable” commodities. By this they imply that they do not haveto report you and the transaction to the IRS for tax purposes. This creates fear for people whodon’t want their purchases of other types of coins to be reported. PROBLEM: no law requiresany purchases by customers from dealers to be reported (the law does cover sales by a customer to a dealer, as we’ll see in a minute). By raising the issue and claiming numismatics exempt, themarketer is implying and assuming that regular bullion coins are not exempt—but they are, because there is no law requiring reporting of customer purchases based on what is purchased.

There are, however, other laws that come into play, and which you should be aware of—butnote that many of these “reporting” laws apply equally to numismatics and bullion coins.

3 http://www.presidency.ucsb.edu/ws/index.php?pid=591854 See http://www.time.com/time/magazine/article/0,9171,746366,00.html#ixzz0VqJlgyWL




Reporting is required only for a few particular scenarios: 1) any cash purchase over $10,000in cash, 2) a dealer’s requirement to report certain items sold to him in certain quantities, and 3)any capital gains or losses made when you sell your gold or silver. Let’s look at each of thesethree instances.

First, there are “cash reporting transactions.” For all “cash” purchases that exceed $10,000,no matter what you’re buying, the dealer must report a cash transaction to the IRS.5 “Cash”includes all U.S. coin and currency, cashier’s check, bank draft, traveler’s check, or money

order. Oddly enough, the Code does not specifically list personal checks, and indeed the IRSform involved (Form 8300) states that personal checks are not considered cash, “regardless of the amount.” Mostly, this statute is about movements of cash. As Franklin Sanders puts it, “For this purpose, the government isn’t interested whether you are buying precious metals or manure,only that you plunked down ‘cash.’”6

For cash reporting, purchases of numismatic coins are not exempt. In fact, the relevant lawactually specifically includes sales of “a collectible,”7 and goes on to define a “Collectible” as“an item described in paragraphs (A) through (D) of section 408(m)(2) (determined withoutregard to section 408(m)(3)).”8 Typical legal cross-reference verbiage, right? But it’s really easy.Going to section 408 of the IRS Code, paragraphs (A) through (D) we find the definition clearly

spelled out: “For purposes of this subsection, the term ‘collectible’ means (A) any work of art,(B) any rug or antique, (C) any metal or gem, (D) any stamp or coin.” 9 And while the followingsection 408(m)(3) discusses certain exceptions (including bullion coins), the relevant cashreporting code (26 C.F.R. §1.6050i-1(c)(3)) says that cash reporting is required for collectibles“without regard” to these exceptions. So there you have it, cash reporting is required for $10,000+ purchases of any coins and this includes collectible coins by specific mention.

These reports will include the dealer filing a Form 8300 with the IRS. This form will includethe name, address, and tax identification number (social security number) of the customer, aswell as the amount of cash received and the nature and date of the transaction. The dealer isrequired by law to notify the customer that he has filed a Form 8300 naming the customer, andthis must be given to the customer before January 31 of the following year (just like W-2 formsfor employees).

This sounds like a very good incentive to make purchases of gold in less than $10,000amounts. But what if you have $25,000 to invest now? Be careful, because the Code requires thedealer to aggregate your purchase amounts over a 12-month period. If over that 12-month periodyour total amount o purchase exceeds $10,000, he must file a report. Some people have decidedto buy less than $10,000 each from multiple dealers until they’re made their full purchaseamount. While this may skirt the requirements, and some people may get away with it freely, it isalways risky to fool around with the IRS.

5 26 C.F.R. §1.6050i-16 http://72.29.92.145/articles_files/mmm_files/investing_files/numismatic_coin.phtml 7 26 C.F.R. §1.6050i-1(c)(1)(iii)(B).8 26 C.F.R. §1.6050i-1(c)(3).9 This is IRS Code, Subtitle A, Chapter 1, Subchapter D, Part I, Subpart A, Section 408(m)(2)(A)–(D).




Second, there is “broker reporting .” The IRS requires dealers to report certain items sold to them in certain quantities. The law requires reporting for purchases of “Any type of personal property or an interest therein … the trading of regulated futures contracts in which has beenapproved by the Commodity Futures Trading Commission [CFTC].”10 In other words, anythingthe CFTC regulates futures contracts for, and this means all your standard commodities likewheat, corn, hogs, oil, etc., including gold and silver in regulated forms. The code, however, alsoallows for “Excepted sales,” although at the time this was not interpreted.

This law originally made dealers very nervous, so a representative legal group called theIndustry Council for Tangible Assets (ICTA) negotiated with the IRS for clarification in 1992.Today, the ICTA takes credit for negotiating and receiving clarification from the IRS as to whatactual items and amounts require reporting by dealers. The “Excepted sales” clause states

Excepted sales. No return of information is required with respect to a sale effected by a broker for a customer if the sale is an excepted sale. For this purpose, a sale is anexcepted sale if it is so designated by the Internal Revenue Service in a revenue ruling or revenue procedure.11

More legalese referencing, I know. The ICTA sought and received that “revenue procedure.”

