Gold to the People
Adam Hamilton November 16, 2001 4818 Words
One important and seemingly perplexing question that the whole gold world is now wrestling with is how to market gold.
The very idea itself of marketing gold would have been quite amusing to our ancestors living in the six millennia before the present surreal days through which we all now voyage. To almost every single generation that has walked before us in human history, the strange idea that noble gold would need to be marketed would have been soundly ridiculed.
To our predecessors the concept of marketing gold would have seemed as silly as marketing the air we breathe. They intuitively knew from long hard historical experience that gold truly was the ultimate form of wealth. It is beautiful and alluring to virtually everyone on earth, it is extremely scarce and can’t be counterfeited, it bears inherent worth in and of itself (it is not someone else’s promise to pay), it is pretty much indestructible, and demand for it is insatiable in degree and global in scope.
The more opportunities that I am blessed with to study our fascinating history on earth, the more amazed I become at just how pervasive and important gold truly was in virtually all aspects of historical geopolitical, political, and commercial endeavors all over the planet. Most citizens of today’s Western Welfare States would be astounded if they explored the distinguished pedigree of the same King of Assets that is commonly derided as a “barbaric relic” in currently fashionable financial circles.
In the past, almost everyone from the lowliest peasant farmer to the highest kings zealously pursued gold. Gold was universally considered to be the premier store of wealth, monetary unit of exchange, and vehicle of choice for saving current labor for future consumption. Innumerable wars were fought over gold, merchants often refused payment in anything but gold, and there was simply no worthy substitute for the Ancient Metal of Kings in everyday life for thousands of years.
Common folk burned with an insatiable gold-lust just as kings, conquerors, and merchants. They intimately understood the mighty power of gold and the freedom it provided.
For all of human history until the great American Revolution, ordinary people also intuitively understood that government was simply a monopoly on violence. Wherever governments arose they sought to exclusively control all use of force. Once their local monopolies on violence were contrived, local governments would rapidly grow bloated and corrupt and begin to view their hard-working populaces as little more than prime dairy cows, ripe for the milking.
As power over others inevitably corrupted the ruling local governments, they would abuse their monopolies on violence to squeeze ever more assets from the hard-working common people. Like malignant Machiavellian parasites, local governments raised taxes, debased their currencies, and generally defrauded their people until the situations became so dire that the governments would fall due to filthy internal corruption or due to a revolution of the people.
Government in general has always been the number one enemy of individual freedom and wealth creation. Until the dark rise of the Welfare State which accelerated dramatically with socialist US President Franklin Delano Roosevelt casting aside the US Constitution’s very tightly delegated limits on federal intrusion into our lives and economy, common people worldwide intimately understood the true nature of government. They knew well that governments are simply a local monopoly of force and that governments inevitably grow like a cancer that chokes free society.
Because normal folks back then understood the true nature of government, they were far more skeptical than the citizens of Welfare State democracies today. These countless generations of people in history inevitably turned to gold as the ultimate store of wealth and the only true money because gold was beyond the reach of any government. No government in world history has ever successfully subverted gold. The great worth and mighty power of gold easily survived intact through every war, revolution, inflation, fraud, and chaos in all of human history.
With a widespread common understanding of the true nature of government, wealth, money, hard work, and savings, our ancestors throughout the ages would have heartily laughed at the peculiar modern notion that gold would actually need to be marketed.
Yet today we find ourselves at an exceedingly rare crossroads in world history where the free world seems to have largely forgotten the ancient virtues of gold. Hence the raging debate amongst the gold world about how best to market the noble Ancient Metal of Kings to seemingly indifferent Western investors and citizens.
Like all great debates, there are two diametrically opposed schools of thought butting heads on how to market gold to a Western world that seems to have forgotten its timeless merit. One side strives to market gold as jewelry. The other side fights to market gold as an investment and money.
The gold as jewelry crowd believes that the best way to drum-up gold demand is through marketing campaigns designed to seduce people into buying more gold jewelry. There are many very powerful backers of this idea, including the World Gold Council (www.gold.org) which is funded by the world’s largest gold mining companies.
Provocatively, the principal advocates of the gold as jewelry campaign are heavily-hedged mining companies that have made enormous macro-bets that the gold price will not rise in the next five or ten years. They have bet the farm that gold prices will fall as they have locked-in future gold prices near 20-year bear market lows via aggressive hedging contracts. Since these huge monolithic companies like AngloGold and Barrick would lose billions of dollars in a significant gold rally, it is only natural to question their motives for backing any marketing campaign that could increase gold demand and hence gold prices. Perhaps they like the jewelry idea because they know its chance of success is trivially low.
