5. Gold, Gold, Gold, Gold—And More Gold

GOLD, GOLD, GOLD, GOLD
—AND MORE GOLD

THENEW YORKER MAGAZINE SLAMS GOLD AND GOLD OWNERS

In a scurrilous article in New Yorker magazine (July 7, 2000) titled “Gold People: Will They Ever Be Rich Again?” author James Collins doesn’t think so.

Let’s say that for some reason you decided back in 1980 that you wanted to lose money on your investments over the next 20 years. Succeeding in this would have been very difficult to do as it turns out. . . . There was, however, one investment that would have lost your money, causing not only financial distress but also shame and humiliation. That investment was gold.

Terrific. Reminding the reader that gold lost its luster as an investment, never matching those highs of 1980, is not the kind of investigative reporting that wins Pulitzer Prizes. The market realities are dismal enough for the gold investor. We don’t need Collins, a former senior business editor at Time magazine, using distortions and/or deliberately slanted figures to make it appear worse.

Collins: “. . . On January 21, 1980, the price of gold on the New York Comex was $825.50. Today its price is about $280 per ounce. . . . In other words the value of an ounce of gold has fallen about 70 per cent.”

Blumert: This is not unlike the fellow in a balloon who is lost. Spotting a farmer working below, our wayward balloonist shouts down: “Sir, I’m lost. Where am I?” The farmer, with clear voice, responds, “You’re in a balloon.”

The information may be correct but of no value. The likelihood of an investor buying gold, one time only, on January 21, 1980, is sixty-eight million to one. (Ok, I made this number up, but it seems about right.)

Why not arrange for our mythical gold investor to buy on January 21, 1976, when the yellow metal was $124 per ounce? In the year 2000 he would have been ahead 240 percent. Or, pick any other year that helps make your point.

When he describes the gold investor as suffering “shame and humiliation,” it’s evident Collins has constructed a hit piece, not a serious article.

Rather than deriding the gold investor, Collins would do better to provide his reader with an understanding of those critical events twenty years earlier, and their impact.

The winter of 1979–80 was not a good one for super-powers. While Soviet troops were being drawn and quartered in the mountains of Afghanistan, the daily parade of blindfolded embassy hostages by the Iranians provided the best evidence of a futile US foreign policy.

Back in the US of A, interest rates were approaching 20 percent and double-digit inflation was plaguing consumers and terrorizing politicians. The Dow Jones Industrial Average had failed several times to reach the magical level of 1000 and was languishing at about 800. Investor confidence was at low ebb.

From November 1, 1979, through January 21, 1980, reflecting the prevailing malaise, the price of gold soared from $372 per ounce to $825. In less than ninety days the “gold rush” made the front pages of newspapers around the world.

For Americans, holding gold was illegal from 1933 to 1974. In 1974 all restrictions on gold ownership were lifted, and it was amazing how quickly an efficient American gold market developed. To a large extent, brand new companies provided the consumer with quality products at low premium with instant liquidity. Gold sales reached fevered levels as the yellow metal filled its historic role as a “fever thermometer” reflecting the society’s political and economic ills.

From its high of January 21, 1980, the gold price headed lower, and for the next two decades ranged between $250 and $350 an ounce on average. The rallies were infrequent. What happened?

One dark view believes there are conspiratorial forces working against gold. That the king doesn’t like gold, never has, never will. That gold reveals truth, and that kings, along with prime ministers and presidents, can’t handle too much of that. The evidence of a war on gold is very compelling, but that is a subject for another time.

Some credit former Federal Reserve Chairman Paul Volcker’s monetary policy with de-emphasizing gold’s role. Baloney. That’s as arrogant as the Democrats and Republicans taking credit for the economic boom of the past decade. They are irrelevant.

The computer revolution is a pure American offspring. It has provided the boom along with the unprecedented strength of the US dollar against all currencies AND gold. As long as the dollar retains this dominant position, gold will remain lackluster.

Back to Collins, his relentless attack on the gold investor, and his distortions.

Collins: “In 1980, the Dow Jones Industrial Average was at 800. Today, it is around ten thousand five hundred.”

Blumert: It’s one thing to look at averages, another to speak of individual investments. Many of the companies that flourished in 1980 no longer exist.

I won’t dwell upon some of the devastating losses we have seen recently on the NASDAQ. Stocks that were one $170 per share in March 2000, are $4 today. How many stock certificates printed in the last twenty years are worth nothing, zilch, zero, bupkis? I imagine they provide enough “shame and humiliation” to go around.

Collins: “Bonds bought in 1980 would have soared in value as interest rates came down.”

Blumert: The economist, Dr. Franz Pick, once defined bonds as “certificates of guaranteed confiscation.” I recall a holder of certain junk bonds who ultimately used them as wallpaper in his den.

Collins: “Paintings . . . UP . . . Comic books . . . UP . . . Snuff boxes, stamps, coins, manuscripts, majolica, it seems that no matter what you bought in 1980 your investment would have increased in value by the year 2000.”

Blumert: Is that so? As a gold dealer who also has handled numismatics for forty years, I can attest, with absolute certainty, that collector coin prices have never come close to matching 1980 levels. My stamp dealer friends say it is pretty much the same in their world, and I would warrant comic books, toys, and manuscripts are similarly checkered in their performance.

Collins: “In the 1980s the one hundred and eighty-five hundred thousand-dollar home is nine hundred thousand in the year 2000.”

Blumert: Real estate is the king of all investments, but bitterly disappointing to some. REITs (real estate investment trusts) left some investors nothing but lawsuits, and even when market values soar, many realize that finding a qualified buyer is not always an easy matter.

The Collins piece disintegrates into a narrative on the life and times of “goldbug” Michael Levinson. It’s the sorry saga of the New York City boy, educated at Harvard, who becomes interested in gold, and makes a killing selling gold mining shares.

As the price of gold tumbles, then stagnates, Levinson loses his money, and is now the tragic figure, broke, a pariah to his customers but clinging to a belief system that is obsolete and irrelevant.

