Gold to the People Feedback
Adam Hamilton November 30, 2001 7999 Words
A couple weeks ago I wrote an essay called “Gold to the People”. In this essay the peculiar idea of marketing gold was discussed, a provocative concept that would have seemed bizarre for six millennia of human history before this odd crossroads in time in which we all now sojourn.
The primary thesis of “Gold to the People” was that gold investment demand could potentially be rekindled amongst the general populace if some way could be devised to make physical gold easily available to the masses. The idea of privately minting fractional gold coins was presented. The coins would contain less than one ounce of gold so they are affordable for almost everyone, they would be denominated in weights of gold, and they would be easy to buy and sell in normal everyday commerce in Western countries.
In the two weeks since we published the “Gold to the People” essay, I have received tons of excellent feedback on the thoughts presented in the essay. In fact, over 150 e-mails on this topic alone have flown my way with excellent ideas, comments and thoughts! In this “essay” (I know, I know, collating feedback is not a real essay!) I want to present some of that great feedback to the gold community. My goal in presenting some of the excellent feedback I received is two-pronged.
First, I want to do everything I can to facilitate the continuing dialogue on how to increase gold investment demand. Gold remains the King of Assets and even in our young digital Information Age gold is more relevant than ever as a cornerstone of any portfolio owned by any investor who seeks to preserve and enhance his or her wealth. The old truism that “talk is cheap” is certainly true, but that does not change the fact that every great action in history began first as thoughts and later as words. Talk is needed to lay the foundations for action!
Second, I have to admit I feel guilty. I am blessed with hundreds of e-mails a week from around the world that help me refine my ideas, thought-processes, and basic fundamental understanding of the global markets. While I have unfortunately grown far too busy to personally respond to every e-mail as I used to, I am deeply grateful for all this wonderful feedback. So many fantastic ideas on “Gold to the People” came my way that I believe warrant exposure to a far wider audience than only myself. I will feel less guilty about hoarding all the wonderful feedback if I can share some with the rest of the gold community.
In this essay are portions, bits and pieces, of the 150+ e-mails I have received on “Gold to the People”. About 33 comprehensive e-mails made the final cut for consideration, as they had great substance and I really enjoyed reading and learning from them. The other 120 or so were primarily generous pats on the back for myself and Brian Fagan (www.faganreport.com), the gentleman whose ideas led to “Gold to the People”, or were charming single-sentence votes of no confidence, such as “Will never work. You are nuts!”
All the e-mail snippets included below are essentially unedited. In order to not betray the trust nor break the confidence of the folks who generously spent some of their valuable and finite time to write to me, no names are used below so all e-mails appear anonymously. I fully understand that some people would prefer much-deserved public credit for their thoughts, but in the conservative world of contrarian investing I suspect that far more folks value their privacy tremendously. For that reason, all identifying characteristics are purged from the e-mails below.
In fact, on the privacy front, there were several additional wonderful e-mails that I can’t publish at this moment in time until I have spoken further with the people who wrote them. They were from a gold mining company, an honest-to-goodness private mint already minting small gold coins, and great and well-known commentators who would be no strangers to anyone in the contrarian investing community.
Of all the feedback I received, it ran about 81% positive, and excerpts from 22% of all the e-mails received were considered for inclusion below, another of the countless manifestations of the ubiquitous Pareto’s Law. While I can’t always discern the country folks are writing from, sometimes they let me know from where in the world they hail. Of the 22% of the feedback considered for inclusion below, people wrote from countries including the US, Canada, Australia, Germany, South Africa, Switzerland, Belgium, Mexico, the United Kingdom, and China (Hong Kong).
Before we begin, a few caveats are in order. First, neither myself nor Zeal Research necessarily agree or disagree with these e-mail excerpts. I specifically did not include any of my comments in between the e-mail snippets below because I did not want to introduce any of my personal biases into the excellent feedback brainstorms. All endorsements of specific companies are from the e-mailer alone, and are NOT endorsements from Zeal. We have not verified any specific claims made in these e-mails and you need to take all comments with a grain of salt and do your own due diligence. Finally, these e-mail snippets are offered simply to facilitate debate and further thought on getting Gold to the People, not to put forth any specific strategic plan for taking a shot at that worthy goal.
Broadly categorized, feedback on “Gold to the People” included thoughts on marketing, distribution, challenges, innovation, and action. No single e-mails were split into two categories, so for example if a gentleman from Australia wrote on marketing and distribution I did not split his contribution but kept it whole in one of the categories. My concluding comments follow the excellent feedback below. This “essay” is long even by my loose and voluminous standards, so you may not wish to try and eat the whole elephant in a single sitting!