Hidden agendas aside, the gold as jewelry marketing idea would no doubt be valuable and well-received in some cultures, but not in the crucial Western markets. In India for instance, which is the world’s largest consumer of gold, the Indian people maintain the traditional view of gold as the ultimate store of wealth. Each year they accumulate savings to buy gold, often in the form of intricate jewelry. In the case of the huge Indian market, gold jewelry truly is wealth and there is little or no fundamental gulf between gold as jewelry and gold as an investment.
The citizens of most other Asian nations, who have suffered through far worse government regimes during the last century than those in the West, share the Indians’ perceptions of gold jewelry as wealth. Most Asians intimately understand the true nature of government and the difficulty of accumulating wealth while governments are trying to extort it away. These Eastern cultures could potentially be convinced to increase their gold demand through a well-crafted gold as jewelry marketing campaign.
In the West however, the United States and Europe, gold as jewelry marketing is a hopeless way to attempt to increase gold demand. Western citizens generally do not view jewelry as a form of wealth, but as a status symbol and a way to curry favor with the women in their lives. While women may intuitively understand the ageless allure of gold, in my experience most men I have talked with simply view jewelry as a tangible way to express love or at least acquire brownie points with their beloved.
At this bizarre crossroads in world history, gold is not viewed as a store of wealth or investment in the West and neither is jewelry. Any marketing campaign in the Western democracies that calls on people to buy more gold jewelry but fails to rekindle the crucial historical investment reasons to own gold is likely doomed to failure. Since the Western citizens largely view jewelry as little more than pretty trinkets and certainly not a viable store of wealth, a gold as jewelry campaign makes little sense in the West.
In the other corner of the great gold marketing debate is the gold as an investment and money crowd.
The gold as an investment faction definitely controls less capital and wields less influence in the gold world today than the gold as jewelry crowd. Yet there are powerful advocates of this position. One of the most prominent spokesmen for the gold as investment forces is Chris Thompson, the Chairman and Chief Executive Officer of Gold Fields (www.goldfields.co.za). Gold Fields is a world-class South-African gold mining operation that is one of the five largest gold mining companies on the entire planet. Gold Fields has outstanding management that intimately understands the supreme challenges facing the gold world today.
In his headline speech at the prestigious Denver Gold Conference in early October, which is one of the most important global gatherings of the captains of industry of the gold world, Mr. Thompson launched an impassioned defense of gold as an investment. He said that the gold industry had failed itself because it had not taken back the custodianship of the gold market from the central banks of the world. He proclaimed that the gold industry has to focus on gold as an investment and not only promote gold as jewelry.
Thompson next said something that would have resonated deeply with virtually every generation of humanity before our present one. He said that governments, through their proxies the central banks, are really weak holders of gold and that ownership of gold needs to be shifted away from the governments and into the hands of private citizens worldwide. Gold to the People! Mr. Thompson’s speech was amazing on a variety of fronts and offered much timeless wisdom on how to increase global gold demand.
Interestingly Gold Fields, and other major mining companies advocating gold as an investment, are unhedged. They are betting the farm that gold prices will rise substantially in the next five to ten years and they want their shareholders to reap legendary profits. I can’t help but feel that the gold as investment marketing argument has infinitely more credibility than gold as jewelry on this front alone. The advocates of gold as jewelry are betting the gold price will drop, but the advocates of gold as an investment are betting that the gold price will rise. If you own gold or shares in gold mining companies, which faction of the great debate do you think has more credibility based on its actions and macro financial bets?
There is a whole phalanx of fantastic arguments on why marketing gold as an investment could strike a deep resonant chord in Western investors’ hearts and minds more right now than at any time in decades. While the whole global financial house of cards crumbles and cracks cascade through the system, there has never been a better time than right now to advocate gold as an investment.
We have researched, written, and published numerous comprehensive essays available at www.ZealLLC.com that analyze the current dire predicaments of the stock markets, bond markets, derivatives markets, and other intangible paper markets. With the US economy plunging into an uncharted abyss, with absolutely zero fundamental foundations underlying today’s extreme stock market valuations, with the Greenspan led assault on savers and bond investors through blatant interest rate and money supply manipulation, and with geopolitical uncertainty increasing exponentially due to the deepening conflict in Central Asia, a gold as an investment marketing campaign could fall on countless fertile ears today.
