In the October,
2001, issue of my subscription-based newsletter, Remnant Review,
I began promoting gold. I was persuaded that the long decline, 1980—2001,
was over. I was also convinced that the best way to make money was
in North American gold shares. Those who took my advice have made
well over 100% on their money.
In the opening
paragraph of the November 21, 2003, issue of Remnant Review,
I wrote this:
of you who have followed my advice on gold since 2001 are way ahead
financially. But gold’s price seems to have gotten stalled in the
390’s. This may be because of increased central bank leasing. It
may be because people who hold gold really don’t think it will stay
above $400, so they sell. My view is that the dollar has not yet
begun to fall to the extent that the balance of payments deficit
indicates that it should. So, I still recommend that people be heavy
investors in gold.
One of the
factors that persuaded me in 1991 that gold had hit bottom was a
report issued by some woebegone gold broker. He wailed that he had
had enough. For over two decades, gold’s price had fallen, and he
was not going to promote it as an investment any longer. Gold was
finished! On the contrary, he was finished. That’s the kind of announcement
that marks the absolute bottom of a market.
was the ad campaign, disguised as an investment strategy, issued
by long-term gold coin company, Blanchard & Co. By then, Jim Blanchard
was dead and gone. I wrote the following in the February 15, 2002,
issue of Remnant Review.
gold moving up the way it has, you now know why I asked Sam Parks
four months ago to start writing a column on North American gold
shares. I wanted to get you back in early. I hope you did. If not,
it’s time. The boom has begun.
sign of an imminent bull market for anything is when old-time
sellers and advocates of the item bail out. They tell their clients
or disciples, “It’s all over. Change direction. Sell.” The following
news has come as a surprise to us old-time gold bugs. Blanchard
Co. coins, one of the two most widely known retail sellers of
gold coins in the United States (along with Jim Cook’s Investment
Rarities), has made an about-face. It has done what no company
is ever supposed to do: it has publicly abandoned its USP — its
unique selling proposition. This is the marketing equivalent of
Jimmy Dean going kosher.
spoke at a Blanchard conference in 1974. Always, the Blanchard
organization has been pro-gold. But then Jim Blanchard sold Blanchard
coins. With one utterly bizarre ad campaign, this company has
tossed out the original Blanchard position on gold. You will probably
see this ad. In case you should be tempted to believe the ad,
let me go over its main arguments. Blanchard has a lot of money
— this week, anyway — to promote its new message. So, these
ideas may spread into the hard-money camp. Here is the new message:
is no longer a hedge against inflation, devaluation of the dollar
or falling stock prices. It is no longer a store of value. The
very idea of gold’s intrinsic value — value that is not dependent
upon the actions or promises of any government — is publicly
questioned by senior central bankers and by the heads of major
financial institutions. Perhaps most importantly, gold is no longer
insurance against economic, monetary and political crises, including
war, that diminish the value of financial assets.
this page is now gone. It was still on-line in December, 2003.
you can still find it on Archive.org.
recall any comparable instance where an old-line company in any
industry made this radical a switch of its public positioning
without warning. It is one thing to emphasize a new product line
— risky, but not suicidal. But to revamp a company’s entire
philosophy overnight is a textbook case of what not to do. Whoever
is running Blanchard today has bet the farm on a falling price
for gold. A stable price won’t do it. The ad copy writer calls
today’s gold price a bear trap.
bullion is caught in a bear trap. If the price of gold goes up,
the institutions and corporations that have the most money, the
most gold, the most information about gold and the most ability
to influence gold’s price, lose money. Recent events have proved
that those institutions and corporations have the power to slam
the brakes on any increase in the price of gold, no matter how
compelling the macroeconomic story behind the increase might be.
sentence is of course true. “Recent events have proved that those
institutions and corporations have the power to slam the brakes
on any increase in the price of gold, no matter how compelling
the macroeconomic story behind the increase might be.” So have
events over the last 22 years. Central bankers always possess
this power, and they have exercised it on occasion in the past.
So, what has changed recently? This: Blanchard’s marketing strategy.