We will start with marketing.
From Parts Unknown, “A factory which makes anything usually has several, if not many, customers for that product. It has always amazed me that the gold mining industry had basically no marketing department, unlike every known industry. This idea is long overdue.”
From Parts Unknown, “You’re right about a rising gold price being a big kicker to people buying gold mining shares and gold itself. I remember ‘78 and ‘79 when it was normal for construction workers to be discussing the price of gold and silver on the job.”
From the United States, “Just finished reading your article on gold producers minting and marketing gold coins. Reminded me that back in the early 80’s I bought - foolishly or not - several gold coins from a national dealer who then, as now, was considered reputable. These were one ounce in weight and represented prominent persons in the arts (to wit: Grant Wood -1980, Mark Twain -1981, Louis Armstrong -1982, and Robert Frost -1983). ‘Commemoratives’ I would presume would be a categorical term of sorts. They sold at the usual price of one ounce of gold found in Maple Leafs and the like. I thought at the time these coins would be a nice gift someday to someone with an interest in the role those named on the coins provided the world during their lifetimes. And, until I read your article, I had forgotten somewhere I have these coins still awaiting someone to arrive in our not overly literarily endowed family followers of past artistic giants. In fact, I suspect, were I to try and give such coins to the vast majority of my own family, the most common comments would be ‘Gee, (Cuz, Unc, Dad, Ancient One, etc - as the case might be), this generous and totally unexpected from you token is really great but who in the hell is Grant Wood or the other birds on these shiny ‘thangs’.’ On the other hand, if I was giving an ‘Elvis, Beetle, Madonna, Humperdink or Julio somebody or other’ (the latter two for my wife and her age female musical followers enjoyment), I imagine current market price for these coins would soar beyond my wildest expectations for financial security and family recognition as a financial genius long before my time when I originally bought the coins 15 years ago.”
From Parts Unknown, “Well I sure agree with your recent article and the proposal to get the brilliant in the hands of the great unwashed (I consider myself as dirty and well qualified). What bothers me, as I recall, is I was getting lots of offers in the 70’s and 80’s from small private mints here in the US to sell me fractional gold coins of their own stamping. I stayed with the Maple Leaf whenever possible. Also, I believe they where offering a ‘buy as you go plan’ for your average Joe. I guess a layaway plan. Apparently, it went the way of the Nash or was it Edsel? Anyway, I still like it even though I didn’t jump on it at the time. Oh yes, the credit card was not used as much 20 or 30 years ago. And I would think plastic would be fine today if the actual delivery was delayed till everything cleared. But, you’re really right it is a marketing problem that needs to be launched as it probably would work and I can’t see how any of the producers could lose.”
From Parts Unknown, “In your latest essay you mentioned ‘goldlust’ when strangers to gold coins see and feel the coins for the first time. I have never been one for gold jewelry, but when I received my first two 1 oz. American Gold Eagles a few months ago, I definitely felt this ‘goldlust’. There is definitely an attraction there! As a matter of fact, I am going to get those coins out after I send this email just to look at them (I hope this doesn’t mean I am sick in the head!).”
From the United States, “I am a small investor. I don’t believe that the gold market problem will be solved by having small denominations of gold coins available. There are currently 1/10 oz. American Eagles and Maple Leafs available. I also don’t know if having Newmont coins or Goldcorp coins is necessarily the solution, because who would you trust more, the Royal Canadian Mint or Newmont Corporation? My biggest problem in trying to buy gold is availability and spread. There is one bullion dealer in Boston that, before September 11, was selling 1 oz. bars at $325 when spot was $275! Other than that, I am forced to drive almost an hour outside the city, or mail order from the Internet, where the spreads are 5% - 10% and I have to pay shipping. The market price has to rise 10% just to break even! Even Kitco has 3% spreads on both the buy AND sell. If I want to buy NEM or another gold miner, I’ll pay a flat fee commission and a miniscule spread on a market order, or a slightly higher commission with no spread on a limit order. There is no contest in terms of liquidity. I can sell my shares in seconds by logging onto my brokerage site. I would have to ship my coins, or drive an hour if I wanted to sell my coins. What a pain! Here’s a suggestion. We have the Disney Store and the Warner Brothers Store. Well, every major downtown and every major shopping mall should have a Gold Store! Show the people by putting it in front of their faces whenever they are in the mood to drop a few bucks. Keep the spreads low and people will feel like they are making an investment and not getting ripped off. Allow people to sell their coins at the stores if they want to. Better yet, have zero spread on the buy and have the spread on the sell so that people will feel more inclined to buy and hold. Most of the profit would be on the spot price and the cost after mining and minting. At this level, there would be nothing wrong with having Gold Store branded coins, since this would be a trusted public name. Wall Street was telling Americans to be patriotic and buy stocks in the face of September 11 and a massive bear market in equities. Where was the Gold Council telling Americans that it was patriotic to buy American Eagles in the face of a budding bull market in gold? Aside from this, the only other way we will have a significant appreciation in the price of gold will be more terrorism or a currency crisis. At those times it will be especially important to have Gold Stores to facilitate the distribution to the public. I think gold would have held above $285 after September 11 if more of the general public had easier access at the retail level, rather than viewing gold as the domain of the rich and elite. Just my two ounces worth.”
