In a scurrilous article in New Yorker magazine (July 7, 2000: 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 seventy 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 per cent. 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% 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 Volker’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 hundred seventy dollars per share in March 2000, are four dollars 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.