Actually, Levinson doesn’t even qualify for the “goldbug” fraternity. Gold dealer/brokers, as professionals, do not have parity with the true “goldbug.” Which now brings us to the real question. Why does Collins choose to do his article on gold at this time? The commodity is certainly not in the news, and could never earn any space in a current issue of Time magazine. The characters, would, at best, be “quaint” to the New Yorker readership.

I’ve got the answer. What’s bugging Collins is that these people that he marginalizes are in fact a “cut above” and principled.

I have dealt with gold investors for over forty years. Their checks are always good; they honor every commitment, stay informed on current issues, and have a profound understanding of history.

They provide for their families, and they don’t go broke. I can assure you that many, many of them have done very well with their gold investments.

Our present culture of totalitarian liberalism is hostile to any criticism of the regime. Whenever a group of people like the “goldbugs” rejects a key element of the modern state, such as managed “funny” money, it’s no surprise that the senior editors from Time magazine and the New Yorker find the need to subject them to ridicule.

October 23, 2000

BUY WHEN THE BLOOD IS IN THE STREETS, UNLESS IT’S YOUR BLOOD

NEWSPAPER HEADLINES

“Nikkei Averages Reach 1985 Lows”

“Nasdaq Averages Break 2000. Down 65% From Highs

In Just One Year” “Dow Jones Industrial Average Breaks 10,000.

Down More Than 600 Points in Last Few Days”

The voice on the other end of the line said: “You are calling the ‘INVESTOR’S CRISIS AND DESPAIR HOTLINE.’ All our grief counselors are occupied with desperate stock market investors like yourself. Be calm and breathe deeply while you wait, or “Press ‘one’ if you are at the end of your rope. Your call will be transferred to the Suicide Prevention Center.

“Be prepared to be put on hold.

“Press ‘two’ if you are calling because you can’t get through to your broker. He is most likely on the line with one of our counselors.

“Press ‘three’ if you are seeking religious support. Once again, be patient, as most religious leaders are also on the line with our counselors.

“Press ‘four’ if you want to hear Handel’s ‘Dead March’.

“Press ‘five’ if you want to hear FDR’s famous ‘We have nothing to fear, but fear itself’ speech.

“While you are waiting, think positive. Consider the following that may comfort you.

“If the DIJA and the Nasdaq continue to drop 2–3 percent per day, in 37 days all the averages will be zero and you’ll have nothing more to worry about.

“To those of you calling about Foot-and-Mouth disease, please be advised that it does not apply to the bubble-headed stock market cheerleaders on TV.”

“Blumert, we need you for another shift on the phones,” pleaded the INVESTOR’S CRISIS AND DESPAIR Director.

“But, I’ve been on for thirty-six hours straight. Surely there are other grief counselors available?”

“None as comforting to the poor souls as you, Blumert. After all, as a precious metals dealer you have been party to the most dismal, gold bear market for more than twenty years.”

“Losers need other losers. Lord knows, you are at the top of the list.”

March 15, 2001

CELEBRATING THE ANNIVERSARY OF A CRIME

The thirtieth anniversary of Richard Nixon’s closing of the gold window was hardly mentioned in the financial press.

In one article posted on August 12 at Miningweb.com, a mining trade publication, Nixon’s dastardly act is described by writer Tim Wood: The Executive Order “unplugged the U.S. dollar from its gold life support,” bringing about “the longest period a gold standard has been absent from the international system.”

In effect, Nixon’s dictatorial Executive Order cancelled the dollar/gold exchange rate established seventy-seven years earlier, when foreign central banks were allowed to claim an ounce of American gold for US $35. By his single stroke, Tricky Dick cut any relationship the US dollar had to gold.

Mr. Wood pines for those good old days when (allegedly) the Fed respected gold: “A central bank exists for no other (or better) reason than to keep the national unit of account stable.”

I’m a bit surprised Mr. Wood didn’t apply even a bit of his tortured nostalgia to the earthshaking event that occurred on April 5, 1933, when gold was demonetized, and Americans lost the right to hold “real” money.

I’m sympathetic with Mr. Wood’s depressed state, but there’s another date in gold’s history that should be celebrated: January 1, 1975, when all restrictions on owning gold were lifted.

Why no mention of April 5, 1933, and January 1, 1975?

I have a theory: Mr. Wood’s reverence for gold is pragmatic. He is more concerned with enlightening central bankers and reminding them of their proper relationship to gold than the freedom of the individual.

If this sounds like the wisdom of Jude Wanniski, you are correct. Mr. Wood gives full credit to Wanniski and the other supply siders for his views on gold.

Mr. Wanniski is one of my heroes, and there is no more courageous commentator on the passing scene. He buckles to no pressure, but I disagree with his recommended path to a gold standard. The Fed cannot be trusted. But that debate is for another time.

For now, I thank Mr. Wood and, indirectly, Mr. Wanniski, for prompting me to reflect on my forty plus years as a gold dealer.

If ever there was a day of infamy, April 5, 1933, qualifies. For the first time, gold was demonetized and Americans were forced to surrender their gold coins to the government. You received a $20 bill in exchange for your $20 gold coin. Later that year, gold was revalued from $20.67 per ounce to $35. The citizen was first plundered, then humiliated, by the monster Roosevelt.

On January 1, 1975, the beleaguered US citizen had a bit of freedom restored when the draconian laws denying Americans the right to own and trade gold were eliminated. No, a gold standard was not restored, but January 1, 1975, was a day freedom lovers celebrate.

Back to 1971: Nixon’s action was more than symbolic. It had real impact. And to conservatives of the day, the anguish caused by the closing of the gold window was dwarfed by the shock of wage and price controls simultaneously imposed by Executive Order. (Some contend that several key Southern Californian Nixon supporters never forgave him for that betrayal, and quietly swung their financial support to Ronald Reagan.)

In 1971, Nixon was preparing for his reelection campaign. He was tidying up potentially troublesome areas. Consumer and wholesale price indices were bubbling up although the increases were miniscule as compared with inflation rates nine years later. Nixon’s brain trust believed controls would be politically palatable, and could head off future price increases long enough to ensure his reelection.