From Belgium, “Slowly but surely, more gold advocates start to realize that gold mines are paper-substitutes for physical gold and that it is not by buying into gold mine paper that POG is going to become more precious! And it is exactly the word ‘PRECIOUS’ that is not associated with gold anymore. Therefore, any marketing campaign should be focused on that perception of gold still being precious under the form of jewelry and money-bullion as well! In this very small Belgian country (10 million people) infested with generations of gold bugs (bugs not advocates), we have at least 4 to 5 banks in each and every village. Plenty of gold is available (physical) in all different forms. For the 1kg bars, there is a bid/ask spread of 1% on the spot price (AM/PM fixings) + 1% profit for the bank. No taxes, no VAT or whatever as other charges. Physical delivery occurs within 48 hours. So we don’t have any distribution problem and have a reliable buyer and seller (banks) of the physical gold at your doorstep. But physical gold in possession has lost its luster and glory of being ‘Precious’! Banks are NOT going to promote physical gold! This has to be done by the ones who have so much gold as underground reserves, by promoting their gold, instead of the paper of their mines! Since goldmines are still more popular than physical gold, it is up to these mines to radically change their image. Gold mines should not be appreciated and valued because they are good and profitable miners, but rather because they are holders of VERY PRECIOUS amounts/reserves of GOLD! The miners do know this very well, but for God knows what reason, they remain passive.”
From Parts Unknown, “I agree entirely with your idea. However, I am in marketing myself and I would like to observe that your plan covers the manufacturing, product range, and the pricing. It lacks one essential element... that is distribution. Unfortunately you cannot expect people to pay $25 for shipping for a $15 coin. I would therefore suggest a tie-up with someone like Amazon.com. If the gold mines give their $4/oz for marketing to Amazon.com instead of to WGC then they would get much better marketing (actually it is advertising not marketing) and have access to a large distribution network. When people buy a book or CD or whatever Amazon.com could propose shipping a Wonderful Long Term Investment with it. This way the shipping costs nothing extra and Amazon.com gets extra revenue stream from the marketing money and probably a small markup on each coin transaction. Now you have a business model... product range, manufacturing, pricing, advertising, and distribution. You also have the advantage of the ‘barbaric relic’ having a dot.com high-tech gloss to it. Whether we like it or not people like the ease of doing things on-line.”
From Parts Unknown, “You were reading my mind when you wrote ‘Gold to the People’. I agree that government influence must be removed from the gold market which means gold must be removed from the government. A bigger issue is to insure public demand of this important asset class. The gold industry is criminally negligent in marketing their wares. I think that the industry is still stuck in the mindset of the pre-Nixon era where there was only government and industry demand for the metal. It is now supposedly a free-floating commodity that should respond to public demand. Even if that demand is generated through a concerted marketing effort, there is no distribution infrastructure to bring bullion wares to the public in convenient locations. I’m a knowledgeable goldbug and I often have a hard time finding reliable sources for small quantities of gold. I can imagine a chain of gold boutiques in the malls where bullion coins and artifacts of many different precious metals could be displayed to mesmerized consumers. American marketing genius could make gold ownership a chic and commonplace activity. Do you think that the industry would fund and support such an operation?”
