A precious metals that's not just an investment but a worldview too

By Rob Baedeker
San Francisco Chronicle
Monday, February 25, 2008

http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2008/02/25/moneytales.DTL

Last week gold hit a record high of $958.40 an ounce. In 1959 the average price of gold was around $35 an ounce. That's the year Burton Blumert opened his Camino Coin Co. in Burlingame.

To the outside observer, it would appear that the rise of gold is a success story for long-time dealers and investors like Blumert and his clients. And in many respects it is. As Blumert told me on the phone from his home in El Granada, "I retired at the top of my game." (After giving the Camino Coin Co. to a long-time employee last year, Blumert, 79, stays peripherally involved, helping out occasionally when needed).

But there is, so to speak, another side to the coin. "If you want a dismal view of the future, talk to a gold dealer," Blumert adds. The high price of gold may represent a handsome return on investment, but it's hardly been a steady ascent, and for Blumert and other "goldbugs" it's also an ominous sign.

Goldbug is a term used, sometimes pejoratively, to refer to investors who are bullish about gold. Blumert describes himself as a "philosophical goldbug" to emphasize the theoretical underpinnings of his interest in the malleable yellow metal (and to distinguish himself from the more capricious "newsletter crowd" of investors, who might jump on the gold bandwagon following trends rather than principles).

The story of how Blumert became a philosophical goldbug is the story of a worldview shaped by coins and bullion.

It starts with a whirlwind verbal tour of watershed dates in "the significant monetary history that coincided" with his life and crystallized his philosophy of money. He jumps from decade to decade, adducing examples with a zeal that somehow sounds both beleaguered and self-assured: There was 1933, when President Roosevelt passed an executive order making it "illegal for Americans to hold gold coins"; 1964, when the United States stopped producing real silver coins; and 1971, when Nixon ended the gold standard for good. ("From that point we were dealing with fiat money," says Blumert, "money that is not claimable in precious metals.")

The history of American currency's relationship to the gold standard is long and tortuous (you can read an overview here) but what I come away with after listening to Blumert's history lesson is more a sense of how the government's interventions in monetary policy became almost personally offensive to him. He talks about 40-year-old moments in the history of currency in the same way that some people talk about a bad breakup they're still trying to work through. ("August 16, 1968. That was when it was all over. If you had a silver certificate, you had to redeem it prior to August 16.")

All of the dates Blumert brings up are occasions when the federal government took actions to divorce currency from its precious-metal backing. And for the philosophical goldbug, a currency with nothing behind it is a recipe for disaster -- when the government can print money and the Fed can adjust credit rates, the system, in the goldbug's view, is headed for collapse.

Blumert says his experiences with money led him to a natural political stance. "I became a libertarian," he says, "an advocate of freedom." Blumert is publisher of the libertarian Web site Lew Rockwell.com, whose motto is "anti-state, anti-war, pro-market." He is also a longtime friend and supporter of Ron Paul, and managed the Ron Paul Coin Co. for several years. Paul, not coincidentally, is an advocate of returning to the gold standard and abolishing the Fed.

"There are those who would criticize followers of Ron Paul as people out of the mainstream," says Blumert. But Blumert is used to being regarded as part of the fringe. "Those who own gold are regarded as wackos," he says. "If you buy an ounce of gold, you're saying no" to the system. "If you buy a share of Microsoft, you're a patriot -- you're participating, you're part of it."

"That was the prevailing view" for most of his tenure in the gold and coin business, Blumert says. "And it still is, although to a lesser extent."

The reputation of the goldbug as an outsider -- and as a stubborn fanatic -- prevails in a 2000 New Yorker magazine article in which author James Collins wrote that nearly any investment purchased in 1980 "would have increased in value by the year 2000. ... There was, however, one investment that would have lost you money, causing not only financial distress but also shame and humiliation. That investment was gold."

In 1980, Collins went on to explain, the price of gold peaked at $825.50 an ounce; in 2000 the price was about $280 an ounce. "So," the author continued, "while the popular crowd has rocked on at the bull-market beach party, gold investors have been holed up in somebody's basement, with two beers among them, and no girls."

Blumert recalls, "It was a horrible time in our industry from 1980 through 2000. We were in a depression." When Collins' article came out, Blumert wrote a response on LewRockwell.com, calling the piece "scurrilous" and another example of the establishment marginalizing the gold investor. "I was very sensitive to these people who attacked our industry," Blumert says in retrospect.

But something funny happened after that New Yorker article appeared: In 2001 gold prices went up. And they haven't declined since. According to Platts, a provider of energy and metals information, "The gold market is now enjoying its longest rally since the metal began trading openly on an exchange in 1974."

Which brings us to the goldbug's paradox. Precious-metal prices tend to increase in times of economic uncertainty and a weakened U.S. dollar. And this inverse relationship is key to understanding Blumert's reference to gold dealers' dismal view of the future. To a philosophical goldbug, when the price of their commodity increases, it's a sign that the global economy is tanking. Inflation is proof that the fiat money system is an illusion -- and an affirmation that, in the portentous, Arthurian terms of a recent book by Nathan Lewis, gold is "The Once and Future Money."

But -- and here's the paradox -- for the goldbug's worldview to be finally vindicated, the fiat money system has to collapse. "Many of my clients would like to be standing in the rubble of our society saying, 'I told you so,'" Blumert says. "And there was a time when I did want collapse -- when I was young and excited about my view. But the older I get, personally I can't deal with rubble anymore. I don't want to see a collapse, to be vindicated and say, 'See, I was right.'"

Instead, Blumert is enjoying his semi-retirement ("I'm looking out at the Pacific," he said when I phoned him on a weekday afternoon) and remembering the pleasures of his long career in the gold business. He says he's proud that the Camino Coin Co. developed a reputation for professionalism and integrity: "How could we not deal in integrity, when that's what the commodity was founded on?"

As he watches gold prices climb, Blumert sees further evidence of the weakness of a paper money system that, in his view, lacks the integrity of a precious metal. And as he expounds on his philosophy in an emphatic and excited baritone, the goldbug's paradox is contained in his genial voice -- it expresses apprehension but also confidence at the same time. More baseless paper dollars may be required to buy an ounce of gold today compared with 50 years ago, says Blumert, but "the gold doesn't change. The gold is constant."

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