The closing of the gold window meant little to most Americans as citizens had been legally barred from holding the precious metal since 1933.

As part of his reelection campaign, Nixon also wanted to punish French President Charles DeGaulle. In compliance to federal direction, the US media caricaturized the elegant, aloof French hero as unappreciative. After all, American conscripts had saved the French from the Hun in two world wars. This comic opera general was greedily using American dollars to plunder our gold reserves. Putting this ingrate in his place would resonate well with US voters.

Where was the dissent? Well, there wasn’t much.

The equity markets had little interest in the closing of the gold window, but wage and price controls set the stock market off to record-high percentile increases the day following the announcement. Only a few old-fashioned economists, like Murray Rothbard and Hans Senholz, shook their heads in disbelief. The failed ghost of controls had arisen once more.

And by 1971 most Americans had little first-hand memory of gold. The Depression and WW II were indelibly imprinted on their psyches and if they thought about gold at all, it was as a murky link to the hard times of the 1930s. Silver was a different story. The dimes, quarters, and half dollars minted almost continually from 1796 through 1964 were 90 percent silver. Most folks simply took it for granted that the coinage was silver.

Not one in a thousand reflected that one dollar’s face value in silver coins contained 72 parts of a pure ounce and that at $1.29 an ounce, the price fixed by the Treasury Department, the intrinsic value was precisely one dollar. This magnificent reality went unnoticed.

That all came to an end several months after JFK’s death in 1963. The new “LBJ” nonsilver, 10- and 25-cent sandwich coinage appeared on the scene amidst a barrage of propaganda.

The experts said the “sandwiches” would circulate side-by-side with the silver coins for eternity. Speculator-hoarders would find slim profit in pulling the silver coinage from circulation. This obvious deceit provided me with early evidence that public opinion was being manipulated and the manipulators knew the truth.

Shortly thereafter the US Treasury announced that August 16, 1968, would be the last day to redeem the $1, $5, and $10 silver certificates. In effect, the government had created an expiring option, and as the days passed, silver’s time as money was passing as well. The silver coinage quickly disappeared, of course.

Your local coin shop was the place where you purchased or sold silver coinage, or liquidated your silver certificates. This activity honed the coin industry for the onslaught that was to soon follow in the gold market.

In 1962 US Treasury Department policy toward gold ownership was little changed since 1933. Gold for jewelry was legal. Gold coins dated 1932 and older could be legally held, but ONLY if physically in the US and as collectibles, not investments. All gold imports were forbidden, except by special license which was rarely granted.

So, a US $20 St. Gaudens gold piece was available in Switzerland for US $50, but, due to a shortage of supply in the US, it was worth $60 plus.

Hmmm. . . . US gold coins minted prior to 1933 were legal if already here? You couldn’t legally bring them in. But, if you were able to get them here, there was a nice profit. Interesting. Sounds like an invitation to the bootlegger.

My company, Camino Coin, was founded in 1959. Although our primary business was numismatics, we soon were deeply involved in buying and selling precious metals. In Europe, these services were provided by banks.

US government policy was harsh, and the gold coin bootleggers reign existed through the early 1960s. The process was simple: the bootlegger purchased the US gold coins in Europe where most of them had resided since 1933, and had them shipped to Canada. So far, everything was legal. Getting the gold safely across the border was the problem.

Treasury Department enforcement against the smugglers was sporadic. Most of the gold coins arrived safely, but occasionally the feds would “send a message to the coin community” by making midnight raids and confiscating gold as if they were dealing with dangerous drugs.

In one instance, I saw the process close up. A smuggler carried gold coins from Canada to the state of Washington, packaged them, and mailed the parcel from a Seattle post office to a US dealer. (This fellow was selling them to me.) When the dealer’s sister sought to pick them up at her California post office, the Secret Service confiscated the coins.

The dealer, desperate to recover his merchandise, argued that since the coins were mailed from Seattle, they were physically in the US, thereby not subject to confiscation. The government held that these coins were never “here,” but rather in transit from Canada, hence, contraband. The case finally went to a US Circuit Court and the government prevailed.

Near the end of JFK’s presidency, the Treasury Department modified its restrictions on gold coins minted 1932 and earlier. US and foreign coinage could now be legally imported by Americans. This led to an avalanche of European gold coins like the British Sovereign, the French and Swiss 20 Franc, and all the American gold coins coming into the US.

In 1973, with the government in disarray, and a president near impeachment, a small but energetic movement to eliminate all remaining restrictions on gold ownership won a shocking victory and for the first time in over forty years, Americans could freely own and trade gold without restriction.

The late, great coin dealer and conference entrepreneur James U. Blanchard III was the main force behind the struggle.

For the first time since 1932 gold coins, bars, and gold certificates could be freely imported. Items that, prior to January 1, 1974, were almost as dangerous to handle as heroin were part of everyday commerce.

But it took a while for a dealer to hold a Krugerrand or a Credit Suisse gold kilo bar in his hand without looking over his shoulder to see if a Secret Service agent was lurking in the shadows.

August 20, 2001

WHAT IS HAPPENING IN THE GOLD MARKET?

Paul is our regular UPS man and he has been telling his wife that they should own some gold. Finally, with gold in the headlines, they made their decision and bought 5 ounces.

He picked up his order yesterday;

“Sure, the minute I buy something, you can bet the price goes down,” poor Paul mumbled as he wrote his check.

I’d like to have an ounce of gold, or even a gram, for how many times I’ve heard that wail from clients throughout the decades.

The corollary, that the price immediately spikes higher as soon as we sell something, is the other side of the coin (if you’ll excuse the expression).

Few investors have escaped the agony of these experiences. It’s as if there were little gods who monitor such matters and they whack us every time we decide to buy or sell something.

The dramatic ups and downs of the price of gold in recent days has tested everybody.

Some new gold buyers are disheartened; others are in a state of shock. Even gold professionals have been emotionally wrung out by the schizophrenic price gyrations of the ancient yellow metal.

In case you missed it, here’s a summary of the gold market over the past two weeks using prices from the London Metals Exchange as our source; On Dec. 2, the price of gold punctured $500 per ounce price for the first time in about twenty years.