From the United States, “Why require 99 percent pure? Why ship gold to another site to mint? Why not just mint on premises. Otherwise, if gold had to be shipped from say South Africa to Canada or from Australia to [ Pick a place], there is great risk of theft or government intervention en route. Let each mine construct its own subsidiary mint and mint 90 percent pure and cut through some of the logistics problems. As long as the people know that they are purchasing 90 percent; and that is the ‘people’s standard’, and the price is right/fair, the coins could be minted at a lower cost and without unnecessary staging, shipping, and shuffling. Wouldn’t I love to manage one of the mints! How would one go about constructing a mint? Who would sanction its authenticity? Government could discredit a private mint more easily if it was not, it seems to me, a subsidiary of a mine. Use certified third parties to guarantee the quality of the coins such as is now done with rare coins. What a fabulous idea you have! So let’s hop to it and do it. What is the hold up? Start in a country that is favorable toward gold. Perhaps the Cayman Islands? Start with a few progressive-thinking mining operations such as Durban and just bypass the heavy hedgers of the industry. Let them sink.”
From Parts Unknown, “I would love to see this idea put into action. I know that Harmony markets its gold as marked-gold ‘10 Tola’ mini-bars (about 3.75 ounces). I also think that I saw in their annual report that they have a gold refinery. If they do have an adequate refinery then maybe they and other gold mines could start with using it!”
From Mexico, “To get Gold to the People many, many things have to be done. An excellent course of action would be the private refinery and mint you suggest and the minting of special or new coins, bars, or whatever form they think most convenient. Then a chain of retail outlets must be employed where people can find and buy these pieces of gold. The jewelry stores may become handy for that purpose so that it will not be necessary to go to a bank to get them. What is more, the mint should not sell them to banks, only to these outlets so as to protect them from bigger competitors. With some promotional help they will try to get people interested in buying them, not just jewels. Remember the ladies, ‘If my neighbor has one, I want one too.’ In my town it would be very hard to buy a gold coin even at the banks, as only in Mexico City and the two or three biggest cities in the country do the banks have gold coins in their vaults. Well, of course, very few people want to buy them so why have an investment that has no rotation at all? The chain of retail outlets is the nucleus, the essential ingredient for success.”
From Canada, “I want you to know I strongly support the concept, having mulled over something similar on my mental back burners for some time. However, given the fascist tendencies of the current US government and its likely successors, I can see every probability that, should the idea catch on, we would soon see laws enacted by Presidential decree either/or expropriating gold mines and criminalizing the use of the ‘renegade’ gold coins by citizens. Yes, it would expose their corruptness and fear to anyone who could think for themselves to some degree, but sadly, too much of the populace today is made up of mindless consumers, products of a dumbed-down educational system, rampant commercial spin doctoring and repetitive television propagandizing, which explains to a large extent why so many ‘investors’ still think a new bull market is just around the corner and why there is so little appreciation for the solid benefits of gold. Still, that is a generalization, and rather than give in to pessimism completely, I would rather promote your idea in the hopes that there are enough independent thinkers left who would take the lead and start the ball rolling. With this in mind, have you sent your article to any unhedged gold producers with an eye to getting something going amongst the unhedged?”
From Parts Unknown, “Count me as one who would definitely buy the coins for investment. Can’t believe it has not caught on yet. I’d love to own gold bars too. More subject matter should be discussed concerning how to store the gold in your local bank and other alternatives for storage. The thought of having the government come in and freezing your accounts, like how they will in the event of a death of the investor, makes some people nervous. Myself, I like the idea of holding gold as an investment and keeping the government and anyone else for that matter out of my business about it entirely.”
From Canada, “As I read the article, shivers went up my spine at the thought of small denominations of gold coins to make it easier access for public ownership. This would never fly. The public would have control over the Government and the Government wouldn’t allow that. If this was threatening to become a reality they could tax gold sales heavily to discourage people from buying it. The public could make transactions without paying taxes, something like the barter system which they now tax, for the value of the transaction. How they know or collect is beyond me. Don’t misunderstand me, I wish this would become a reality. Owning gold gives me the choice to purchase any fiat currency any time I wish. Any profits made on these coins could not be taxed either. It would debilitate the Government’s ability to scam. Gold would form a hierarchy with fiat below it.”
