Gold provides enormous freedom and economic independence to investors who trust it, since it lacks counterparty risk, it is not the responsibility of anyone and governments and states cannot do anything to control it, except to adopt extreme measures such as placing it outside of the law.
This is what US President Franklin D. Roosevelt did in 1933 , when he signed Executive Order 6102 , which prohibited the possession of gold in private hands and granted a period of less than one month for citizens to sell their metal to the Government, to a set price.
It is, as we have said, an extreme measure that could hardly be applied today. For this reason, gold investors appreciate the independence that possession of the precious metal gives them, an asset that is recognized worldwide and that is very easy to liquidate.
A recent example is the attempt by the Government of India to control gold imports by increasing the tax burden or imposing regulations, such as the one requiring importers to export as gold jewelry on 20 % of the amount of precious metal imported.
However, these regulations are difficult to enforce and, in practice, gold smuggling has skyrocketed in India. Once the metal is in the form of a jewel or ingot, it is very difficult to tax it.
Flood points out that if central banks in many countries hoard tons of gold in their vaults, it’s for the same reason investors trust it: because it’s independent of any other government.
1.- Gold is more difficult to track and tax than fiat currencies
The laws of the countries state that all taxes must be paid in fiat currencies (issued by the respective governments and backed by trust in their central bank). Therefore, it is not possible to use physical gold and silver for these payments or to pay debt.
As Stephen Flood explains, through a long series of decisions taken between 1921 and 1971, and faced with the excessive growth of public spending by politicians, the governments of Western countries opted for interference and redistribution instead of letting let capitalism act freely.
2.- Millionaire bailouts cannot be faced with a currency linked to a gold standard
Industries heavily regulated by governments, such as financial institutions, cannot bail out of bankruptcy without a fiat currency, which can be imprinted with infinite signature, without being tied to a gold standard or other constraining factor.
When these types of heavily regulated companies go bankrupt, the government of the day has the responsibility of bailing them out. Thus, during the decade of the 30s of the last century, there was a generalized banking crisis, due to the fact that the governments applied the wrong policy to face liquidity problems.
That was the reason, for example, that the president of the United States was forced to decree the confiscation of gold in the hands of citizens, since without it he could not print more dollars that, at that time, were still backed by gold.
Thus, to increase its reserves, the Roosevelt administration expropriated the metal that was in the hands of the citizens, paying them a price below the market and raising the official rate later. This allowed it to continue printing dollars with which to bail out the banks.
This prohibition remained in place until the 1970s, when the black market was found to be thriving and gold, as a tangible asset, could easily be hidden from government detection.
3.- Gold has appreciated against other fiat currencies since governments abandoned the gold standard
The precious metal has the ability to maintain purchasing power over time. An example: using gold as a means of payment, a Roman tunic used to cost practically the same as a tailor-made suit today.
On the other hand, it is enough to wait a few decades for us to see the devaluation of the currency we habitually use, which is reflected in the fact that the same amount of money allows us to purchase fewer and fewer goods and services.