I went on
to offer evidence that the ad was categorically wrong. I concluded:
price deflation really is coming, despite monetary inflation, gold
could fall. But I think today’s monetary inflation will secure the
U.S. economy against a price-deflationary scenario. The other major
negative factor, another series of unexpected gold sales by central
banks, is increasingly unlikely. They are running out of gold, despite
the statistics on unchanging official reserves. They can sell gold
reserves again, but at some point, the game must end. We are closer
to the end than five years ago, when the gold-leasing strategy was
THE GAME ENDED?
above $500, should we conclude that the central banks’ gold leasing
strategy has ended? I don’t think so. The interest rate at which
gold bullion “banks” can borrow gold, sell it to the public, and
invest the money at higher rates than they are paying to borrow
the gold, indicates that the game is still going on. If you were
one of the favored few, you could borrow gold at 0.14 of a percent
To see today’s
rate, click the button, “Leases.”
This low rate
indicates that there is some worry about borrowing gold, for the
debtors must repay in gold, or so the contracts say. This assumes
that central banks won’t keep rolling over the contracts, year after
year. They will, of course. They have no choice. In a true gold
rush, the borrowing bullion banks will not be able to afford to
deliver physical gold to central banks. It has been sold, and any
attempt to buy back large quantities would blow the price of gold
through the roof. So, if central banks press the bullion banks,
the bullion banks will declare bankruptcy. That would force the
central banks to take the leased gold off of their official books.
Leased gold is counted as gold in the vault. The central bankers
are not about to admit officially to their respective governments
that they have sold the reserves to the favored bullion banks at
a piddly 0.14% per annum.
Why is the
rate low? Because central banks are competing for the right to lease
their gold, and the number of takers has fallen. The bullion banks
know that being short gold — legally having to return physical
gold in the future — is getting more risky. Interest rates have
fallen worldwide, so the profits from the carry trade — borrowing
from a government-subsidized central bank and lending money to the
public — have declined. The risk-reward ratio is getting heavier
on the risk side. Demand for borrowed gold has fallen, so the price
of borrowed gold has fallen.
The game has
slowed, but it has not ended. The gold lease market is still a price-reducing
factor in the gold market. There are still well-heeled speculators
who are willing to borrow gold, sell it, and invest the proceeds.
But enthusiasm has waned, as reflected in the fall of the interest
continue to get rid of their enormous hoards of gold. The leasing
program is a disguised gold sale program. The central banks are
returning gold bullion to the great-grandchildren of the victims
whose gold was confiscated by the banks in 1914, when World War
I broke out, and in 1933, when Franklin Roosevelt unilaterally made
it illegal for Americans to own gold bullion. Gold is being de-monetized
A TURNING POINT?
breaking the $500 barrier, some gold bugs and other odd-ball forecasters
will tell their clients that gold is in a new bull market. Well,
gold has been in a bull market for over three years. The $500 barrier
has little to do with this.
of investment gold are still few and far between. The memory of
the two decades of falling prices, coupled with bear trap rallies
that were heralded as new bull markets, has driven most investors
out of the gold market. Gold coin investors still have only a handful
of brokers to call. But you can still get through after three rings.
who are driving up gold’s price are not little people who buy a
few gold coins. The big players are jewelry fabricators, industrial
users, and (maybe) a few central banks that are quietly adding to
their holdings. China is the #1 suspect. But, at this stage of the
gold boom, large investors are either absent or else buying for
their accounts quietly. We have not begun to see a gold boom.
When you start
receiving direct-mail flyers on the gold boom, then the boom will
be well established. Today, these flyers are inserts in existing
newsletters, which are dying off as their subscribers die off. These
inserts reach few potential buyers.
investment houses are not actively promoting gold. When three or
four large brokerage houses start offering gold bullion mutual funds
that are comparable economically, though perhaps not legally, to
the tiny Central Fund of Canada, we will know that the boom has
You do not
hear people asking how high Microsoft’s shares will go. They assume
that the price will rise forever, or at least until two weeks after
they retire and sell their shares. You may hear predictions about
the top of the Dow Jones Industrial Average, but not too many. This
is because the hypesters who proclaimed Dow 36,000 have tarnished
the Dow forecasting business, an outcome which was one of the positive
aspects of the Dow’s fall from its peak of just under 12,000 in
Then why does
anyone announce gold’s top at a particular price? I think it’s mainly
to confirm his readers that he thinks the price per ounce will rise.
One large number is as good as any other.