For the next ten days the gold price spiked higher almost every trading day and the inter-day price edged close to $540 per ounce.

Over the last few days gold has dropped sharply, and tomorrow, Thursday, Dec 15, the price could very well drop below $500.*

Let’s consider these numbers in some prospective:

From its highs of two weeks ago gold plunged about 6½ percent.

I suspect that when we examine the history of gold prices in the years ahead, this recent spasm will register as a mere blip on the chart.

The following figures tell us the real story. I’m using the price of gold for each January since the year 2000 to make my point:

January, 2000	$310 per oz.
January, 2001	275
January, 2002	295
January, 2003	375
January, 2004	425
January, 2005	431
January, 2006	???(I predict the price next month will be $500 +)

If you purchased gold recently and you’re worried, phone me and I’ll hold your hand.

If I’m more worried than you, you can hold mine.

I can assure you of this:

When all other monies crumble into dust, the value of gold will endure.

December 17, 2005

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*This article was written on Wednesday night, December 14. The price touched $500.80 early Thursday morning in London.

YES,THERE ARE RISKS WHEN YOU BUY GOLD

This speech was delivered at the Steve Sjuggerud Conference in Long Beach, California on Wednesday, January 28, 2004.

At breakfast a nice young man set aside his French toast to ask me, “Burt, how do I know if a coin dealer is reliable?”

I answered without hesitation. “To start with, make certain he has been in the business at least 43 years 7 months and 11 days—Make that 12 days.”

You guessed it, that happens to be my tenure in the trade, and I admit my sassy response sounded self-serving. You don’t need a novice practicing on you whether he is selling a Krugerrand, a Proof Seated Dollar or, anything for that matter.

Some years ago, I was seriously troubled by a potential tax problem. I foolishly mentioned the matter to my family attorney. As he listened to the details, his face drained of color, and I feared he would pass out. Irving was clearly the wrong lawyer for this problem,

If I need brain surgery, I want a doc who has handled so many cases that my particular tumor is almost boring.

Which gets to my subject matter for the day: “What risks does the first time gold buyer face?” And, the follow-up, larger question: “Is there a downside to owning gold?”

Answer: Yes, there are reasons NOT to buy and own gold. (These reasons apply to silver and platinum as well.)

Here are just a few:

•There is a risk in holding gold! All the crooks, those in government and those in the private sector all want to get their paws on your gold.

Some of my crusty old-timers are comfortable ONLY when they sit, shotgun in hand, on top of their coins.

•There is a cost to holding gold. Not only do you pay for Safety Deposit boxes, the gold owner is also “punished by losing interest” he might have received from other investments.

•Your government will start to regard you as peculiar. Buy a Treasury Bill, or a share of IBM, and you’re a fine citizen, a patriot. But, buy an ounce of gold, and “there’s something wrong with you.”

You may be one of those “paranoid crazies” who owns guns and writes letters to his local newspaper.

Speaking of paranoia, I have been invited to join Paranoid’s Anonymous, but they won’t tell me where the meetings are.

•A high percentage of gold owners will never use banks to store valuables. They would rather hide things around the house.

Which leads to a new and scary risk. As we age, we are inclined to forget things—What was I talking about?

Oh yes, forgetting where you put things.

I have a pal, Kurt, who was barely in his 50s at the time. He owned seven or eight investment-grade diamonds, D color, flawless, VVS 1 or, however they grade those things. Kurt had paid over twelve thousand dollars for each.

Well, he couldn’t recall where he’d hidden them. But, he wasn’t worried. He was confident he would find them when he REALLY started to look. One day, he REALLY started to look, but didn’t find them.

Panic set in and he compounded the problem by telling his wife about the missing stones. She took over the search, located a hypnotist who was renowned for delving into the subconscious, and poor Kurt was subject to three tortured sessions with a fat lady from Romania.

Result: No diamonds! (unless the hypnotist had them)—and although Kurt has no conscious recollection of the three evenings, to this day, whenever he smells garlic, his left hand gets numb.

A month later, Kurt wisely told his wife the white lie that he found the missing diamonds and sold them at a profit.

He confided that it all came back to him in a flash on New Year’s Eve while watching an old Guy Lombardo video tape. Every male in sight was attired in a tux. That did it.

In searching for a place to hide his precious diamonds, what could be more plausible than placing them in the pocket of an old tuxedo that no longer fit?

He also remembered depositing a trunk full of old clothes in a giant Goodwill box at the local shopping center.

Lesson: If you hide something, better tell someone younger what it was you hid and where it was you hid it.

Some folks think that the greatest risk of all to the gold owner is confiscation. They use 1933 and the events that took place that year as their evidence.

I don’t share the view that confiscation is that great a threat. The situation today is unlike 1933. Gold is not circulating money and those who own gold are regarded as wackos. Let them go unnoticed seems to be government strategy.

I’m not minimizing the threat government poses to assets and privacy. They can come and take your living room furniture, but I do not think confiscation would be their weapon.

Some who contend that there is safety in holding gold coins dated prior to 1933 haven’t thought out the premise.

Can you imagine the absurdity of a bureaucrat standing at your front door with an eye loop examining your gold coin to see if it’s legal or not?

Let’s review what happened that fateful year. On April 6, 1933, a month after his inauguration, FDR demonetized gold. The $20 gold piece was no longer money. Well, since it wasn’t money any longer, bring it to the bank, they said, and we’ll give you a $20 bill for it.

That’s called theft.

In January of 1934, The Gold Reserve Act changed the value of an ounce of gold from $20.67 to $35. Somebody almost doubled their money! Anybody we know?

Here’s an interesting historical aside: Prohibition was just about coming to an end. It had been a disastrous, failed social experiment. Prohibition spawned the crime families, which endure to this day.

Other great American dynasties were enriched by Prohibition. Joseph Kennedy, the clan’s patriarch, held the contracts with the Scotch Distillers. He could legally import the good booze to Canada, and, then, the bootleggers and rumrunners took over. Magically, the illicit hooch appeared off the coast of California destined for thirsty residents of San Francisco and points south.