Revenue Procedure 92–103

12

provided a fairly adequate (nothing is ever definite with IRS exceptwhat they say you owe them in the end) clarification of what dealers must report. It allowsexceptions for sales (to brokers) of

a precious metal in a form that may be used to satisfy a CFTC-approved regulated futurescontract … provided the quantity of the precious metal sold (in terms of weight or number of items) is less than the minimum amount needed to satisfy a CFTC-approvedregulated futures contract.13

This gives some clarification to derive the following based on CFTC-approved regulations, but even this is confusing. So, not surprisingly, you get slightly different interpretations fromdifferent dealers (usually slanted depending on whether they want to scare you into buying

overpriced numismatics or persuade you into a more common-sense bullion approach). The bullion-only dealer will argue something this: Dealers must report their purchases from

customers when the purchase is equal to or more than

10 26 C.F.R. §1.6045-1(a)(5)(i).11 26 C.F.R. §1.6405-1(c)(3)(ii).12 Published in Internal Revenue Bulletin (IRB) 1992–52, December 28, 1992. The IRS website appears only tomake available publications from about 2002 (roughly) forward. The publication would have been entered into theGovernment Publications Office system, but this apparently only publishes electronic records since about 1994. So,you can now only find a copy of IRB 1992-52 in a Federal Depository in participating libraries around the country.

Few will actually look it up for you and scan and email you a copy after a phone request. But, even if the library is a

big fancy private university with all kinds of security, you are allowed entry by law if it is a Federal Depository. If

they give you trouble, just tell them the magic “passwords”: “I would like to view the Federal Depository.” For a participating library near you, look here: http://catalog.gpo.gov/fdlpdir/public.jsp. Make sure to call ahead and check

with the Depository Coordinator to make sure they have the document you’re looking for. Most participants are

“selective depositories” which means they have holdings for only a small fraction of government publications. A

“Regional Depository” will have much more, but they are few and far between. If you are determined to get a copy,

you may be in for along drive.13 Internal Revenue Cumulative Bulletin 1992-2 (July–December 1992), 583, Section 3.02.




of the law to nullify it. This is evil, I know, in that 77,000 pages of nonsense flood the FederalRegistry each year, and it’s easy to bury something in there that an otherwise busy Congress maynot notice. As it is, this particular definition of numismatic made it in without challenge, and thuswe must assume it has some legal binding. BUT…

This does not mean that numismatics dealers have a point about either the reportability or confiscatability of bullion. There is still nothing to say that any future confiscation of gold wouldexempt numismatics on this account, nor does it mean that certain bullion coins that are currently

not required to be reported in sales to dealers are therefore somehow in danger. Remember, Ishowed earlier that U.S. Code also currently defines American Eagle coins as “numismatic”— and this is adopted, written, public, legal Code, not just an administrative blunder buried in theFederal Registry. So the person wishing to avoid a minimum of a 15% overcharge on their goldcoins and still remain within the legal protections of “numismatic” can easily invest in the most popular, widely available gold coins in the U.S., the Gold American Eagles. You don’t have to pay 15% extra or more due to some numismatics dealer’s scare tactics.

Also, remember on this count, that this type of reporting only applies to brokers when buyingfrom private, individual customers. When you as an individual buy, none of these regulationsapply. So, you could buy $1,000,000 worth of CFTF-approved regulated bullion products and

not be required to report it under any regulations. (Of course, in this case, the dealer you buyfrom would have to report the $10,000-or-more cash transaction, but this applies, as I said, toeverything .)

Third, and finally, you can’t forget your personal taxes: there is always applicable “capital gains reporting .” This has nothing to do exclusively with gold or numismatics, but applies to allcapital gains made through stocks, real estate, etc. So if you buy gold bullion and later sell it for a gain, you will have to report that gain to the IRS as income. Even if the items you sell are notreportable under broker reporting laws, you will still personally have to declare the incomegained. Of course, a capital gain will look the same to the IRS whether you sold bullion coins or numismatics (or palates of cheerios for that matter). Neither will be “exempt” from taxation inthe regard.

And beware: both numismatic and bullion coins are considered “collectible” in this regardand are taxed at the highest capital gains level—28%! This is a tremendous rip-off by thegovernment, but is unfortunately the case for now. But, as with the other two types of “reporting,” in this category numismatics have no advantage over bullion. In fact, if anythingchanged in the near future, it would more likely be to remove bullion from the classification“collectible” (as it is when considering IRA accounts, according to Section 408(m)(3) which we just saw). But there is nothing I know of on the horizon that indicates any change coming anytime soon. The best procedure here is to buy and hold gold for the long term. As long as youdon’t sell, you don’t have gains to report. Those of us wishing simply to reserve our wealth and purchasing power for a long period of time have no problem with the current capital gains rate

(because we won’t be selling anytime soon).

