Wednesday, July 25, 2007

A Well-Written Life Lesson


Gold protects wealth.

This lesson isn't new. But even I had to learn it the hard way.
Back in 1975, I was a senior officer with the world's oldest and largest dealer in precious metals and foreign currencies, Deak-Perera. I learned this lesson firsthand and it forever taught me about the importance of the "barbaric relic"...GOLD!
Deak-Perera was one of the few financial institutions in the U.S. with a combined expertise in precious metals, foreign currencies and international banking. As a result of this knowledge, they were invited by the U.S. State Department in April 1975 to assist the South Vietnamese refugees that were pouring into Guam and the U.S. as Saigon fell.
Deak-Perera would soon be catapulted into the national limelight. Their role was the exclusive "moneychanger" for all five of the Vietnamese refugee camps.
You may recall, as of January 1, 1975, American citizens could once again legally own gold bullion. It had been illegal to own gold since 1933 when President Roosevelt took the U.S. off the gold standard and confiscated gold.
Unaccustomed as we were to handling displaced persons, it was nonetheless clear that even the most prominent of these refugees would be arriving at the camps with little more than the clothes on their backs and whatever valuables they could carry. And who knew just how valuable some of their belongings would be?
Only one thing was certain: They wouldn't be drawing checks on their local banks. All banks in that impoverished country had been nationalized, along with the rest of the economy. At the time, the cruel joke was Vietnam was a "true cash-and-carry economy."
A Day that Changed My Life
May 1975 found me at Eglin Air Force Base, Florida, one of the five refugee camps. Two particular families are burned in my memory...
A middle-aged man, trim and well-spoken, was wearing what had once been an expensively tailored suit. He obviously cared deeply for his bedraggled family. He had been a businessman in Vietnam. In fact, he was a banker. But now his family's total fortune fit in the small, dingy canvas bag that he was hanging onto for dear life.
Even through all the adversity he and his family had recently experienced, there was still a glimmer of hope in his eyes. Despite losing his job, his home and his country, he still wore a relieved expression whenever he gazed upon that canvas bag. It was his golden anchor! It was his key to a new life in a new country.
I was about to learn the role of gold in a crisis.
He poured the contents of the bag onto the table. There, gleaming in the sun, were 24-Karat gold Taels...a form of gold bullion indigenous to South East Asia. Each Tael was 1.2 ounces (37.5 grams) of pure .9999 fine gold. They looked like wafer-thin sheets delicately wrapped in paper.
It was Deak-Perera's job to buy the gold Taels from the refugees and, with the proceeds, issue traveler's checks.
A Lifetime of Work, Saving - Now Worthless
Further back in line, there was another refugee who was less fortunate than the banker carrying gold Taels. Much like the banker, he was a successful businessman before being uprooted with his family by war.
He approached my table with two suitcases in hand. Like his countryman with the Taels, he had worked very hard, saved extremely well and carried all his worldly wealth in those satchels.
But, there was one major difference. His wealth was in the form of Piasters, paper money issued by the Republic of Vietnam. These were paper promises of a government that no longer existed. I had to tell this man his Piasters were worthless. Can you imagine toiling and saving for a lifetime and be left with two suitcases filled with worthless paper?
Worthless as well were the U.S.-issued Military Payment Certificates (MPCs), which carried the likeness of movie stars. Other items, even valuable diamonds, jade and loose gems, were hard to exchange on the spot for a fair price. Only gold had a quick and ready resale value.
Before that day, I always knew that precious metals were an important asset. But, after looking into the eyes of these two men and their families, I knew firsthand the value of gold and other precious metals. Gold holds its value when nothing else will.
Is the Tale of the Tael Still Relevant Today?
Does gold in 2007 offer the same peace of mind and protection to Americans that it has through 5,000 years of history? Absolutely!
As an American, there are many threats to your hard-earned wealth. The most insidious is not military in nature. It is the weakening of the U.S. dollar.
For the United States, the invoices are piling up. The costs of military conflicts, out-of-control government spending, rising healthcare, and entitlement programs for the largest generation ever (the Baby Boomers) really add up.
We already know these mounting costs well exceed our government's revenue. The only politically acceptable solution is to print more money and further devalue the dollar.
Get Ready for Fireworks in the Gold Market
A good friend of mine, Don Mackay-Coghill, a respected figure in the precious metals industry for nearly half a century, recently commented...
"...The only way out for the politicians on both sides of the house is the well-worn track of devaluing the dollar by dramatically increasing the money supply - what used to be reported as M3. Having been fairly bearish on precious metal prices for a long period, I have over the past 18 months turned into a full blown bull."
"For the past five years or so, the gold price has, in my opinion, simply reflected the weakness of the U.S. dollar. Over the next five years, the driver is going to revert to the same driver that pushed gold to US$850 per ounce in January 1980 - INFLATION - and this time around it is my view that the forthcoming bull run is going to dwarf anything that has gone before it...I expect the fireworks to begin in the next three to five years."
So, when gold prices go to the moon, and the dollar falls into the abyss, which would you rather be holding to represent your life's work?
Would you rather be holding two suitcases full of worthless U.S. paper, or a canvas sack full of gold?

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