The proceeds probably wound up back in Europe. The system was too good to scrap.

The UK demonetized gold in 1931. The handwriting was on the wall for the US. A million dollars was a lot of money in those days, but there were folks who could raise much more for a “sure thing.”

A million dollars bought 50,000 $20 gold coins. It boggles the mind how many coins were legally “purchased” through the banks, sent to Canada and then on to Swiss banks.

To this day, over 70 years later, US gold coins are still available from European banks. That gives you some idea of how many left the US between 1931 and 1933.

I don’t believe anybody was ever prosecuted for not turning in gold coins, nor for sending them out of the country.

Unfortunately, most poor schnook citizens turned their few gold coins in because they were told to do so.

Some months ago I wrote an article for LewRockwell.com describing why “The King Doesn’t like Gold, He never Has, He Never Will.”

Gold is synonymous with freedom, and most of the kings we see these days are hardly interested in expanding the freedom of their vassals.

We should regard anybody seeking the throne with suspicion.

Well, I’ve used all of my time telling you why gold is a problem to buy and to hold.

I never got around to telling you the danger you face if you DON’T own gold.

For now, all I can say is that NOBODY ever went to the Poor House buying gold.

January 30, 2004

IF YOU WANT TO MAKE GOD LAUGH, TELL HIM YOUR PLANS

The customer complaind. “But you quoted me $11 less on a Krugerrand yesterday.” “It may only seem like yesterday,” I reminded him, “but, in fact, you called last Wednesday, and the gold price is up 3 percent since.”

“I hadn’t noticed,” he muttered.

The gold price did quite well in the month of April, but it went mostly unnoticed.

Market rallies come dressed in different clothes. This is especially true for the Gold Market, where rallies have visited infrequently over the past twenty years.

In late 2002 and early 2003, the price of gold behaved spectacularly. We witnessed a rip-roaring run-up in price. It was a Classic Type 1 Rally. For want of a better term, let’s call it a “Blow-Off Rally.”

It was as if Gold had a voice and was shouting to the world, “Hey, look at me. In just sixty days, my value has gone up more than $60. Almost every other area of investment has either collapsed or languished, but I have glowed.

“All you non-believers and naysayers should be falling on your knees seeking forgiveness.”

Even the government mouthpiece financial press and the cable TV business shows—no friends to gold—could hardly ignore the “Blow-Off.” Although they would choke before saying anything favorable, two things became apparent: they knew nothing about gold, but that didn’t prevent them from being miserable watching gold climb against the world’s paper currencies, particularly the US dollar.

During a Blow-Off Rally, the futures markets is an engine where highly leveraged positions lead to wild price fluctuations.

If these fluctuations become violent enough the gold story may make the front page of your morning newspaper, or the lead story at LRC. That didn’t happen this time, but I predict it will in the not-too-distant future.

Such blow-offs are often followed by a significant retrenching, and the 2002–03 version was typical, surrendering 50 percent of what it had gained.

By contrast, the Type 2 market rally is subdued, even boring. Let’s call it an “Unnoticed Rally.” It certainly went unnoticed by my Krugerrand customer.

In an Unnoticed Rally, the financial press is able to maintain their indifference. Trading in the futures markets remains tepid. Nobody pays much attention to the modest price increases, and there is less volatility.

Market technicians might contend that such increases are more positive. They may be right.

In my apprentice years as a gold dealer, I held strong opinions on market direction and was happy to share those views, even with strangers on the street. After the passing of decades, and getting kicked in the teeth 1000 times, I have changed my ways.

I’ve stopped forecasting, and if you corner me today and ask tomorrow’s gold price, you will note how adroit I am by turning the conversation to what Lew Rockwell is really like, or how modern medicine now deals with gall bladders.

In re-reading this short web-essay, I seem to have regressed. You can surely see a prediction or two above and the implication of higher gold prices based on April’s performance.

By the time you read this, the gold market could be in a shambles, making my observations absurd. It’s like bragging to friends that you haven’t had a head cold in six months. Then, WHAM, here comes the burning throat, followed by the other horrible symptoms.

Uh oh. I better be careful. I must remember to keep in mind what a wise man once told me, “If you want to make God laugh, tell him your plans.”

To this, I have added Blumert’s Corollary: “There is a wholesome force in nature designed to humiliate those who predict markets.”

The fool, having once predicted something correctly, keeps forecasting and eventually all who encounter him see him as the buffoon his wife sees. He never learns and those who follow his counsel are larger fools.

The more experienced prognosticator (see Talking Heads) frames his statements so that six months or six years later nothing can be learned from his words. If clever, he can take credit whether the market is, up, down, or unchanged.

I fear that I have invited the wrath of my own corollary and may be punished by lower gold prices.

It’s like clicking on “Today’s Gold Price” button at LRC and observing that gold is down $4 dollars that morning, but reading somewhere else on the web that gold’s performance was lustrous yesterday in Europe and should be higher in New York.

Blumert’s Corollary at work.

In the old days we were satisfied to get the price of gold once a week. Now, prices are stale in 30 seconds.

But, you can disregard any predictions I might have made.

May 7, 2003

THE “HARDLY NOTICED” RALLY OF GOLD

I’ve watched and listened to the “Cable Heads” as long as my supply of Rolaids allowed.

All they’ve talked about is the drop of the US Dollar against other currencies. Of course, that’s a big story.

But what about the price of gold?

In the past 30 days (April 19–May 19), the price of gold has risen from $332 per ounce to $366—an increase of 10 percent—a significant change for a “money” commodity.

No surprise to me that the talking heads aren’t covering gold.

In my last essay on the mysterious yellow metal, I discussed the different types of rallies.

There’s the “Blow-Off” rally, where the price increases are accompanied by media coverage. The higher the price, the more prominent the coverage. I have lived through several Blow-off rallies where gold’s story finally winds up in headlines on the front page.

I described the other type of rally as the “Unnoticed Rally.” In that instance the price goes higher WITHOUT media focus, or, often, without any kind of focus.

The past months have brought us a classic “Unnoticed Rally.”