Summary of Numismatics Arguments




So far I have continued our earlier discussions about buying per content of gold, specificallyin regard to numismatic, “collectible” coins. I have exposed their weaknesses by comparingcollectible coins to other types of collectibles, and collectible “bubble” manias in history. I havealso addressed the arguments that many numismatic dealers put forth in order to persuade theunknowledgeable to buy their high-premium wares. These include the alleged threat of government confiscation of bullion alongside the promise of safety for numismatics. Also, theyargue that bullion coins will put the buyer in danger of being reported to the government (sothey’ll know you have gold when they come to confiscate it!!!). I have adequately, if not

thoroughly, debunked these notions.

I regard these arguments as little more than scare tactics. The arguments assume their dupesare totally devoid of personal courage and lacking in personal constitution. This manual isaddressed to those who do have these things and can stand up to a rip-off once they are alerted.

Gold in a Retirement Account

One of the riskier ways to own gold is to hold it in an IRA (when I say IRA, I include allgovernment-regulated retirement accounts, including 401(k) programs and the like). A lot of

people aren’t even aware they can use an IRA to hold gold, but many who are, or who learn, areattracted to the idea because of the apparent “hands-off” ease of doing so. Make no mistake,while less well-known, these arrangements are being marketed very aggressively right now, andawareness is spreading rapidly.

Many people insist on keeping an IRA or similar account for retirement purposes, and thusrefuse to think outside of that box—they insist on having a way to invest in gold from withintheir retirement account. It is possible to do so, though I personally do not do so, and generallywould not recommend it.

Before we go much further assessing this method, we need to put deferred-tax retirementaccounts in perspective. A brief look at their history will expose how they were originally

created for “the rich,” and subsequently became tools of enriching huge investment houses at theexpense of lower and middle-income employees.

In 1974 Congress created IRAs as investment vehicles for people who had no private pensions. Then, in 1978 they created 401(k) plans, originally called “income-reduction plans.”This was because these plans involved a tax-free deferment of salary or wages until a later date,thus resulting in a reduction of income up front. 401(k) allowed even pension earners to join, andalso added the benefit of allowing the business to match contributions. The upper classesespecially loved 401(k) programs because they could retain their pensions, defer taxes on yetanother percentage, and then pay themselves further through matching contributions from their own businesses (again, tax-deferred).

The plans originally acted as tax loop-holes for the upper classes. As bad as income taxes aretoday, income tax brackets for 1978 were even more oppressive in comparison (though they may be headed higher again in the near future with the current administration). Today, income taxestop out at 35%, and that only for people making more than $372,950 per year. In 1978, a person




making an equivalent salary (adjusting backwards for inflation) paid a whopping 62% of their income in taxes. The brackets continued upward, topping out at 70%. Can you imagine paying70% of your income just for income taxes? Thus, the tax-deferred “income-reduction” planslooked especially good to the people in upper tax brackets. Not only could they wait to pay thetaxes, they may even be lucky enough to defer their taxes until a day when taxes would actually be lower. This is exactly what happened.

But something else happened along with this. After the recession of 1982, the stock market

began an upward climb for two years, gaining almost 60%. The upward trend continued (Black Tuesday notwithstanding) and within the span of one decade the Dow Jones Industrial Averageincrease over 400%. During this time, millions of lower and middle-class employees wereattracted to 401(k) programs due to the performance of stocks. What was once covertly designedonly for the rich as a tax loop-hole became a perceived path to fat retirement for everyone else.By 1994, a quarter of the U.S. workforce had enrolled in 401(k) plans. By 2009, the percentageincreased to half.

This meant two things: 1) tens of millions of people had bet their retirement upon a half-thought-out government-regulated program, and 2) huge investment houses were getting richcollecting fees and managing these burgeoning plans. 401(k) plans have always been a scam

from the day the government mandated their creation. Few people have continually profited fromthe system. I remember, as a naïve 26-year-old—not yet schooled in the ways of Austrianeconomics and gold standards, etc.—setting up my first 401(k) plan. The agent came around toeach employee. It was just after the burst of the dot-com bubble in March, 2000. I heard theagent himself say that three months prior he $70,000 in his 401(k), but now had only $17,000. Ithought, “And this is the guy who’ll be managing my account?”

It was never about individuals’ retirements. Nowadays it is purely about big investmentcompanies collecting fees for management.