$3,000 is basically a forecast of the collapse of the dollar.
to predict the collapse of the dollar is my doubt regarding the
currency that would replace it if it really did collapse. The euro
is the main candidate, but it is a fiat currency, too. It can be
reduced in value by the same tried and true central bank policies
that have reduced the dollar’s purchasing power by over 95% since
currency system is like a group of drunks staggering home after
a night at the pub. They hold each other up. If one of them really
got sober and stood tall, the others would pull him down by sheer
terms, if holders of dollars all decided to exchange dollars for
one currency, that currency would rise in its dollar-denominated
value to such an extent that the nation’s exporters would be ruined.
America is the world’s mouth. There are too many exporters trying
to feed it. Of course, the day will come when the world’s mouth
will become the world’s alimentary canal. American companies and
governments will start paying off their creditors in dollars of
rapidly declining purchasing power. But when it comes to declining
purchasing power, the world’s other central banks can play the game,
as an inflation hedge will continue to do well, but it is unlikely
to become the world’s currency that replaces the dollar. If it did,
then gold’s price really would go ballistic. A $10,000 or $20,000
gold price would be reasonable. But there will always be other central
banks working to replace the dollar with their currencies, thereby
keeping gold out of the currency markets.
of gold at $10,000+ would indicate a severe international monetary
crisis: a run on all currencies, not just the dollar. That would
indicate a complete shift in public opinion back to a commodity
monetary standard. It would be accompanied by a breakdown of the
division of labor. Gold at $10,000 would produce an economy in which
gold holders would face falling income from their businesses and
other income-generating sources. Anyone who predicts $10,000 gold
is predicting a breakdown so severe that his life is at risk.
Gold is a
solid investment in more ways than one. But it should be regarded
by investors as supplemental. It is like a government’s Treasury
Department asset. It is better to have that asset in a time of inflation
than it is to have other nation’s bonds, but citizens of a nation
whose treasury that has only gold in reserve would be at risk in
a worldwide breakdown. It is much better for a nation to have an
empty treasury and no debt outstanding than it is for it to have
a treasury with a pile of gold. A war will deplete a gold hoard
very fast. So will a depression, when tax receipts fall. What a
nation needs is productivity and a highly developed division of
labor. That’s what people need, too.
have so little gold in their portfolios that they probably could
use a little hype from gold brokers. But when the hype is everywhere,
it will be time to switch to other assets. That is years away, I
investors buy only when stampeded, most investors lose. They buy
high and sell low. I am writing for people who have heard about
gold, who may even have bought a few coins (but probably not), and
who are telling themselves, “If gold ever drops to $495, I’ll buy
more.” They won’t. If the opportunity ever presents itself, they
will wait until it falls to $475.
to buy when you feel that it’s the last train out, but only if you
are in a small group. When millions of people have heard the story
of gold and who think it’s the last train out, it will be time to
invest in something more conventional.
that by refusing to hype gold, I am encouraging you to play Scarlett
O’Hara: “Fiddle-dee-dee. I’ll think about it tomorrow.” I am asking
you to think like a thoughtful Southern plantation owner in 1859,
who sold his family’s land and his slaves for gold the day after
the court hanged John Brown for treason, and then put his money
on deposit in several English banks. It’s not that you would have
trusted in gold in 1859. It’s that you would have trusted the American
political system even less. You would have been looking to buy half
a dozen plantations in, say, 1867. But you also would have been
willing to forego a big profit in gold if you had been able to avoid
no self-respecting plantation owner would have done that in 1859.
This indicates that too much self-respect can ruin the plans of
the best of us. If you live in a country in which theft has become
a way of life — “Thou shalt not steal, except by majority vote”
— don’t tie your self-respect to the wisdom of the government’s
policy-makers, including its central bankers.
above $500 is more of an alarm bell than a turning point. The turning
point for gold happened over two years ago, before 9-11. Gold over
$500 is a small headline on the business page. But it’s more significant
than a headline in a small-circulation newsletter.
I published this report, except for changes in the price of gold
and the gold leasing rate — today, half of what it was when I wrote
this — in Gary North’s Reality Check for December
2, 2003. That issue was titled, “With Gold Over $400.” I republish
it here for a reason: to remind procrastinators in 2003 not to procrastinate