From Parts Unknown, “Your latest article “Gold to the People” interested me very much. I would like to make a few comments and offer a suggestion or two. My comments are designed to be constructive, even though they start off sounding negative, so please read through to the end. (1) I know that the Krugerrand used to be available in fractional denominations, but don’t know if it still is. From the less than stellar response to the fractionals, it would seem that just making them available wasn’t enough. As you said, marketing is critical. (2) Similarly, a US company (now defunct) produced fractionals, with no ‘Official Currency’ face value during the 70s and 80s. It appears that their fractional experience was similar to the Krugerrand (in spades). (3) I’ve seen a 1/20 oz gold piece. It is small, even tiny, to the point of generating laughter and derision. This being the case, I would suggest going no smaller than 1/4 ounce in denomination for gold. Of course, it might not be a bad idea to introduce silver coinage for the smaller values; these could range from 1/4 to 5 ounce coins. (4) But how to market them (I)? I would expect that most Americans would look at fractionals in much the same way as they look at 1 ounce coins. They would buy them for investment only if the premium to bullion were comparable to the 1 ounce coins. With buy / sell spreads at coin shops significantly higher than Forex spreads, and with the spread being less in larger weight purchases, it’s going to be difficult to get Americans to buy fractionals as anything but the equivalent of jewelry at first. (5) But how to market them (II)? While I agree that only the government can produce ‘Legal Tender’ coins, I believe that it is not illegal to make coins which have a dollar value stamped on them. Just look at Las Vegas casinos. They produce chips with various denominations, and these chips are accepted within the city as if they were legal tender! Many years ago, I went to church with my wife on a trip to Las Vegas, and the priest said during the sermon that they accepted chips in the collection plate! What I suggest is to mint coins of a set weight, and stamp them with the amount in dollars at which you will redeem them. You might produce a 1/4 ounce gold coin, which at today’s price would be about $70 and you might stamp them with a $100 redemption value. But why would people want to accept them as if they were dollars? Here’s where I started going even further off the deep end.” (Continued in next paragraph)
Continuing, “If you started in a small town with a single bank, which you owned (or had an agreement with), the bank could ‘issue’ these coins into normal circulation. The bank would be in a position to be credible with the population of the town, so the townspeople would tend to accept the coins. The bank would benefit since it would receive more than the bullion value, which could earn interest on treasuries, etc. In effect, the local bank would issue the coins as a supplemental currency, backed by dollars on deposit, and pay for it by earning a small interest on the proceeds of the coin sales. As the coins circulated, they would become ever more accepted in the community, and would start to be accepted outside the town as well. I would expect that the fractionals eventually would be preferred to the $50 and $100 bills, since they had an intrinsic value, and were convertible with no Forex/coin exchange spread. Eventually (probably soon), the bullion content would be above the face value, and the people would cease redeeming the coins at the bank, and would stop circulating them as well. These coins would become true investment coinage. But we still want gold coinage to circulate so that people never forget that there is a medium with real value in it, so it might be a good idea to date the coins, just as all legal tender coins are dated. When gold approaches the face value, in this case to $400 per ounce, a new 1/4 ounce coin, different in appearance / size would be issued with a face value of maybe $150, which would circulate until gold reached $600 per ounce. To get the coins into general circulation nationwide, it would seem that starting with a lot of small towns with only 1 or 2 banks in town would work best. Here too, the Home Depot strategy of putting your second location near your first, and the third near the others, would seem to make sense. Eventually there could be pockets of these small town areas nationwide, with the surrounding ‘thickly settled’ areas picking up the trend on their own. Could it work? I don’t know, but it definitely would be a long process. (6) But how to market them (III)? Worldwide there are several countries where a similar approach is beginning to happen. One which comes to mind is Afghanistan/Pakistan. I read this morning that there is a lively Forex trade between those countries currencies (the "Afghani" is produced by the Northern Alliance!). Since those people are more attuned to intrinsic value money, that would seem like a fertile ground for this.”
From Germany, “I think you’re way off the ball on ‘microgold’ (small gold coins), for want of a better term. You are reinventing the teal. While I have no problem with this in itself please consider the following. At a very rough guess, in the glorious West, the average wage is around $10 per hour. This is only a vague guesstimate for argumentation purposes, you can freely substitute a better figure. Around every 5 days people get a day or two off on which they could buy gold and after a 40-hour week they would have $400 and if they save 10% they would have $40 to invest. As long as inflation is not so visibly rampant as to force them to protect either the $400 or the $40, no one will see the need to hurry to buy gold coins and now inflation is low so gold won’t move too much until this changes. (For inflation, I mean perceived inflation as most people have enough cash that they don’t even bother to think even of whether they are even in debt or not or how they expect to repay any debt and most certainly do hear the news that inflation is dead and don’t even see that food and energy increases do decrease the amount they have left at the end of the month.) Once inflation jumps they’ll start to want to protect the wages they earn and will probably buy at a rate similar to the inflation rate, with a higher inflation rate leading to a higher purchase frequency. For these people to buy $15 coins they would be buying maybe 3x per week, otherwise they would wait and buy at the weekend, if they don’t need to buy sooner they won’t (because inflation isn’t eroding their currency faster). The main problem I have with microgold is the fact that you’re implying supplying gold to the poorest in (the investing/saving) society. Anyone who wants to (speaking from Germany here) can just go to a coin shop or bank and buy coins starting at around $50 NOW. I can’t speak for the US here, but I expect you can buy quarter ounce Eagles, Maple Leafs, and such there too. They are quite sufficient for now as anyone needing to protect less than $50 precludes inflation as rampant, like the Yugoslavian 7 digit annual rates of a decade or so ago. You can also buy 10g bars here at 99.99% if you don’t like the cut gold they often use for coins. 10g is about $100 and $100 really ain’t a lot of cash to want to protect. People who invest in gold at the moment are the people who invest anyway. They are the ones with thousands or millions to move, not $15. Microgold saving really is scraping the barrel. In fact I asked my local coin shop the other week just where he’s getting his 10g bars from. He says it’s people who live in the area and are still selling excess inventory back to the banks.”
