Louis J. Wasser
Louis J Wasser
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Speech written by Lou and presented by Albert C. Johnston, III to great acclaim at the London Bullion Market Association (LBMA) Conference in Montreux, Switzerland, June 2006.

Although laced with occasional humor, this speech about the gold market has turned out to be prophetic.  For in the past several years since Mr. Johnston delivered the speech, the world price of gold has soared to all-time highs.

Ladies and Gentlemen:

I am pleased and honored to be here this afternoon. And I want to thank The London Bullion Market Association for this opportunity to share my observations as a retail broker of physical gold in the United States. I'm unable to offer you the formal argument and consistent formulas of an economist. But you know what they say about economists: they can supply it on demand. But as a businessman, with day-to-day experience in the precious metals trenches, I can identify for you a conspicuous market pulse — a pulse which I have every confidence will be recognizable to you in the form of a robust market trend over the next several years.

Accordingly, I am also pleased to report that, after years of having been treated as the bastard child of America’s investment community, gold is finding its way back to the American investor’s home - and would you believe (?) — through the front door.

It has not been an easy trip. For many years, gold has had to assert itself as a contender against America’s two favorite financial children — the equities market and the real estate market. But as Sir Winston Churchill once observed:

“Americans always try to do the right thing after they've tried everything else.”

The special emphasis here though is on physical gold — not gold funds, options, futures or mining stocks, or for that matter, the new kid on the block known as the ETF. Sir Winston's observation notwithstanding, the song Let's Get Physical is really a very old one in America.

America's love affair with gold officially began with the great Gold Rushes in America from 1848 to 1899. This was the mania that built America's Western Cities, financed its railroads and put California on the map. The determination to accumulate was evident early on as men who left their wives and children to go West and mine gold promised they’d return months or even years later with a —“pocket full of rocks.”

In 1929, a world-wide depression hit the United States and got in the way of most individual investment; and then on April 5, 1933, President Franklin Roosevelt invoked his authority to make it unlawful to own or hold gold coins, gold bullion or gold certificates. On August 15, 1971, President Nixon unhinged the official link between gold and the US dollar, and the American investor later became legally free to own gold on January 1, 1975.

This is all familiar history to you. But I mention it here only to emphasize that the desire for the individual investor in America to own gold has never been totally lacking. It's simply been inhibited. And if that desire was inhibited by law between the era spanning the Roosevelt and Nixon administrations, it's been inhibited by gold's arch-competitors in The United States since then: the equities and real estate markets.

Since World War II, the American investor has become accustomed to a threefold partitioning of his personal finances: a) home ownership b) a bank account and c) a stock portfolio. For this seemingly steadfast investor, most other investments — certificates of deposit, bonds, mutual funds, pension funds and other types of retirement accounts, real estate investment trusts — have simply amounted to variations on the same themes.

Understandably, except for a minority of safe-haven and survivalist — or more properly, apocalyptic—- investors, The United States' affinity for gold accumulation has been inconsistent and episodic. Unlike Europeans, we lack the well-reinforced memory of foreign invasions, worthless currencies and severely injured, if not wiped-out, economies. ENTER 9-11.

My broker colleagues and I have noticed — not a sea change — but certainly a marked difference in investor awareness and interest in gold since the tragic events of 9-11, especially since investors had confirmation of gold's probable upside five months before that time. We began staying after hours to work with investors who began calling us to ask: What will become of that sacred cow, the American Dollar? (and) Why is America beginning to export its jobs?

And frankly, my colleagues and I at first agonized over gold buying through ETFs. Would ETF investments obviate the need for holding physical gold? Our experience reveals a surprisingly different scenario. ETFs have stimulated in the investor's thinking an awareness of the importance of holding some physical metals. So too with mining stocks. Owners of mining stocks have begun to look at the possession of physicals coins and bars — as an important piece of the puzzle.

Who then are these new American gold investors? Are they physicians and lawyers, and other professionals? A few. Are they stock market investors? Most often — yes. Are they high net-worth individuals? Almost always.

Now consider that, as recently as 2003, the number of millionaires in The United States surged 14%, according to a survey released by Merrill Lynch and Capgemini. One out of one hundred twenty-five people in The United States is a millionaire.

