Page 1 of 2 Gold's true standard bearers
By Julian Delasantellis
In winning a 1736 libel case against William Cosby, then governor of the New
York Colony, John Peter Zenger is commonly credited with being the father of
the free press in the United States. Today, however, with the free press in the
US, especially the printed free press, under siege more from Internet
freeloaders than from a blunderbussing constabulary, it is looking far and wide
for a new salvation. For the electronic press, particularly radio and cable TV,
which develops and hosts the vast majority of American political debate, a hero
has arisen.
The shifting of venue of political discourse means that such dialogue is no
longer meant to enlighten and/or educate, but is intended merely to keep the
viewer from changing channel until at least after the next commercial; then,
after the advertisements that keep the lights on and the rest of the bills
paid, it's back to
the studio for another go-around.
The topics, be they Afghanistan, corporal punishment or abortion, may change so
fast that one might be forgiven for thinking that the overall subject of the
program was whether US General McChrystal was paddling Afghan President Hamid
Karzai for getting pregnant in South Waziristan, but, through it all, one thing
is certain - somebody is footing the bill for this. Somewhere, writing the
checks for this, is another Sulzberger or Hearst, another classic big media
mogul.
It is on cable TV and over the air talk radio that the nation's issues are
debated and resolved; the evening network newscasts draw much bigger audiences,
but their viewerships skew to a population so much older that it sometimes
seems that the concern here is less whether America has sufficient moral fiber
to last the long war against global terrorism, but whether the viewer is
consuming sufficient dietary fiber to open the door on time at their
picturesque small town flower shop.
Increasingly, the underwriting of the debates is being done so in the interests
of gold. Advertisements for gold producers, or bullion or coin vendors,
prominent ever since the medium's creation, are virtually ever-present these
days on American cable talk television. Whether it be Fox News on the right,
MSNBC on the left, or maybe even ratings laggard CNN for the muddled middle, if
you don't see an advertisement for gold interests during any 15-minute
timeframe on these stations it must be because you're watching a criminal being
pursued by police on the Los Angeles freeways; not to worry; you'll see plenty
of billboards hawking gold as the previously fleet-of-foot prepares to face his
destiny from out of the barrels of the terrible twinkling, tasers of social
order.
In your e-mails I read many similar sentiments regarding the obsession of a
fairly well-defined and formed sub-section of the American investor class
seeking wealth with John Maynard Keynes' famed "barbarous yellow relic". The
obvious question then, is why.
An obvious answer might be that gold seems to have been a very good investment.
Since bottoming out just over US$250 per ounce during the middle of 1999, gold
has risen over four-fold in the decade hence, and is now trading around
$1,060/oz. Obviously, few if any other commodity or stock indexes have
performed nearly so well. The S&P 500, even after rallying for most of this
year, is still down over 30% in non-inflation adjusted terms since 1999; at the
market bottom in March of this year it was down almost 60%.
But numbers lie and liars use numbers, and that's pretty much the case here.
From practically any time since the abandonment of the gold standard against
the US dollar in 1973, back when gold was trading at almost any price, you can
find the foundation stones of almost any argument you want. For instance, if
you bought gold at its previous high of $850 in 1980, holding it through 20
years of price decline to its recent rally would have resulted in you losing
almost two-thirds of your initial investment basis through inflation, not to
mention your losses through storage fees and the absence of any interest or
dividend.
Still, like those late-night movie ads that promise lonely men that there are
just endless numbers of "nubile young babes" still awake and just panting to
talk to hunky prize catches like him at 4am, the dominance of gold advertising
in American cable television programming continues. Advertisers know their
audiences in the way that hunters know their prey, and so it is with the gold
interests - they know what they're selling, even, and especially, when it's not
what they say they're selling.
Who is the target audience for gold? Well, if you're selling something that
goes for over $1,000 for 30 grams of the stuff, you know you've got to pitch to
somebody who has some money; in the United States, that would be upper-middle
class and upper-middle aged (say, from 45-60 years of age) white men. No matter
how brightly the rainbow shines in the White House, and no matter how many
childcare responsibilities Barack shares with Michelle, the American song
essentially stays the same, in that the country is ruled by, and has most if
not all important financial decision-making done by, these said white men.
