Burt's Gold Page

Information and commentary from Burton S. Blumert [send him mail], dealer in bullion and rare coins since 1959, and publisher of LewRockwell.com.

What Happened?

After a glittering rally, the gold market sputtered this week and took an ugly turn.

"The minute I buy something, the price always goes down," a new gold buyer complained.

In less than 24 months the price of an ounce of gold went from $253 to $380, an amazing increase of about 50%. In the last few trading days, the price fell sharply to $353 – a drop of 8%.

Some of the yellow metal's new fans and some old ones as well were stunned. Everything pointed to "onward and upward" for the gold price. The increases were so plausible: the weakness of the US Dollar, the collapsing equity markets all over the world and the sickening plunge to war.

How could the price of gold come down so sharply, so quickly?

Gary North tried to explain people's reaction to market disappointments with what he called, "The Confirmation Blues." It goes something like this:

In order to purchase their first ounce of gold, the new customer has to overcome a lifetime of convention. This requires a fresh view of history; adopting new gurus, a revamping of their family's attitude toward savings. And, the recognition that failed government policy is usually the root of many of the problems.

When the new customer purchases that ounce of gold he is voting, "No." No, to stocks and bonds. No, to paper money, No, to just about everything.

There's an element of courage here and the new buyer NEEDS the market to confirm that he made the right decision. If the market goes up, all doubts disappear. The sharper the increase, the greater the confirmation.

Sadly, it doesn't always work out that way. Instead of going up and confirming, the price drops, leading to "The Confirmation Blues." It's not just losing dollars, it's an attack on self-worth.

One could suffer the Confirmation Blues in any investment area, but because gold is so counter cultural, so "out of the main stream," suffering the Gold Confirmation Blues is the most virulent form of the virus.

There is no easy antidote to the Blues. If the market is slow to recover, eventually the pain dulls. "If you hang by the neck long enough you get used to it," to quote Southern wisdom. Better yet, when the price goes up about 5% over cost, immunity builds. Bouts with the Blues became less frequent and painful.

In the meanwhile, I respectfully offer some band-aids to help you deal with the Blues. (I generally charge $4 an hour for this counseling, but, I waive the hourly fee for LRC readers.)

As an aside, a customer I had known for years asked if I would appraise a box of foreign coins and at what cost. My response was the little joke about $4 an hour. To which he responded, "It won't take an hour." I told him not to worry, that I would pro-rate.

I guess he was telling me the value of my time.

ADVICE FOR NEW GOLD OWNERS WHEN THE PRICE DROPS

1. Don't watch the price every minute.

2. Keep in mind that the King doesn't like gold, never has, never will. Remember that the King is a powerful enemy to the gold market and lower gold prices can often be placed at his door. (See my article on this topic.)

3. In the US gold is traded at the Comex, a futures market. This means that all trades are heavily leveraged. It doesn't matter what the commodity, technical factors like "open interest" and "short squeezes" become key elements in price changes. When trading is leveraged, the buyer of 100 ounces of gold, for example, puts up a fraction of the total value. This leads to speculation and exaggerated price moves both up and down.

4. Don't panic. Well, panic if you must, but don't sell anything while you're panicked.

5. Keep in mind that you have bought "insurance" with your gold. In a way, if gold is a fever thermometer telling us how sick we are, we don't need $1000 an ounce gold. This kind of thinking leads to sound mental health.

If all of the above fails and the gold price really worries you, call me and I will hold your hand. Unless I'm more worried than you. Then you can hold my hand.

Burton S. Blumert
[send him mail]
The Camino Company
800-982-7070       800-348-8001       650-348-3000
851 Burlway, Suite 202
Burlingame, California 94010
Hours: 8:30am — 4:30pm, California time
However, Burt answers his emails in the middle of the night.