Here’s how the headline reads for this latest teaser from the Taipan folks, for Zachary Scheidt’s New Growth Investor:
“Urgent Gold Investing Alert:
“President Obama Wants to Confiscate Your Gold
“Buried deep inside the healthcare reform bill is a law that could set the stage for the federal government to take away ALL your gold. By 2012, it probably won’t be safe to own gold bars, rare coins or gold ETFs.
“But there is one type of gold investment protected from this law…
“And it could turn $10,000 into $97,500 in the next 18 months.”
Sounds intriguing, right? They never mention black helicopters, the New World Order or the bizarre “Amero” claptrap about a new NAFTA currency, but with the political vitriol at such a peak they don’t really have to — they know that just mentioning Obama and the health care plan will make people furious, especially the core target demographic for investment newsletters (that may well be you, too — white men who are richer than average and in their 50s-70s).
But the copywriters here essentially build a case for gold, which we probably all know (in short, the race to competitively devalue every currency on earth is leading to increasing gold and silver prices as the only traditional “currency alternative”, and the emerging world, particularly China, is buying up gold to diversify away from the dollar and bring their gold reserves up to the standards of the rest of the world’s reserve banks).
On top of that, however, they add this confiscation threat — this time the threat is based on the health care bill, which does include a provision that makes coin trading more of a hassle (more on that in a minute) … but to be honest, copywriters haven’t ever really needed a “real” threat to conjure up thoughts of gold confiscation. They just bring up the memory of FDR in the 1930s, making private gold ownership illegal and forcing everyone to turn in their gold.
Of course, that was a very different turn of events than we’re probably going to see again in our lifetime: The US was on a gold standard at the time, so in effect what FDR did was call in all privately held gold (mostly coins) so that he could devalue the dollar and set a new gold standard.
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It’s much harder to imagine a rationale for government confiscation of gold at this point — FDR had a purpose, one that we might not agree with, but, to simplify: he couldn’t devalue the dollar and pay for the New Deal without confiscating gold. As you might be thinking to yourself right now, the Federal Reserve and the US Government need no additional rights and none of your gold in order to devalue the dollar — they’ve been doing it for years and will probably continue, regardless of whether or not you have a few gold coins buried in the back yard. The ad goes into far more detail on this, including the re-telling of that FDR story, and the reminder that the “right” to own gold is actually a privilege that Congress can take away.
Taxing and tracking the “gold economy” is another matter, however, and that’s where this threat comes in from the healthcare bill. Here’s how the teaser describes it:
“The official law is in section 9006 of the Patient Protection and Affordable Care Act.
“Very few people have read all 10,909 sections of that bill and even fewer understand the ramifications of section 9006 on gold.
“The healthcare bill has nothing to do with gold, which is exactly why Congress hid this law there.
“They certainly weren’t going to put out a press release when they’re taking away the rights of private citizens.
“The law starts by facilitating the taxation of anyone wishing to sell over a certain amount of physical gold, even rare collectible coins.
“It also makes it easier for the federal government to keep track of who owns gold and how much they own.
“And it sets the stage for removing your right to own gold.”
You may well have heard of this provision before — I’ll personally go out on a limb and say that it probably started as some Congressional staffer’s idea for how to cut down on tax cheats, but the way the final law ended up being worded means that it creates, at the very least, a logistical nightmare for small businesses and the self employed. That provision of the law, intended, I’m sure, to help pay for the expensive health care legislation, essentially ups the requirement for filing 1099s for transactions — it keeps the $600 ceiling that’s already in the law, but instead of limiting it to services and exempting corporations it includes tangible goods and any business transactions.
That would serve to cut down on tax cheating if people followed it, I imagine — I’d have to file a few dozen 1099’s myself for various goods and services I pay for during the year, and I’m sure I’d receive a lot more 1099s from people and companies with whom I do some minor amount of business. I, of course, already report all those things on my taxes with complete openness, but I’m sure some people do not (no, I’m not looking at you. Why would I be looking at you?)
But it would also create a real stimulus for the accounting and bookkeeping industry, since keeping track of all these commercial relationships and filing such minor transactions with the IRS would dramatically increase the paperwork behind a lot of businesses. And of course, the IRS is probably in no shape to handle this additional burden, they already lack the ability to catch the people who brazenly cheat on their taxes.
It’s also got pretty much everyone in an uproar on both sides of the aisle, and I’d wager that we’ll see some dramatic license in the way this law is enforced, or a significant change in the law, before it goes into force on January 1, 2012. But if the law does go into force as written, what happens?
