Maintaining Your Sanity

Today’s Sermon: Maintaining Your Sanity When the Price of Gold Goes Down $45 Per Ounce

by Burton S. Blumert by Burton S. Blumert

During an earlier lifetime I spent several years as assistant to Morris Colliers, an elegant Southern gentleman who kept an inventory of charming aphorisms and proverbs that he smoothly produced in a blink.

"If you hang by the neck long enough, you’ll get used to it," was one of the old gent’s favorites and it got stuck in my consciousness as well,

My wife says that watching the gold market during the month of April was like, "hanging by the neck" and, she claims," That’s what reminded you guys of the proverb."

There’s much wisdom in the "hanging by the neck," maxim, but there are some serious exceptions.

For instance, you’re in a commercial airliner and it hits an air pocket. It falls 3000 feet before the pilot regains control. He announces that the plane is encountering "heavy turbulence." To me, that translates, "This plane is about to crash."

You can fly 100 times a year for 50 years and never get accustomed to one of those moments of shear terror in the sky.

It may not quite match the drama of nose-diving in a Boeing 767, but the gold buyer, too, never "gets accustomed" to as sharp a break in the gold price as we experienced in April.

It’s a different kind of scary, but it’s scary nevertheless.

While it’s still fresh in our minds let’s take a look what happened to gold in April, 2004.

The month started out with the price of gold at about $430. On the last day of April, gold was approximately $385.

A drop of $45 per ounce, 10.37 %! That’s a significant hit, and the volume of phone calls at Camino Coin increased as prices went lower. The first wave of questions were reasonable.

"Doesn’t gold usually shoot straight up when there are wars and strife?"

"How come the price of oil is at highs, but not gold?"

Some callers seemed angry. It was as if gold had betrayed them. Others, suggested that their original decision to buy gold might have been ill advised.

In every instance, to a man, they wanted to talk. It wasn’t long before their fears and panic became evident.

"How much lower do you think the gold can drop?"

(I never answer that one.)

"What about selling now and buying back at the bottom?"

(I had never even heard that one before last Friday.)

"Maybe I should have bought Krugerrands instead of St Gaudens?" or

"Maybe I should have bought St Gaudens instead of Krugerrands?"

Where I had the time I went back to basics:

  • Why they should own gold?
  • Who are the enemies of gold and why?
  • Which gold items are the best to hold?
  • When do you sell gold?

"Blumert, you sound like you’re at the pulpit giving a sermon." observed George Resch, my long time associate at Camino Coin.

I started thinking. (Very dangerous) What’s wrong with a sermon directed to the disappointed gold buyer? Show them the brighter side. Reveal the history. Explain that fiat money is immoral.

George Resch was right. I was sermonizing and, most of the callers admitted that they felt better after our visit. I felt better too. Returning to "basics" does it every time.

If you have read this far, you have been "sermonized" as well. But, any sermon to be judged as valuable, must close with "hell and brimstone."

  1. If you are a novice playing with Precious Metals in the Futures Market, you shouldn’t be there, GET OUT NOW.! See "The Risks You Run When You Own Gold, and the Danger You Face If You Don’t."
  2. Some newcomers succumb to the trap of "getting even." As gold goes lower, they get belligerent. "They’re not going to shake me out of the market! Buy me two hundred ounces. If it goes lower, I’ll buy more." See "The ‘Hardly Noticed’ Rally in the Gold Market."
  3. A long term commitment to any market requires mental gymnastics. "Yes, the gold is down 10%, but look at the losses in other markets," See "Why in Heaven’s Name Isn’t Gold Moving Higher?"

Even though you never get used to a market breaking down like it did in April, living through it does help build scar tissue which makes it easier to handle next time.

I was discussing this complicated dilemma with long-time customer, Prospector Mike, who, when faced with a dismal precious metals market, closes the door of his den, goes to the calculator, adds up his total ounces of gold, silver, and platinum and then basks in the fact that, "it’s all paid for."

Needless to say, old Prospector Mike could be a Poster Boy for the Sound Mental Health Society.