From the United Kingdom, “While I agree that wider ownership of gold and its promotion as an investment vehicle rather than jewelry is likely to help lift the price to a more respectable level, there are a number of factors that you seem to have overlooked which, in my opinion, would make the physical ownership of gold, in the way you describe, unsuccessful as an investment. I should add that I am not in any way anti-gold. Indeed my small one-man business, in England, is involved with the extraction of silver from photographic waste. I have a substantial personal investment in silver plus a modest one in gold and would, therefore, be delighted to see the price of both gold and silver rise substantially. (1) SECURITY. I could foresee considerable practical problems associated with the delivery of any form of physical gold to private addresses. One could almost guarantee that a proportion would be lost or stolen in transit. This would have to be insured against and the cost would inevitably accrue to the purchaser, adding to the cost but not the value of his or her ‘investment’. (2) SECURITY OF STORAGE. Maybe you have an impregnable safe and state-of-the-art alarm at home, but most people do not. Where are the private buyers going to store their physical gold safely, where it is not at risk from burglars? Would insurance companies accept a hoard of gold as an acceptable risk on a domestic policy? (3) VAT. You may not be familiar with Value Added Tax, but it is levied in virtually all European Countries, certainly all the advanced ones. I believe that VAT or a similar tax is also to be found in most other Westernized states around the world. In Europe rates vary from country to country but are mostly between 17.5% and 22%. The rules and exemptions also vary in different countries, but in the UK this tax is levied at 17.5% on practically all goods and services, with exemptions for things like staple foodstuffs (not meals eaten out, chocolate bars, cookies, or fizzy drinks), children’s clothes, medical equipment, books, and newspapers. As a result of a massive VAT fraud about 15 years ago, even gold coins are chargeable. For dealers or traders, like myself, who are VAT registered, the tax can be reclaimed on purchases but must be charged on sales, so the private investor has no legal means of avoiding this added cost. You will see the problem, by the time the ‘investor’ has paid the manufacturing premium for their small piece of physical gold, plus the cost of delivery and insurance and the killer VAT, the price would have to rise by around 25% just to break even.” (Continued in next paragraph)
Continuing, “(4) DISPOSAL. Even assuming all of the above problems could be solved, where does the individual investor eventually sell their gold without a large chunk of cash being deducted in commissions? I am sure that any dealer being offered two or three coins worth a few hundred pounds or dollars is not going to work on 1% or 2% margin. At a retail level like this, a disposal cost of around 10% would be more realistic, to add to the ‘investor’s’ woes. We now need a 39% increase in price before our individual investor sees any profit at all. To purchase gold with a bullion value of £100 would actually cost £125 and the gold market value would need to go up to £139 just to get back the £125 outlay after selling costs are deducted. (5) LIQUIDITY. The private investor can take advantage of dips and rises of equities by phoning his broker or making a few clicks with his mouse. The owner of small quantities of physical metal would not be able to do likewise for all of the above reasons. Furthermore, supposing there were a sudden rally in the value of PM’s the average holder of physical metal would probably not be in a position to immediately rush down to their local (or maybe not so local) coin dealer to realize their gain. CONCLUSION. My feeling is that the only practical and cost-effective way for individuals to invest in precious metals is through some sort of collective fund, what we would call a ‘unit trust’ and what I think you would describe as a mutual fund. Individuals could purchase shares in the fund, which would be costed at the ‘offer’ price of the precious metal and cash held by the fund, divided by the number of shares issued. The added cost of purchasing shares would only amount to stamp duty and brokerage commissions, probably no more than 3 or 4% in total, in the same way as normal equities. The assets would have to be actively managed by the fund manager at a trusted bullion bank or broker such as Scotia Mocatta or Johnson Matthey, who would have the necessary facilities for secure storage of bullion. The bank would make the profit required to run the scheme by the normal ‘spread’ of price on buying and selling PM’s, plus an incentive bonus based on the return to shareholders. The value when selling shares would be determined by the ‘bid’ value of the assets of the fund divided by the number of shares issued. This type of investment would overcome all of the above problems and have the additional advantage that the ‘investor’ could ‘bed & breakfast’ at the end of a tax year to establish a capital gain, or loss, to minimize tax liabilities.”