Rather than repeatedly painfully getting kicked in the teeth in the stock and bond markets, why not invest in gold? Gold is tremendously undervalued in real terms historically, global gold demand vastly exceeds mined supply (by more than 60% annually), central banks are rapidly burning through their dwindling gold hoards as they sell into the world market each day, and based on iron-clad historical precedent there is little in the financial world more certain than a coming explosion in the price of gold.
With traditional investments being relentlessly burned at the stake in the worldwide slowdown there has seldom been such a large-scale compelling reason for investors in the Western democracies to seek the timeless refuge and safe harbor that the Ancient Metal of Kings offers. This unparalleled safety, coupled with a very high probability of a major gold rally due to enormously bullish supply and demand fundamentals, makes the investment case for gold virtually unassailable.
As Chris Thompson said in his famous Denver speech, gold needs to be moved from the weak hands of government holders to the strong hands of ordinary people worldwide. In order to increase gold investment demand in the West, some way has to be devised to both raise awareness and to facilitate the movement of Gold to the People.
As I have been mulling over this problem in recent months, I am deeply indebted to a couple of friends for greatly broadening my horizons on innovative ways to accomplish the righteous goal of getting Gold to the People. My first friend is amazingly wise, a true international citizen as he is an American but lived in and grew successful ventures in Japan for decades, a closely-trusted advisor for me, a staunch defender of gold and freedom, and exceedingly knowledgeable about gold and investments in general. This good friend introduced me to some phenomenal work by Brian Fagan that is incredibly exciting and has untold potential.
Brian Fagan is the renowned speculator who publishes “The Fagan Report” and he truly needs no introduction for many investors worldwide. Mr. Fagan’s website is www.faganreport.com and I highly encourage any aggressive speculators interested in actively trading and profiting in these increasingly chaotic markets to stop by and consider his excellent services. I am deeply indebted to Mr. Fagan as he was instrumental in this endeavor of thought on marketing gold that I have been pondering and now find myself writing about.
As James Dale Davidson said in the introduction to one of his fantastic books, I think it was “The Great Reckoning”, a writer is truly a tyrant over the page. A writer, like a merciless dictator, can freely expropriate, nationalize, and tax ideas from anyone else on the planet. The two primary gold marketing ideas discussed below are drawn from Mr. Fagan’s earlier work and he deserves 100% of the credit should these ideas rightfully finally begin to grow and take on a life of their own in the gold world. Without Mr. Fagan’s earlier work in this area, my humble essay on this front would never have materialized.
In order to get Gold to the People of the Western nations the gold industry needs to accomplish two goals. First, it must raise awareness, and second it must make it as easy as possible for Western investors, large and small, to accumulate physical gold.
As far as raising general awareness of gold, there are marketing experts far more knowledgeable than I about how to raise the popular profile of gold’s incredible potential as an investment. I have heard many excellent ideas for print and television marketing campaigns extolling gold as an investment. I strongly believe, as do many other gold investors worldwide, that organizations which proclaim to be gold advocates like the World Gold Council should throw the vast majority of their marketing dollars behind gold as an investment and forget trying the already failed gold as jewelry marketing campaigns in the Western world.
On the pragmatic front, the number-one sure-fire way to win vast attention for gold’s potential as an investment is for the ancient yellow metal to rise in price. Nothing attracts investors like a rising market! Unfortunately, ever-increasing mountains of evidence are accumulating strongly suggesting that a few Western central banks along with some elite Wall Street banks are actively selling government gold into the market each time gold rallies in order to cap its price. Alan Greenspan himself brazenly declared this would be happening before the US Congress not too many years ago.
The fearless leader of the growing worldwide grass-roots movement to expose yet another shameful episode of official government manipulation of gold much like the dismally failed London Gold Pool of the 1960s is the Gold Anti-Trust Action Committee (www.gata.org). GATA has unearthed a phenomenal amount of compelling evidence of an official-sector strategic gold manipulation campaign beginning in the mid-1990s as then President Bill Clinton sought re-election in 1996.
An avalanche of incriminating official documents have been discovered from the US Treasury, the US Federal Reserve, the International Monetary Fund, the Bank of England, and other major government players. So much evidence for yet another episode of official-sector gold manipulation has accrued that Reginald Howe currently has a landmark legal case before a US federal judge alleging a variety of collusive manipulative activities in the global gold markets. Howe v. BIS is an incredibly important case and I strongly encourage you to visit Howe’s website at www.GoldenSextant.com to dig deeper and learn more.