The "pitch" used to sell the product varies little; the pitchmen have the
routine down cold. The set is a conservative, rich, wood-paneled office that
looks like it's somebody's idea of what a banker's office looked like in small
town America 50 years ago (don't expect to see a Bauhaus chair here). A
well-dressed and well-spoken grey-haired pitchman (one company has Nixon-era
Watergate conspirator and prominent right-wing talk host G Gordon Liddy making
the pitch), in a heavy voice just oozing with gravitas, intones a frightening
warning.
"Government spending is out of control," the pitch might begin, perhaps with a
not very flattering picture of President Barack Obama greenscreened into a
background of riots and chaos. "Congress is spending away the nation's wealth.
Inflation will soon be skyrocketing, and your children and children's children
will be left with unimaginable debts."
Is there no hope? Close your high-rise window, shut off the gas stove, take the
steak knife from your wrist. Salvation can be had if only the sinner follows
the entreaty to "Buy Gold! From ancient times, gold has been mankind's eternal
storehouse of human value; no one has ever lost money on it ... " (excepting
the people who bought it in the late 1970s to early 1980s and tried to sell it
20 years later, of course). "When all else are losing their fortunes and
futures yours will be safe and sound, ever shiny and bright - like gold."
If things do get that bad, I suppose gold just might protect your future, right
up until the freezing, starving masses outside your window see your shiny and
ever-bright future and decide that they have every right to survive as well.
If you fall for the pitch, you'll soon find yourself in possession of a
quantity of gold coins or small bullion bars. However, since these
establishments work with such wide bid/offer spreads, the base price of the
metal will have to rally fairly significantly before you'll be in the black. An
example of this might be a one ounce Canadian Maple Leaf gold coin, available
from some dealers for around US$1,150.
That's a $100 premium over the current cash price, implying a $200, or 19%
bid/offer spread. If you don't understand the concept of bid/offer spreads too
well (and if you're an investor, you really should), a good takeaway for the
wide bid/ask spreads offered by these companies is that, on the day you close
on your gold purchase, you're already lost about 20% of your entire investment.
But if you're a highly paid international jet-setting money manager, you're
probably not making your investment decisions on the basis of what you see in a
commercial during a late-night showing of Road House. You've got access
to a much cheaper, much tighter spread on the gold market, the futures markets
on the New York Metals Exchange. But, just like on TV, the evidence is that the
fever exists there as well.
According to the US Commodity Futures Trading Commission, which each week
collects data relating to who is buying or selling what and how much of each
futures contract, in the category referred to as "non-commercials", generally
considered to be large speculators, there are nine long gold positions,
indicating bullishness on the expected near-term price, held for each one
short. In comparison, on the week that Obama was elected as US president last
year, this nine to one ratio was only 2.2.
Before going any further, I should elaborate on my views on gold, and where I
see its near-term price performance and potential.
It may be surprising from the above, but I'm a gold bull as well, albeit a mild
one. The central thesis of the gold bugs is the inverse relationship between
moves in gold and moves in the US dollar, but this relationship is now so well
discounted and expected in the markets that it would truly take a very large
down movement in the dollar to make much money owning gold from it.
I don't accept any of the hokey media arguments for selling any of your stocks,
houses, cars, children and so forth to buy more bullion; the continuing
industrialization of East Asia, particularly India and China, is, for me, the
most persuasive gold bull argument. If nothing else, the upcoming prospect of a
huge new Indian middle class, where gifts and displays of gold are
traditionally seen as a harbinger of good fortune at life-cycle celebrations,
is reason enough for a well-balanced and diversified portfolio that includes
some gold, preferably in the form of a quality gold exchange traded fund (ETF)
with a nice tight bid/ask spread.
But the Asian middle class argument is not what's driving the price now.
It should be noted that fully picking up gold's cudgels is America's perpetual
noise machine, Fox News, and its new, peripatetic afternoon show host, Glenn
Beck. There, in bizarre Japanese dance-style rituals that are beginning to seem
like the product of a child off his medication for attention-deficit
hyperactivity disorder, Beck kookily moves symbols and shapes around
chalkboards and tables - the end result being his contention that the current
US administration is out to wreck the value of the dollar on the foreign
exchange market.
Cue the commercial; look, it's G Gordon Liddy; and if he isn't available, maybe
another star taken down from the right's illustrious pantheon of fame, maybe
1980s Saturday Night Live star Victoria Jackson, or "Hey! I've still got
six minutes left on my 15 minutes of fame" comic Emo Phillips.
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