When the talking heads discuss the drop of the US dollar, for example, their “take” is either: “It really doesn’t matter” or “A cheaper US dollar is good for our exports.”

Am I alone, or do you hear the same garbage I do?

Here’s some additional jewels from the “Kable Kooks”:

“Inflation continues to be a non-factor. The real concern is deflation.”

“The equity markets have turned from the ‘killer bear’ to being under-valued.”

“Yes, bond yields are the lowest seen in decades, but there are some attractive bonds with higher returns worth considering.” (Junk bonds)

“Residential real estate is ‘bubble-bursting proof’.”

It’s just as well that these “heads” don’t have much to say about gold.

This gold rally is also going unnoticed by customers. There’s very little buying on the part of the public. In fact, the opposite has happened, and we’ve seen a huge amount of selling with every $5 dollar increase in the price of gold.

Do these savvy sellers know something we don’t know?

I don’t think they’re so savvy.

Which brings us to the “Question of the Day”: When Should Gold Be Sold?

I asked one middle-aged-investor-type why he was selling. He admitted he didn’t need the dough and wasn’t guessing that the price of gold was going lower.

He sheepishly confided that the only reason he was selling was to take a profit on something. It had been a long time.

Here is my advice on when to sell gold: this counsel may be considered single minded or myopic.

Hold your gold, sell ONLY when you need the dollars.

When, for instance, you are buying a house, helping the kids, paying for your brain surgery.

Never sell gold to use the dollars for another investment UNLESS it’s a business venture you know something about (preferably YOUR business).

And then we have those dramatic instances when you are forced to liquidate your gold.

For example, you’re thirsty, I’m the only one with water, and it’s going to cost you a gold coin per bucket.

Or, the LAST TRAIN is leaving the station and the price for a ticket is a gold coin.

I trust this message is clear.

When should you NOT be selling gold?

When the price goes up too high or down too low.

When someone tries to convince you that the bullion type gold coins you own = Bad and the collector type coins he wants to sell you = Good.

In fact, he will try to persuade you that the bullion type gold coins are so bad that the government will come and take them.

Sometimes people will sell just for “the action.” Resist such temptations.

My granddaddy once advised me never to run after a trolley or a woman. There was always another one coming.

I have no idea what grandpa’s wisdom has anything to do with the above, but the rhythm of his words seemed appropriate.

May 21, 2003

BEWARE THE CHARTIST: HE BRINGS YOU FALSE SCIENCE

“How come they didn’t predict this?”

—Overheard from an anonymous fellow as he
plunged off the Flat Iron Building,
NYC, October 1929

I’ve always tried to be civil in the presence of Chartists.

I am also polite in the company of snake charmers and bungee jumpers, but if my daughter announced one day, “Daddy, I’m in love with Lancelot. He’s a———”(fill in the blank), I would immediately retain a top-notch team of de-programmers to bring the poor girl back to her senses.

Come to think of it, bungee jumpers don’t inflict pain on others, and the world’s no worse because of them. They are a spirited group and good for an occasional laugh, especially when their cord breaks.

As for snake charmers, what if we found ourselves overrun by venomous serpents as happened in Ireland once upon a time? The “charmers” could act as non-combatants until a St. Patrick came on the scene to wipe the critters out. (Unfortunately, the charmer’s magic is useless against the most deadly of all snakes, The Political Viper.)

There’s a certain unworldly aura that surrounds anyone who devotes his life to out-staring a snake.

These worthies must have a tough time earning a living, yet they too, do little harm while practicing their craft. The fact that snakes seem to tolerate them should be regarded as a plus.

Note, how I’ve already come to terms with having a bungee jumping fellow, or a snake charmer as a son-in-law, but my tolerance ends when it comes to Chartists.

Let me be clear. I am not talking about Chart Makers, diligent folks who map the crust and waterways of the planet. Nor am I degrading the Chartists, those English political reformers, active between 1838–48. (I think they were bad guys, but knowing our LRC readers, I’ll find out soon enough.)

I’m talking about those arrogant snobs who promote the belief that the future performance of markets can be predicted from analyzing yesterday’s lines and dots on a page.

This group is deadly dangerous: They leave empty bank accounts and broken spirits in their wake.

Look, if there are customers willing to pay the Gypsy lady to read tea leaves, that’s OK with me. After all, she entertains her clients—but never presents herself as possessed with a body of scientific knowledge.

Even the Voodoo Priest who predicts the future by reading animal entrails, never confuses the source of his dark knowledge with human reason.

Of all the mystics, only the Chartist pretends a rational basis for his gobbledygook. The Chartist further elevates his status by including himself in a larger, even more virulent group that label themselves as “market-technicians.”

Surely, one would think that the devastating losses suffered recently in the equity markets would have exposed these charlatans and their false religion. But, no, their followers are like zombies. Never questioning, and in constant search for that blip on the chart that pierces the shrouded future.

“You’re just looking for trouble, Blumert,” said my wife as she burned the toast. “You have friends who make their living as technicians. Worse yet, you must have dozens of customers who believe in that stuff. They’ll be offended.”

“If that’s the price I must pay in the pursuit of Truth, so be it,” I proclaimed.

“Pursuit of Truth? You’ve been annoyed ever since that fellow told you he didn’t like the looks of the gold chart,” she said while scraping the blackened toast.

“Is that so?” I muttered sardonically. “If he spent more time understanding the fundamentals, he would know that his gold chart was nonsense. He’d be better off predicting that you’ll burn the toast again tomorrow.”

November 18, 2003

CONFESSIONS OF A GOLD PUSHER

Gold is addictive. I’ve seen it a thousand times. The buyer innocently starts out with silver, and although studies claim silver is not addictive, it leads to gold every time. Some even wind up experimenting with platinum.

—From Blumert’s Public Service Announcement
“Gold is Bad,” December 2003

Lew Rockwell takes great pride in not owning a TV set. Bully for him—but he still wants to know what the “talking heads” are saying on Sunday’s TV news shows.

Solution? Assign Blumert to watch and report.

