The Corner

Golden Tickets

My article on Anthony Weiner, Glenn Beck and Goldline has prompted several good e-mails. I’ll share a couple, plus my thoughts:

While I have little doubt that Congressman Weiner’s motives are purely political,  I am a conservative who also happens to be a bit uneasy about the preponderance of Goldline advertisements that air during conservative radio talk shows.  Having worked for some 15 years as precious metals broker for a major institutional brokerage house, I have some expertise in the trading of gold.  What makes me uncomfortable is not that Goldline is disreputable (although gold-coin dealers, in general, have a reputation akin to used-car dealers) or that gold is intrinsically a bad investment.  Rather it is that these ads pay short thrift to the significant risk entailed in gold ownership.   David Einhorn, George Soros and Eric Mindich may all be big liberals, but they are also professional investors who can afford to take huge positions and huge risks in a market that has a history of extreme volatility spikes.  (I would also argue that Einhorn, et al are more traders/speculators than investors, but that’s a different debate.)

Yes, if you were fortunate or smart enough to buy gold five years ago, you would have nearly tripled your investment.  But it has been a rollercoaster ride that may not be suitable to the stomach of the average Glenn Beck or Mark Levin listener.  Just this past week, the market has tumbled 5%.  In May through November 2006, the market suffered a 22% correction, and in March through November 2008, gold prices fell some 18%.  And for a little more historical perspective on the perils of gold volatility:  The last time the yellow metal enjoyed such a rally was in the late 70s.  Using the London Gold Fix as a basis, prices nearly quadrupled in 1979, topping out at $850 in January 1980; less than two months later the market traded at $482 – a stunning 43% decline. 

Another such decline is, sooner or later, inevitable.  What will Beck, Levin and other Goldline touts say to their audiences then?

Well, without speculating too much about what’s in the minds of people who buy gold coins and other forms of physical gold from companies such as Goldline, I would merely offer that perhaps some of these people, if not most of them, are not checking gold prices every day to see how their investment is doing. They’re holding gold instead of cash as an insurance policy against currency devaluation. Perhaps some people hold gold the way others hold stock in their 401k’s, hoping to cash out in retirement after realizing significant gains. I don’t think that’s wise, and to the extent that Goldline is encouraging that strategy, I think it’s offering bad advice. But it’s not difficult to educate oneself on the volatility of gold prices, and I would say the principle of caveat emptor works fine in this regard.

As I understand it, no one is objecting to Beck’s trumpeting the value of gold investing or his having of Goldline as an advertiser.  It’s doing both at the same time that is, at the least, unseemly and at worst, a conflict of interest.  Once, the Goldline advert came immediately following a piece where his guest has predicted that the Dow and gold would be at par (5000 each).

I would think that just about every journalist/pundit would view this as problematic.  I happen think Beck and others are right about gold as a hedge.  I also happen to think that mixing the adverts with repeated claims about what gold or the dollar will do weakens his credibility.  I don’t think he’s insincere.  Ask yourself though, would Goldline be an advertiser if Beck were a Kudlow-esque dollar hawk?

This gets things backwards and makes them more complicated than they need to be. It is fairly intuitive — borderline obvious — that people who are drawn to Glenn Beck might be predisposed to buy gold and might do so even if Beck never explicitly endorsed gold as an investment. The point of my article is that many people, including some of the smartest money-managers on the planet, are observing clear warning signs that currency devaluation, perhaps severe, poses a greater risk today than it has in a long time. I think conservatives among this group might naturally be attracted to Beck’s radio and TV programs, because he’s saying a lot of things they already agree with — things which indicate that gold might be a good investment right now. And that is why, even without Beck’s explicit endorsements, gold companies would probably advertise on his show.

Beck critics such as Weiner know this — they’re not stupid. But they are aggressively ignoring Occam’s Razor here because they think this is a good way to delegitimize a powerful critique of the Obama administration.

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