If the gold manipulation thesis proves to be correct, and the probability is growing every single day that it is absolutely true, then there will come an inevitable day of reckoning in the future just as in past failed manipulation schemes when the relentless free market forces exhaust the gold ammunition and destroy the stratagems of the manipulators. Gold will rocket to the heavens the day the central banks cannot sell enough official gold to meet continually growing global gold investment demand. A rising gold price is the ultimate marketing tool, utterly dwarfing every other marketing possibility in its potency in drumming-up huge global gold investment demand.
In addition to some kind of carefully-crafted marketing campaign or gold price rally to fan gold investment demand, another important facet of the problem of getting Gold to the People is how to do it. Right now it is very easy to buy gold coins from gold dealers, but for some cryptic reason those who are not already gold investors don’t have a clue how to buy gold. The traditional coin dealer gold distribution channel needs to be augmented for the Information Age.
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 the mines to the people. The first would be great for larger investors and the second would be perfect for everyday normal folks.
What if it were possible to buy physical gold direct from the gold mining companies? Gold Fields CEO Chris Thompson said that it was absolutely crucial that central banks and bullion banks, the usual customers of gold mines, be cut out of the loop to a significant degree so gold could flow into the hands of private citizens worldwide. One possibility that has been discussed is direct-marketing programs from gold mines that allow private citizens to buy gold directly from the mines.
For instance, imagine if a shareholder in a particular gold mine had the option of buying gold direct from the source. What if a shareholder could call a mine he or she owned (or use the Internet), order some physical gold, pay for it, and have it delivered right to his or her door? Mines would also have incentives to offer such a service, entering into sales contracts with private companies and citizens. For example, a private gold investor might agree to buy a few ounces of gold per month direct from the mine at the spot price of gold plus a few percent. Any gold sold directly to private investors would never hit the world gold markets and would not likely find its way into central bank coffers to be martyred as ammunition for the latest government war on gold.
There have already been some attempts at marketing gold direct from the mines, but so far it hasn’t caught on. There are some economical and logistical problems that need to be solved for it to work. For instance, most gold mines have no capability to refine gold beyond a very crude state known as dore (pronounced doh-RAY). Mines refine gold to dore right at their onsite mills, but the dore is only about 90% pure gold and the rest is other metals including silver and copper. The dore bars are then airlifted or delivered via armored truck to gold refinery companies that refine the gold into a very pure state, more than 99% pure gold.
In addition, the refineries that refine the dore into pure gold usually do not have the facilities internally to mint coins. Refined gold is sent by refineries to national mints which then stamp it into various gold coins common today including US Double Eagles, Canadian Maple Leafs, South African Krugerrands, etc. Since the mines themselves rely on both refineries and mints to process gold from the rough dore state to the pristine coin state, any gold direct-marketing plan would have to be economically viable and profitable for not only the mines, but the refineries and the mints as well.
Since the chain of mines, refineries, and mints happily wholesales to bullion banks and central banks right now, it is not too hard to believe that they could also profitably sell gold direct to private investors and citizens. I think it would be very beneficial for gold investors and gold miners alike if some way could be devised to offer gold directly from a mine or from a mint on behalf of a mine to the people. The prices would be set so everyone made a profit (mutually-beneficial transactions are the basis of ALL free-market commerce) and the effectively off-market gold transactions could have a substantial impact on gold prices as they would siphon gold off the world markets and move it into the hands of the people.
Any gold direct-distribution plan that limited the amount of gold flowing into central bank vaults could be extremely beneficial for both investment demand and by extension the price of gold.
While larger investors would be more than happy to buy gold directly from the mines they own, that plan would not help move gold to the normal people, the folks who would love to own gold but have not yet accumulated significant capital portfolios. Brian Fagan had a phenomenal idea in 1999 that could almost single-handedly turn gold investment demand around, arrest the gold price deterioration, and there is not a single thing the central banks and anti-gold crowd could do about it!
Like most great and profound ideas, Mr. Fagan’s thoughts are elegant in their simplicity yet potentially unlimited in their power and scope.
What if there was a common physical gold investment vehicle that everyone could afford? What if people, if they had a spare $20, instead of blowing it could buy some real physical gold.
I don’t know about you, but I have found the allure of gold-in-fist irresistible! When I have the opportunity to talk with people who have never actually seen or handled gold bullion, I love to dump a dozen Double Eagles into their hands and watch their eyes sparkle with gold-lust. Like some mighty king of old, they suddenly understand the timeless allure of gold as they feel the cool, heavy metal in their cupped hands.