My Sunday starts with orange juice and Meet the Press, followed by coffee at MSNBC with Chris Matthews. Face the Nation is usually placid enough so that I can digest my lunch.

The day turns grimmer as Tony Snow at Fox rolls out one fatuous, retired military creep after another, celebrating the glories of Empire and crowing how we are winning every war in spite of minor setbacks.

Struggling to pay attention, my assignment mercifully ends as Wolf “The Blitzer” drones on at CNN.

This was the dullest of News Sundays: Hillary Clinton giggled her way through thirty minutes with Tim Russert, denying that she was a presidential candidate, and you will be relieved to learn that Newt Gingrich, who also spent thirty minutes with Russert, will no longer plague us as a politician. Newt proclaims he is now an historian, although he sounded more like a “new age” economist.

The news this Sunday was not even worth a report to Editor Rockwell, and I was ready to switch to the Cooking Channel when a commercial caught my attention. You’ve probably heard it, too.

A mellifluous female voice representing the Philip Morris Company tells us that, “There is no such thing as a safe cigarette.”

The low-tar and low-nicotine varieties are useless and the only “safe thing to do is to QUIT smoking.”

She continues to shock us with her public service-type message: Phillip Morris provides a website loaded with antismoking pamphlets and tapes. The message was clear, “Let’s stop the world from smoking.” Aided and abetted by Phillip Morris.

I knew the tobacco companies were in trouble, but I did not realize it had come to this.

Then, it all became clear. A Gestapo-type fellow holds a gun at the announcer’s head as she reads the antismoking commercial.

The Company succumbs to the violence, relying on that hearty group of nicotine addicts who will disregard these admonitions and continue to buy and puff so that the Company can pay billions of dollars in ransom through the coming decades.

In return, the tobacco companies are allowed to survive and will be immune to harmful death civil suits.

The politicians are also well aware that these “purveyors of death” collect hundreds of millions in “sin” taxes, thus fattening the coffers at every level of government.

This goose may be evil, but its eggs are pure gold.

A friend comments, “You’re wrong about them holding a gun at her head, Blumert. There’s no need to. The defiance is long gone. All that’s left is resignation.”

“It’s like China during the ‘Cultural Revolution,’ where the victim dons a dunce cap and participates in his own condemnation.”

“Funny you should mention China,” I responded. “Today, China is slowly clawing its way to an open society, complete with freedom to smoke, while back here in the good old US of A, zombie-like-managers are telling their customers not to buy their product. They might as well be wearing dunce caps.”

“I’m not trying to worry you, Blumert, but cigarettes and gold have much in common. The King’s not so crazy about either. If you buy a share of IBM, you’re a patriot. Buy an ounce of gold, and they figure something’s wrong with you.

“They just might come down on your industry next. It happened in 1933, and I would give anything to see you in a dunce cap.”

He may be right, and one day a whistle blower on “60 Minutes” will reveal how gold advocates conspire to spread their message. That they hold clandestine conferences at vacation area hotels, poison the minds of the young with a philosophy better suited to the sixteenth century, and undermine the stock market, the Fed, and the American dollar.

They are nothing but a cult.

Next, will be the clicking of jack-boots outside my office.

“We are questioning gold dealers. Where is Blumert?” the group leader asks.

“Put away your guns, fellas. I’ve been expecting you. I’ve prepared a statement titled, ‘Gold is Bad.’ You are free to use it. All I ask is a seat on the ‘US Anti-Gold Commission’ and tickets to the Super Bowl in New Orleans.

Text of Blumert’s statement: GOLD IS BAD

There is ample evidence that gold brings out the basest of human qualities. Instead of spending their money for the benefit of society, gold owners are inclined to horde, and they become miserly.

Gold is addictive. I’ve seen it thousands of times. The buyer innocently starts out with silver, and although studies claim that silver is not addictive, it leads to gold every time. Some even wind up experimenting with platinum.

In summary, gold is bad. But, so are cigarettes, pork-chops, chocolate eclairs, and Sunday’s news shows. What would we do without them?

December 10, 2003

THE KING DOESN’T LIKE GOLD, NEVER HAS,NEVER WILL—UNLIKE MR.CHANG

From the annual Freedom Futility Award ceremony.

“CSPAN is covering our event today, so those of you here in the audience, don’t be caught napping if the camera scans you.

“I was only kidding, America, that was my little joke.

“Nominees for the award are passionate freedom fighters generally identified with organizations committed to hopeless causes.

“The winner of last year’s Freedom Futility Award was the Libertarian Party, and true to their tradition, they have proudly worn the mantle of futility over the past twelve months.

“Now, ladies and gentlemen, we come to the exciting moment when this year’s award recipient is revealed. Mr. Rockwell, the envelope please.

(Sound of envelope being torn open, slicing through the breathless silence.)

“And the winner is . . . the GATA Group.”

To those unfamiliar with these unsung, yet futile heroes at GATA (Gold Anti-Trust Action Committee), let me briefly describe the evil they have “discovered,” and the windmills they battle.

The GATA folks realized after getting kicked in the teeth thirty-seven times that the gold market does not behave as other markets. They deduced that a scheme to suppress the price of gold involved not only bullion trading banks, but also governments, particularly the US government. (Wonder of wonders.)

GATA believes that the gold price suppression will end when it is exposed, and to their credit, they have hammered away at getting the word out. They also advocate litigation and actually helped bring suit in US District Court in Boston, Howe vs. Bank for International Settlements, et al.

Occasionally, events overwhelm the conspiracy, and gold prices shoot higher. GATA is always quick to celebrate such victories, proclaiming that the tide of battle had turned.

Unfortunately, so far every victory has been short lived, the conspiracy persists, and gold loses the gains.

Does GATA deserve the Freedom Futility Award?

Yes.

The GATA folks seem blind to the history of gold: that the role of gold as a monetary commodity cannot be legislated away. From the beginning the “king” hated the yellow metal. He always did and always will. His power to influence the market is virtually without limit and the stream of negativism is constant: “Gold is a barbaric relic. It’s a horrible investment. Why, buying and holding gold is downright unpatriotic.”

