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Gold really is in the news, and by that we mean where most people inform themselves - television. Not only are we hearing about gold from financial commentators, but also from advertisers. Some ads urge you to ship your unwanted gold jewelry to a PO box far away, while others offer an 800- number that you can call and be advised by an expert on how you can buy gold and participate in this never-ending rally.
It's the latter that got the attention of the Democratic Congressman from New York, Anthony Weiner, who waded into the fray by pointing out that one of Glenn Beck's sponsors, Goldline, sells gold coins to Mr. Beck's fans at substantial markups, by playing to their fears.
From Weiner's press release of 5/19/10:
Goldline, a precious metals dealer in business since 1960, has recently gained prominence through the use of high-profile conservative spokespeople like Glenn Beck, who use their shows to prey on the public's fears of inflation and socialist takeovers while actively promoting the purchase of gold coins as insurance against this purported government overreach.
Historically, whenever mistrust in global finance and government rises, gold prices follow suit as consumers look to put their savings in something more tangible. And with the number of Americans who are suspicious of government motives near an all-time high, Goldline is using these public fears to sell their over-prices coins. Simply put, Goldline is little more than a gold peddler posing as an investment advisor, an unfortunate byproduct of the Tea Party movement.
Goldline peddles both precious metals and misinformation. Worse still, it's a bad deal. The gold dealer uses high-pressure sales tactics and overly optimistic assessments of future gold prices to sell coins that can be bought elsewhere for far less - and its sales practices likely violate both SEC & FTC regulations.
In a nutshell, Congressman Weiner is shocked that gold is sold on a basis of fear of inflation and socialistic 'takeovers,' states that government overreach today is merely "purported," finds it surprising that a company named Goldline is a "gold peddler," and comes to the conclusion that somehow all this is an "unfortunate byproduct of the Tea Party movement."
In his press release (see the full text here): Congressman Weiner takes Goldline to task for charging an average markup of 90% over the gold value for the gold coins that it sells.
Certainly, as most buyers have found out, markups vary among bullion gold dealers, but usually by not more than a percent or so. So, we're not sure at what percentage markup the federal government should intervene and rescue the poor consumer who doesn't know how to use a calculator - but Weiner feels certain that he does. And in the final paragraph of his office's press release, the big guns are rolled out:
"Rep. Weiner who sits on the Subcommittee on Commerce, Trade and Consumer Protection, wrote letters to the SEC and FTC requesting that they investigate Goldline and is proposing legislation that would force Goldline to fully disclose their dishonest business practices. Under Rep. Weiner's plan, Goldline would be required to show consumers its full business model including their astronomical markups, and deceitful promises of profitability."
Clearly, Congessman Weiner is hacked off. And he should go ahead and write his letters to the SEC, FTC and any other federal agency he chooses - maybe Nixon's old Office of Wage and Price Controls still accepts mail. But stating that he is "'proposing legislation that would force Goldline to fully disclose their dishonest business practices" and also "be required to show consumers its full business model including their astronomical markup, and deceitful promises of profitability" is just silly.
But just in case Congressman Weiner actually thinks that there should be a bill in Congress to regulate Goldline's business model (can the Democrat from Queens really believe that?), how about calling it the "Tea Party Glenn Beck Goldline Political Retribution Act of 2010?"
Meanwhile, the May 31st issue of Barrons gives a whole page over to a banker who informs us, in an essay entitled "Gold: The Ultimate Fiat Currency," that gold coins, bullion, and gold funds are just too darned expensive.
Richard Wiggins, chief investment strategist for First Michigan Bank, attempts to take the gold bull by the horns, wrestle it to the ground, and show us why gold should be avoided. In the second sentence of his article, Wiggins hints at just what he's up against: "Today, with television commercials touting gold nonstop, a lot of people are getting all worked about the rising price of the oldest form of money."
Still curious about the intriguing title, we read on. By his sixth sentence, factual troubles arise:
"Gold may be the 'currency of last resort,' but premiums on gold coins have soared to levels never seen before. One-ounce coins are now trading far above their bullion value, as people continue to chase them, and mints worldwide are unable to keep up with demand."
Certainly, this was true back in 2008, but not now. In fact, premiums in the US on nearly all gold bullion coins and bars have plummeted over the past year or so, as world mints have stepped up production as much as ten-fold to keep up with demand.
Elsewhere in the article, Mr. Wiggins states that "gold entered the investment mainstream at $600 and $700 an ounce between 1978 and 1980." Fact check: gold prices first reached $600 and $700 in January of 1980, traded above $700 for less than a month, after which gold never traded that high again in the 20th century.
During the period 1975 to 1979 US buyers purchased several million Krugerrands at prices that averaged closer $300 than $600. Where Mr. Higgins' ‘investment mainstream’ was at that time, we have no idea.
"Money always draws a crowd, and the top-performing mutual funds right now all focus on gold." - We parse this puzzler to mean that you should avoid gold because it is such a good performer.
"When everybody obsessed about gold, it was highlighted as a great doomsday hedge against inflation and currency risk, financial futures didn't exist. Now they do, so gold is a third-rate safe haven: it pays no interest and costs money to insure." Putting aside the question of exactly what period of history is he referring to when 'everybody obsessed about gold,' Mr. Wiggins also does not explain how "financial futures" can substitute for gold, pay interest and yet be free of any costs - nor why anybody today would purchase financial futures instead of gold.
Mr. Wiggins' case against gold is hard to get a grasp on, but it seems to be, 'Avoid any investment that is going up in price.' Or at least, that's what we take from trying to make sense of the following. Read it, and see what you think:
"In past decades there has always (been?) an overvalued sector - a steaming corner of the market where money was converging - and out- performance has come from getting out ahead of the crowd. In the 1950s, avoid electronics. In the 1960s, avoid franchise restaurants. In the 1970s, avoid the Nifty Fifty and fixed income. In the 1980s, avoid energy and biotech. In the 1990s, avoid Japan and the Internet. In the 2000s, avoid real estate and home-building."
The above are clearly investment sectors that were very good during their time, but have since then faded. Quite a few fortunes were made by those who made timely investments in those sectors, even those who didn't buy at the bottom nor sell at the top. Is Mr. Wiggins suggesting that over the past fifty years, all good investment sectors should have been avoided, simply because what goes up will come down?
Patiently, we read on, hoping at least for an explanation of the essay's cute title. Finally, in the last paragraph, we find this:
"Gold is just another fiat currency. The only reason gold is valuable is that we believe it is valuable."
Really? Is that it?
The dictionary defines fiat currency as money without intrinsic worth, holding value only by fiat, or the command of the government - money such as our paper dollars today. Gold is the opposite - people all over the world accept it readily (no matter what their governments prescribe) and have for most of recorded history because of its scarceness, beauty, and universal value. This makes gold the popular choice by default when the government-mandated stuff (‘fiat’) falls out of favor.
Of course "The only reason gold is valuable is that we believe it is valuable." That has been true for at least for the past 2,600 years. Does Mr. Higgins imagine that the human race will wake up one day and realize that gold, as he says, is just a "soft, semi-useless metal" that's use as a "corrosion-resistant electrical conductor for semi-conductors is declining," and therefore all just decide to chunk it entirely?
About midway through this verbal wrestling match with himself, Mr. Wiggins offers this advice: "In the counter-intuitive world that is the investment markets, you don't want to be where the smart money is." Yet his concluding sentence reads, "When and how gold's price will decline is anybody's guess, but a smart bet is "Sooner rather than later."
Unfortunately, after working our way through this essay by Mr. Higgins, we find that we have lost track of any sense of smart at all.
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