From Canada, “Your article ‘Gold to the People’ certainly made its mark with me. I have been trying to find a method of acquiring gold or silver coins or bars at investment rather than speculative prices. I am a small investor and look at the markup between spot prices and Maple Leaf prices and find the difference much higher than I can justify. Perhaps I just don’t understand the costs involved, but given that pennies are still made in the millions it doesn’t seem that the striking prices should be that great. Similarly, how much does it cost to refine gold? You mention that there have been some attempts to sell from the mine to the consumer. Can you provide any more information about them? Do they still exist? I think this is an idea the time of which has come. Are there any legal impediments? Perhaps one of the smaller mines could manage to survive with such a strategy.”
From South Africa, “Anyway, I had much the same idea, better still I have decided to buy at least a coin a month! It works great - and best of all, I even made a profit in a very short time. Think how great it would be if goldmines could start sending you your dividend in the form of a gold coin - maybe they should give the public a choice! Best of all, cashflow is lower and the cost of the dividend is much lower than the perceived value to the investor.“
From Parts Unknown, “Instead of giving dividends to stock holders, why not give stock in a subsidiary gold refining/minting company, to be redeemed at a future date in gold coin when operations are up and running. As a gold bug I would vote for it.”
From Parts Unknown, “What a great idea Fagan has! I don’t see why it wouldn’t work. In addition the few unhedged gold companies that pay dividends could give their shareholders the option of taking the dividend in gold coinage.”
From Parts Unknown, “Another idea along these lines might be GOLD BONDS. Sold directly to the public, mines could raise fiat for operations and pay the bond holder back in gold. Awhile back I called mines that I have stock in, and tried to get them interested. Most of the miners were pathetic. I think they either don’t have a clue or are part of the manipulation.”
From the United Kingdom, “I fully agree that the campaign to market gold as jewelry is a waste of money. Furthermore, as with most luxury items, jewelry will be hardest hit by the recession. People will focus their reduced income on more important things like food. In contrast, ‘Gold as Money’ or as investment is a theme worth supporting. At this moment there is no major alternative to government fiat currencies. They are all badly designed, some are just managed better than others. I am skeptical about pinning too much hope on gold coins as money because they are cumbersome for transactions other than face-to-face payment and there is always the quality control question. It is for these reasons that paper money started to circulate representing the gold rather than the gold itself. The missing element in your article is the growing group of ‘Digital Gold Currencies’ of which GoldMoney is, in my opinion, the best designed and managed. This is the way to get gold to the people! Mr. James Turk has done a brilliant job in designing GoldMoney. I have been using it extensively over the last 6 months without any problems. It is an 100% undiluted system. For each goldgram in the GoldMoney system there is a real gram of gold in the vault.”
From Canada, “I would like to point out that fractional coins are minted for the Gold Eagle and the Gold Maple. These coins come in denominations of 1/10, 1/4, and 1/2 ounce. Additionally a 1/20th ounce Gold Maple is minted by the Canadian mint. I personally have found a company that makes it quite easy to own physical gold. This company is Kitco and has a website at www.kitco.com. I have noticed that just the past couple of days that this company is now selling the fractional gold coins. Perhaps your essay inspired them to do this, then again it may be just a coincidence. However, what I like about this company is that a person can buy into a gold pool. With the gold pool, a person buys a set amount of gold at the current trading price but does not have to take delivery. The form in which a person wants their gold can be decided at a later date. This would allow a person to accumulate gold over time to the desired quantity before taking delivery. However, a person may decide not to take delivery at all, but keep a gold account with Kitco. Unlike banks and brokerages there are no fees associated with keeping YOUR GOLD with them. This is the route I have chosen at this time. Perhaps, once I reach the desired quantity, I may take delivery. However, when a person takes delivery, the fabrication charges for the coins or bars then come due.”