Should the propaganda barrage fail, government can always employ the iron fist. “Restrict imports. Smash the market. Make it illegal again. Confiscate the citizen’s gold,” as the feds did in 1933.

Gold historically reveals the mischief the “king” has been up to, and as it is much easier to manipulate the price of gold than to remedy the mischief, the king is forever intervening in the gold market.

So, the GATA folks remain frustrated. They seem puzzled by the actions of the US government and its allies: “the banks, the brokerage houses, and the gold mining management” itself and the unwholesome influence they wield.

Let me remind the GATA gang how it used to be.

When I was a young gold dealer in the 1960s, severe restrictions existed on the holding of gold. Many of the products we handle today would have sent you to prison then. Markets were rigidly controlled and the gold police were always lurking.

Being a gold dealer at the time was not only dangerous but uncertainty prevailed. Gold coins dated 1932 or older were legal IF they were already in the US. You could bring them in from overseas only if you were granted a license—but licenses weren’t being issued. An American couldn’t buy a Krugerrand in Switzerland even if it were stored overseas.

A prestigious currency trading company in San Francisco was raided and the employees shackled and arrested because they had some Austrian gold coins of questionable legal status on display.

By the manner in which the press handled that event one would think that bales of heroin were the issue. To those who read about it in the papers, it seemed that these were real criminals.

This tyranny existed for over forty years (and GATA wrings its hands over the present day level of government intervention. Hmphh.)

Finally in 1974 restrictions were lifted, and all forms of gold, including bars, were legal to manufacture and to hold. (Some credit this exhilarating event to Nixon’s near impeachment. I don’t know about that, but surely the breakdown of government led to gold’s legalization.)

So here we are. The good folks at GATA continue to whine on a daily basis.

If they think that government will ever be neutral toward the gold market, they are fools. It is equivalent to thinking the US government—or any government for that matter—would relinquish their ability to collect taxes.

To protect the corrupt stranglehold they impose on the economy, the insiders will violate every commandment. Intervening in the gold market is just a minor chore.

Will the price of gold ever go up? Yes.

Will the house of cards collapse? Yes.

Will the paper dollar be repudiated in the marketplace? Yes.

When?, you ask.

There will be a clear signal. The fat lady will finally sing when there is a hemorrhage of dollars leaving the US. That will be your indicator.

Where will those dollars go? Nobody knows—but it won’t take many of the greenbacks seeking refuge in precious metals to cause an explosion in price.

By the way, as the gold price increases, the king’s intervention will become more desperate. Remember, the king doesn’t like gold, never has, never will.

The last small rally that gold enjoyed carried it to $306 per ounce (it has since fallen back to $290). One of the reasons given for the run-up was that new money was pouring into gold from Japan and China.

We don’t get much reliable information about those markets but I’ve experienced very strong inclination among Asians toward gold.

Which reminds me of my favorite Chinese customer, Mr. Chang.

I don’t remember when he first became a customer but it had to be a decade before 1974. He barely spoke English, and I’m not even sure he was legally in the US. He worked in food service at United Airlines, and his wardrobe was Shanghai c.1930.

We didn’t have much in common. His English was primitive and my Chinese non-existent.

The only thing we shared was his interest in gold and my desire to sell it to him. In those days we were prohibited from selling anything that could be considered a bullion coin. That didn’t matter to Mr. Chang.

There was only one coin he would buy and that was the US $20 Liberty Head coin. He was familiar with it from China and to him the Liberty $20 gold coin was gold and gold was the Liberty $20 gold coin. Any other gold item might as well be counterfeit.

Through the years I saw him almost monthly. He brought his paycheck, would negotiate price, and then decide how many coins he wanted. (The $20 Liberty cost about $50 each.) I would give him change against his check.

Originally, I was amused that he came with his own balance scale. It was made of bamboo with a plate at one end and a weighted rock at the other. It was designed to balance the $20 Liberty. If a coin failed, it was either shaved or counterfeit.

After about a decade I became annoyed with his scale. “Mr. Chang, when in heaven’s name will you trust me and not need a scale?”

He considered the scale just part of doing business, but he got my message and was embarrassed. Although his scale was present for the next purchase, I never saw it again after that.

In those days it wasn’t easy getting information about the gold price. There was no US market and the London AM and PM fixings were sometimes available on the radio but it often required seeking the financial pages of the Wall Street Journal to learn the value of an ounce of gold.

Mr. Chang followed the price very closely. He would call almost daily, and ask, “Wuddah prica London gol?”

Upon getting the information he would respond: “Very thank you,” and that was that. There was never any doubt about it. It was Mr. Chang on the phone.

Then we didn’t hear from Mr. Chang for months.

“Has anyone heard from Mr. Chang,” I asked? I was sure he was ill or worse.

Then one day there he was. “Wuddah prica London gol?”

I had answered his call and asked, “Mr Chang, have you been ill? We’ve missed hearing from you.”

Dead silence.

How in heaven’s name did I know it was him, he wondered. Gold dealers are amazing, with wondrous perceptions. I guess he believed that every customer said, “Very thank you.”

Mr. Chang retired. I don’t know if he had social security checks coming in, but his gold coins provided for his retirement. He came in as regularly as when he was a buyer. Only this time with one or two gold coins to sell. As he came in the front door, I noted he had coins in his hand, wrapped in tissue paper. He pretended he might be buying to keep me honest, but of course I knew that was not the case.

Then we learned from one of his old Chinese cronies that Mr. Chang had passed on. In fact he had gifted several coins to the friend who gave us the sad news. We dearly missed Mr. Chang, although “Very thank you” had become a part of the language in our office.

Some year or two later a young Chinese woman, whom I later learned was Mr. Chang’s grand niece, came in. She was an accountant and evidently had found Mr. Chang’s check stubs with Chinese characters on them breaking down how he had spent each check.

She was convinced there were gold coins some place and wondered if we were actually storing them. It was clear that she was not part of Mr. Chang’s inner circle.

She left rude and angered.

As if rehearsed, my employees looked at me and in unison we all said: “Very thank you.”

March 11, 2002