Getting gold into everyday circulation again as it was for millennia in the past could prove to ignite a gold revolution!
Mr. Fagan’s excellent idea to accomplish this ultimate strategic mission is to have several gold mines sponsor and cut a deal with a private mint. The gold mines would have a portion of their gold production sent from their refineries to the private mint, which would then mint standardized coins in various small denominations of weight. The gold coins would then be easily available for purchase directly from the private mint for everyday people to buy and invest in, and would be standardized and certified in form, content, and purity.
For example, the private mint could mint standardized gold coins in 1/20th ounce, 1/10th, 1/4th, and 1/2 ounce increments. At $300 gold, the 1/20th ouncers would contain $15 worth of pure gold, the 1/10th ouncers $30, the 1/4th ouncers $75, etc. Ordinary people worldwide would have the opportunity to order gold directly from the private mint in small denominations. Mr. Fagan even mentioned varying the shape of the different weights of coins to make them easier to rapidly identify. The coins would not be legal tender currency, but would represent fixed weights of gold.
Just as in millennia past, small-denomination gold coins would enable gold to rapidly flow to normal everyday people!
Eventually, as word spread and the market grew, the privately-minted gold coins would be traded by local coin dealers around the world, making them very easy to convert into any currency. The small denomination coins could be saved, given as gifts, and would be a truly portable international standard of wealth. As gold flowed into the hands of the people, two incredible developments would spontaneously occur that would wrest control of the gold market away from the central bankers and place it back into free-market mode controlled by no single group of entities just as Chris Thompson envisioned.
First, the pure gold fractional coins would soon become a sort of de facto unofficial currency. As more people bought them, gave them as gifts, saved them, and traded them, global demand for the small denomination privately-minted gold coins would grow rapidly. As we are all learning at the very dawn of the Information Age, a great idea can spread like wildfire in a very short time as modern communications technology rushes tidings of it across the globe at the speed of light. This increasing private demand for small denomination gold coins would dramatically ramp-up aggregate gold investment demand worldwide. As investment demand rises, the price of gold will also rise, fueling more investment demand, and creating a wonderful virtuous circle.
Rather than less than a million gold investors buying whole ounces of gold occasionally in official coins, tens or hundreds of millions of people would be chasing fractional private gold coins. Since the global gold supply is so incredibly small relative to the total amount of wealth and fiat currency circulating in the world today, the growing private gold investment demand would cause total global gold demand to go ballistic.
Second, as global gold demand for the small gold coins grew, central banks would get squeezed out of the fresh supplies of gold coming from the world’s mines. As the mines directly sponsoring the private mint watched their sales, profits, and demand for their product soar dramatically, more mines would scramble to get involved. Eventually, even the private mint could buy directly from central banks, as private demand could conceivably grow so large that the mint would love to have access to central bank gold hoards to melt down and mint into small coins and sell to the insatiable populace.
Mr. Fagan’s amazing idea is an incredible possibility for moving vast amounts of gold directly into the hands of tens or hundreds of millions of ordinary people worldwide! The program would spur gold investment, buttress gold awareness, absorb vast supplies of gold, and create huge new gold investment demand. It is a classic win/win scenario for everyone who is a friend of free markets and who does not fear gold’s noble freedom-giving financial attributes.
If the governments of the world don’t like it, tough! Yes, they could desperately attempt to outlaw private gold again, but by that very act they would admit that gold has defeated them and the game is over as huge global speculators would swarm like famished sharks to crucify the government effectively devaluing its fiat currency to gold. The dire market consequences of such an action would utterly dwarf any perceived benefits for the oppressive government that travels down this foolish path.
The more I mull over Mr. Fagan’s extraordinary idea, the more unstoppable of a force I think it could prove to be. Privately-minted certified fractional gold coins available for investment worldwide would truly and irrevocably move gold back into the hands of the people and out of the weak coffers of the government bureaucrats and anti-gold forces.
As gold truly is wealth, as it has great intrinsic value due to its rarity and because it does not represent merely a promise to pay, gold can easily stand on its own two feet if given a chance. If gold investment demand can be rekindled, and gold migrates into the worthy hands of the people rather than the governments, all the problems of the entire global gold industry depression could be elegantly and potentially permanently solved.
Wake up and seize your destiny, gold industry! You can control your own fate! Give the citizens of the world an easy way to buy small quantities of gold and watch global gold investment demand and the gold price soar!
Gold to the People!
Adam Hamilton, CPA November 16, 2001 Subscribe at www.zealllc.com/subscribe.htm