From Parts Unknown, “One sometimes overlooked property of gold is its malleability. That is why gold leaf has existed for ages. Gold can be beaten thinner than any other metal, so why use coins? Use a machine that will create a measured minimum thickness of gold leaf and encase it in plastic about the size of existing ‘paper’ currency with some kind of security (maybe a hologram or something), but the property of malleability will deter forgery. If it can’t be any thinner you can’t issue clipped ‘bills’. Choose the plastic so if you want one ounce of gold, just get X number of bills and put it into an oven and have the plastic melt away or use the gold leaf as gold leaf. Coins could be used for larger transactions, or better, use a similar process to create credit-card sized/shaped bars. Wallet-friendly gold! It might even be divisible, cut a bill in half for change? I haven’t worked out all the technical details, I only know enough chemistry and materials engineering to know it would be possible, and probably economically feasible. Also even with the attractiveness of physical gold, the mines could probably create dore vaults onsite and let people buy that. There already has to be security, and this would allow purchase before transport cost (for a discount). Were I considering a depository, having dore at the mine (with appropriate guarantees, insurance, etc., like those holding 999 fine gold bars, as well as storage fees) isn’t that much different. I would get a discount, the refining fee subtracted, and I could have it coined, converted, or trade in my receipts back for whatever currency is convenient. I could buy the mine output and leave it at the mine, keeping it off the market until the price goes up (why else?), but very near the source of the supply. Of course it would be made easy via the Internet, or there are already gold dealers, whichever works best.”
From Parts Unknown, “Brian Fagan’s excellent thoughts articulated in his newsletter BACK IN 1999 offer a couple tantalizing possibilities of new distribution channels to move physical gold from mines to the people. Yes back in 1999, but that was nearly THREE YEARS AGO. My guess is that nothing has been done and nobody has moved on this idea. Why don’t these large gold companies (that are not hedged) come up with a plan, after all it’s not rocket science. Others have come up with plans/ideas that do transactions in gold like E-GOLD. How much harder could it be to make Fagan’s idea work? I like many, always have extra money to burn and would love to see it buying more gold.”
From Parts Unknown, “It is easy to identify problems, but to propose a solution at the same time makes all the difference. I saw a bumper sticker the other day saying ‘no whining’, well, it’s not whining when you tell people what to do, something positive for a change! The Franklin Mint may be the biggest private mint, could they be approached about this? They have the advertising and distribution channels already in place. There is a company I read about it in Jay Taylor’s newsletter (www.miningstocks.com) and subsequently invested in. They already market 5 oz. silver bars, not gold, but they could be approached about something more reasonable.”
From the United States, “Awesome concept! How about setting up an LLC, selling shares to the gold-related websites and PM letter writers, through their subscribers raise the necessary funds to partner with a non-hedged mine or two, then buy a refiner and let’s do it! I’m ready!”
Conclusion (Adam Hamilton again)
As you can see since you’ve made it this far, there are legions of brilliant and far-sighted thinkers and doers around the world who are offering tons of great ideas on marketing “Gold to the People”. Even though this “essay” is long, it only represents a fraction of the wonderful feedback you were gracious enough to send me. For all the contributors who had their thoughts ruthlessly expropriated and published above, I offer you a million thanks for your contributions to the ongoing debate on marketing gold. Thank you!!
Challenges certainly exist, but solutions can be found. Through old-fashioned marketing and distribution expertise, coupled with exciting innovations not possible before the wondrous Information Age, I strongly believe that there ARE actionable solutions that can be devised to get Gold to the People. I truly hope that the important debate on how to increase gold investment demand amongst normal everyday folks continues to move forward in the gold world.
Great strategies that ultimately change the world always begin their lives like helpless infants, as mere ethereal ideas. Yet, as these ideas grow and flourish, they can result in action if they are good enough. In order for an idea like “Gold to the People” to work, any action plans MUST allow for the transactions to be profitable for all participants while providing a valuable good and service to the ultimate purchaser of physical gold.
In a truly free market, ALL transactions must be mutually beneficial for both participants. If a transaction is not mutually beneficial, it is not worth doing. As more people discuss and refine ideas on how to move Gold to the People, I encourage the thinkers and the doers to focus on profitability, on creating a viable strategy that provides real benefits and gold to the consumers, and real profits to every business in the manufacturing, marketing, and distribution chain.
If the transactions are mutually beneficial for all involved, there is a very real chance of building a more efficient way to move Gold to the People!
Adam Hamilton, CPA November 30, 2001 Subscribe at www.zealllc.com/subscribe.htm