It is time to face reality. Time magazine said as much, laying the facts bare on October 9,2009. Here’s the sad reality of the modern 401(k) plan:

The Society of Professional Asset-Managers and Record Keepers says nearly 73 millionAmericans, or just under 50% of our working population, now have a 401(k). Andcollectively we pour more than $200 billion into these accounts each year. But retirerich? Don’t bet on it. The average 401(k) has a balance of $45,519. That’s not retirement.That’s two years of college. Even worse, 46% of all 401(k) accounts have less than$10,000. Today, just 21% of all U.S. workers are covered by traditional pensions, and thenumber shrinks every year. “The time may have come to consider returning 401(k) plansto their original position as a third tier of retirement planning, behind pensions and SocialSecurity,” says Alicia Munnell, who heads the Center for Retirement Research at BostonCollege. “They should not be the thing we rely on for retirement security.” And the

government seems to agree. This summer, the Government Accountability Officeconcluded, “If no action is taken, a considerable number of Americans face the prospect




of a reduced standard of living in retirement.” That’s what is known as anunderstatement.18

401(k) plans were created by government to help the already-wealthy. Millions of averageJoes got involved. Today these average Joes pump in $200 billion annually, and yet they havelittle to show for it on average. The plans turned out to help only the big investment houses. Theyare therefore the tools of two groups of people: government and big banks. The tenor of theGovernment Accountability Office’s quotation in Time’s article shows this: “If no action is

taken…” means, “If government doesn’t take action.” The article goes on to make it clear whatdirection this should take: government should make 401(k) plans mandatory for all people andthen, on top of that, mandate additional income insurance plans (consisting of an additional 5%tax on your income). This means that the government would ultimately have a lot more controlover your retirement accounts.

So what’s all this got to do with buying gold? Simple. If you keep gold in any form in your 401(k) account or your IRA account, you are leaving it at the greatest possible risk for government confiscation and regulation. If this sounds too conspiratorial, consider this: we allknow that the Social Security and Medicare programs face enormous economical burdens in thefuture. Congress is already looking for ways to tackle the $70+ trillion in liabilities outstanding

over the next several years. All possible solutions will be unpopular. Raise the retirement age or contribution amounts and you anger the younger and those on the cusp of receiving. Tax or reduce benefits and you anger those already receiving. Default completely and you face massrevolt. Yet someone has to pay the bill.

I think we will see a compromise combination of all of the above, plus the X-factor for Congress: the trillions of dollars of untapped, untaxed assets sitting in hoards in 401(k) and IRAretirement accounts. This is a no-brainer for anyone who understands the appetites andindifference of Congress. They will simply find a way to remind people that 401(k)s and IRAsare government-created, government-regulated programs, and then they will avail themselves of as much of that vast capital as they deem necessary in order to pay the bills of Social Security, or in some way mitigate the problem under the guise of saving our “standard of living inretirement.”

If you disbelieve this is possible, then you have no comprehension of the history of SocialSecurity—a socialistic system designed upon the transfer of wealth from current savers tocurrent retirees to begin with. They will bend the rules however necessary in order to save thesystem, and they will take credit for it, expecting you to be thankful and grateful for their benevolence—even while you pay for it.

For this reason alone it is risky to keep gold bullion in an IRA account. Of course, for thisreason, it is risky to keep any assets in such an account. But if you intend to hold gold and silver as a hedge against inflation, or to prepare for an emergency, then it makes absolutely no sense to

leave such an investment exposed to confiscation, account-freeze, or regulation of any sort. For these purposes, leaving gold in an IRA makes no sense at all.

18 http://www.time.com/time/business/article/0,8599,1929119-1,00.html




IRAs do have one small advantage: they are exempt from bankruptcy. If you chose to keepgold in your IRA and build it up over time, you would not have to fear losing any of it in theevent of some catastrophe that would cause you to file bankruptcy. Perhaps even upon facing bankruptcy one could transfer a certain limited amount of gold into an IRA in order to protect itfrom what may lie ahead, but this would involve two minor difficulties:

First, since IRAs have a maximum annual contribution amount, you could put in no moregold than the maximum allowed. (These maximums will apply, of course, even if you do not

face bankruptcy.) In a traditional or Roth IRA, the max is currently $5,000 for people under 50years old, $6,000 for those 50 and up. 401(k)s allow $16,500 and $20,000 respectively for thesetwo groups, but 401(k) contributions must be given through an employer or business, so this may pose an additional obstacle, especially in a crisis/bankruptcy situation. It would make little sense,in other words, to trust in the possibility of hiding away very much gold in an IRA or 401(k)account when facing bankruptcy.

Besides, secondly, it would be just plain dishonest. If you were facing bankruptcy and hadseveral thousand dollars worth of gold on hand, it would be more honest and respectable to sellthe gold and pay what you could of the bills you owed to your calling creditors.

Nevertheless, the lone advantage of protection from bankruptcy seems greatly outweighed bythe drawbacks: you don’t have physical possession, but only paper-claims to gold in thisscenario. Moreover, you have the risks of government confiscation of retirement programs in thenot-so-distant future.




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