Well, it probably means that if you buy a gold coin you have to report it on a 1099 — assuming that your total transactions with the other party total more than $600 for the year, which they would if the total involved was at least a half ounce of gold. Of course, income from gold transactions is already taxable, and if you sell a coin at a profit it’s a taxable gain at your marginal income rate, but there hasn’t been a real reporting system in place for these small transactions — and in the case of American Eagle gold coins specifically, there wasn’t even a rule that coin dealers had to get any information about you.
So I suppose the fear, if you believe that there’s some reason to think that the government is going to want to confiscate your gold, is that they could somehow, over the years, use these 1099 filings to track who has gold coins. And since the dollar is falling, the only way to restore some fiscal solvency is to go back to a gold standard, which would mean that the feds would need a lot more gold to back the currency, which would mean that they’d have to come get your gold.
And the immediate concern is that there will be additional friction on private gold sales, since the requirements of filing 1099s will make the process more of a pain and ad a little cost (or, if you were planning on cheating on your taxes, perhaps a lot of cost). That means that possibly buying and selling gold bars and coins might be more of a pain, though the teaser extends that to say the same thing for ETFs (though as far as I know those are already covered by the tax forms you get from your broker), all in the service of telling us that the one kind of gold that isn’t covered by this “section 9006.”
Of course, we have absolutely no idea what the new 1099 form would look like if this law does go into force as planned — the current 1099 MISC form, FYI, says nothing about what services are provided, though your brokerage 1099 filings are clearer about the specific underlying transactions, so is the new form going to have a place to enter specifically that your friendly neighborhood Stock Gumshoe bought an iPad from the Apple store (or a gold coin from some dude on eBay)?
If I had to file a 1099 for buying a gold coin from someone using the current form, no one, including the gummint, would know that what changed hands was a gold coin (though, to be fair, if I sold someone $600 worth of fish it would have to be reported in the special Fishing Boat Proceeds box) — the IRS concern is not what services are paid for, but that the amount gets entered as taxable income somewhere. And since under this new reporting requirement there would be billions of additional 1099s for everything from hotel stays to computer purchases, it’s a bit tough to see the IRS focusing on finding the transactions that involve gold — or, in all honesty, even computerizing and collating all that information if even a portion of it is filed in paper form.
Here’s how they put it in the ad:
“As the story reaches more and more Americans, it could create a gold-buying mania that could make gold’s price rise of the past two years look like chump change.
“When that happens, most Americans could rush out and buy as much gold as possible before the law takes effect.
“That’s exactly what the feds want you to do.
“And it’s the wrong course of action.
“You see, the more people who stock up on physical gold before 2012, trying to beat the law, the more gold they’d eventually be able to take away.
“And make no mistake, section 9006 is the first step on the road to taking away your gold.”
As you can probably imagine, I think that last line is pure poppycock — but you might well disagree, I suppose, and we can come back in a few years and find out if the government has started confiscating gold to create more of a federal gold hoard and go back to a “gold standard” backing some new dollar (The US already has the largest gold hoard in the world, assuming that the reports are accurate, of about 8,300 tons — the GLD ETF, by comparison, has about 1,300 tons, and the next biggest sovereign pile is in Germany, with 3,400 tons … I’ve seen reports, no idea how accurate they are, that there are about 50,000 tons of proved reserves yet to be mined).
I’ve got a long list of things that I consider far more likely and worrisome than private gold confiscation, but again, you’re welcome to disagree. And I’d say I’m neither a gold bug nor a gold doubter, I do have a portion of my portfolio in both physical metals and mining shares, probably around 15-20% including silver, and depending on how you count such things.
I think the reporting of small precious metal transactions is a strange side effect of this new filing requirement that seemed clearly designed to more broadly make sure that more of the taxable economy was, in fact, taxed — gold coin sales, I’m sure, are a merest tiny fraction of the annual unreported cash changing hands, under the table or not, for house cleaning and lawn mowing, and I give no credence at all to the fear that this proposal is secretly designed to get the feds hands on your gold coins. I don’t like the new law and I expect it will probably change, since it’s likely to be a pain in the arse for everyone, but I don’t think it’s a secret first step toward gold confiscation — it’s a stupid law, but gold isn’t the reason it’s stupid.
The point of the ad is that you don’t want to hold gold because of this future confiscation fear, you want to hold this “‘secret’ safe gold” investment that will, according to this ad, do “12X better” …
“Make 12 Times More Than Physical Gold…
“Gold could reach $2,500 in the next 18 months, even without the added threat of the feds taking away your right to own gold.
“The dollar is getting weaker, and the U.S government is going deeper in debt.
“President Obama is spending money at will, hoping to buy his way to reelection.
“Rest assured, gold will continue its long march up.
“And when the public catches on to the feds’ plans to take away your gold — the price should soar even higher.
“That’s why industry insiders are loading up on the one gold investment class that could remain safe. They know as more people pile into gold, the price will explode.
“The Wall Street Journal interviewed Joseph Foster, manager of the $808.3 million Van Eck International Investors Gold Fund.
“He said the current gold bull market ‘could continue for years. The financial crisis will have a long-term, positive impact for gold as a shelter from economic uncertainty.’
“When the price of gold goes up, the unique way to invest in gold I’m writing to you about could go exponentially higher.”
And that “secret” investment, of course, is gold producers, gold mining shares — which generally do act as a leveraged play on gold, though mining is a terrible, terrible business to invest in on general principle (it takes years, sometimes decades to make any money, building a mine is insanely expensive, you have little control over your costs or the price of your product, you face intense governmental scrutiny, the list of reasons not to be a miner goes on and on, even if you ignore the fact that miners themselves have a reputation for being almost criminally optimistic).
Which is a long way to go to get to the fact that Zachary Scheidt has a few mining stocks (who doesn’t?) that he thinks you should buy before this next mania happens and the G-Men knock down your door looking for grandma’s gold coin collection.
So we’ll bypass the fact that whenever someone proposes a little portfolio of gold mining stocks you might consider whether it’s simpler and safer to just buy one of the gold mining ETFs to diversify away from the not unusual disappointments and screwups in the mining sector (popular ones are GDX for the big miners, GDXJ for the smaller miners). But what we’re all about is figuring out the truth behind the tease, so let’s see if he gives enough clues to identify these mining stocks:
“Company A: This globally diversified company boasts some of the lowest production costs in the business. It costs them just $400 to produce an ounce of gold.
“That means a rise to $2,500 in the price of gold would be pure profit.
“The other benefit is where they produce gold. This company has production sites in a number of gold-hungry countries, led by China and Brazil.
“Company B: This completely U.S.-based company also has production costs under $400. That’s why their shares went up 975% during phase one of the gold bull market.
“Another quick run up would send their price soaring even higher because they have the unique ability to ratchet up production quickly to take advantage of a high gold price — which should definitely happen in the next two years.
“Company C: This Canadian company is one of the world leaders in gold production, and boasts some of the largest reserves in the world.
“And they keep adding to those reserves. In 2009, they increased gold reserves by 17%, just in time to start reaping the rising gold price. Last year they found over 3.1 million ounces of new gold.”
So these aren’t exactly the juiciest of clues … so I’ll provide some guesses that probably can’t be completely confirmed without more info:
Company A: Sounds like Eldorado Gold (EGO) — yes, they’re somewhat diversified globally and report themselves as being a low cost producer (though when you see things like $300 or $500/ounce, note that this almost never includes anything other than the cash cost of mining, it doesn’t include the millions that went into identifying the strike and building the mine). Their operating mines are in China and Turkey, but they do have a big exploration project in Brazil and are active in a few other places as well.
Company B: Beats the heck out of me. There are lots of US-only gold miners, since Nevada is still one of the world’s biggest gold production areas, but I’d need more clues than that — or more time — to narrow it down, and most of the relatively well known gold miners that have advanced so dramatically over the last decade have multiple mines outside the US. If you’ve got an answer, feel free to spit it out with a comment below.
And Company C: Well, if you’re going to take them at their word about the “world leader” and “largest reserves in the world” stuff that narrows it down a bit, though I didn’t locate one of those folks that had exactly 3.1 million ounces discovered in 2009, nor one that increased their reserves by precisely 17%.
Candidates include: Goldcorp (GG), which produced 3.1 million ounces but added 5+ million to reserves, for a total increase of about 5.9% in the reserve number in 2009; Agnico-Eagle (AEM), though they didn’t discover nearly that much or increase their reserves so dramatically last year; Barrick Gold (ABX) is a major producer but only increased reserves by a tiny bit last year; Kinross (KGC) increased reserves by just a bit over 10% last year; Yamana (AUY) barely (if) replaced the gold they produced with their addition to reserves, and once you get past that list you have to qualify the “largest reserves in the world” stuff a bit more … so if you like one of those as our target here, or have another idea of a Canadian miner that belongs on this short list, let us know with a comment below.
So that’s all for me today — an eminently unsatisfying adventure in trying to track down some thinly hinted shares, and a chance to bloviate for a while about the 1099 craziness that will hit in 2012 absent some (very likely, I think) changes to the law … though your opinion on the impact of that awful tax law change on the precious metals market probably depends a lot on how critical you think precious metals are to the US government.
And as always, if you’ve got an opinion on Zachary Scheidt, or the bullion coin market, or some favorite gold miners … well, feel free to let ‘er rip with a comment below. Thanks!
(And don’t worry, tomorrow I’ll pick a target with a few more interesting clues).