And the profile of my frequent late-evening callers, male and female alike, is very much like that of the millionaire portrayed in the best-selling book, “The Millionaire Next Door,” by Thomas J. Straley and William D. Danker: “married, three children self-employed in fields often seen as dullnormal: welding contractors, auctioneers, rice farmers, owners of mobile home parks, pest controllers and paving contractors.”

To further flesh out his portrait, we should note that this Johnny-come-lately gold investor is still reluctant to make substantial foreign investments yet drives a Japanese or German car, is very anxious about escalating oil prices and interest rates, is troubled about the plummeting value of the American dollar, and is extremely skeptical about the curative ability of his or anyone elseˈs government.

Typically, and depending on his net worth, he enters the gold market for a first-time purchase at one of three levels: a) from 50 to 150 oz b) from 150-500 oz. or c) 500 oz plus. He invariably makes his initial investment/purchase in the form of coins for direct delivery. Had he been a first-time buyer, say, in 1996 or 1997, he would have entered the market for at least one third of his present gold purchase, if at all. And he would have spent much more time on the phone deliberating about the smaller purchase.

Ordinarily, I wouldn't have heard from a 1997 or 1998 first-time buyer again for at least another eighteen months. Now I will hear from him again for repeat purchases in two or three months. On subsequent purchases, he is more likely to buy kilo bars or 400-oz bars for depository storage instead of delivery. One in five 1997 buyers referred one new buyer to me. Now, two out of three buyers are each referring, on average, three to five additional new buyers.

My colleagues in retail dealers throughout North America are telling me that their volumes are up between 50-100%- PLUS...

These reports, of course, as well as this account of my own business, mainly represent secondary market activity — rumblings in the volcano before eruption — and, as such, fly in the face of official US Mint figures of new coin sales, which over the last several years have been relatively flat. Also, as the new gold buyer becomes more knowledgeable and sophisticated, he is taking advantage of sell-back opportunities accorded him by market volatility. Such activity is more problematic to nail down in terms of a traceable market trend, but it is significant because it resides at the very heart of two-way trading.

The internet has been a boon to the retail precious metals business. A well designed website warms up, conditions and educates the gold investor/purchaser and renders him more able to negotiate by phone with a broker in a live market. It has broken down many of the geographic barriers of doing business. As we move to the next phase of a bull market, it’s not difficult to foresee a public which will prefer the privacy and efficiency of an internet transaction over a visit to a coin shop or bank that will be ill-equipped to handle volume gold purchases in a rapidly moving market. Three years ago, we converted one out of five internet gold inquiries into a final sale. Now we convert one out of two. The internet client is confident, poised, determined and reliable. Amazon (dot) gold, anybody?

As the cycle of the retail gold business goes, there seem to be three stages in a bull market. There is a primary accumulation stage when the price of the yellow metal seems to have bottomed out and only the stalwart, the cranky or the over-analytical buyer seems to want it. There's a “catch-on” stage when most investors seem to “get it” and begin diverting a pre-set percentage of their portfolios into physical gold. That's where we seem to be at this particular juncture.

And lastly, there is the stage when the general public begins swarming into the market. As I look around the room, I know that there are many of you here who remember when gold soared from $381 on November 1, 1979 to $850 on January 21, 1980, and when, as a result, the greatest wave of buying followed in the four weeks between Christmas, 1979 and that January 21, 1980 high.

Will gold soon test or surpass its 1980 high? That’s not for me to say. I’m neither a commodities analyst nor an economist. But I do feel certain in asserting that there will always be a market for physical gold. A colleague of mine in this business used to have a special technique for dealing with a difficult person who would phone in just to say that, in his opinion, gold has no value.

Can you imagine that: “gold has no value?”

My friend would then pause and then ask his caller: “Are you wearing a wedding ring?” And if he’d get a yes, my friend would then ask the caller “would you like to sell your wedding ring?” My friend fielded hundreds of such calls. And you'll be pleased to hear that he received not one taker on his offer to buy a wedding ring. No one will accuse you of being cynical, I'm sure, if you conclude that my friend's failure to get an offer to sell a wedding ring has more to do with the durability of gold than the durability of modern marriage.

Again, there will always be a market for physical gold. Investors, to be sure, will thrive on gold futures and options and now the gold ETFs. But they will always buy physical gold. They will buy it because they're wise, because they're greedy, because they're afraid, because they're exorbitant, because they're generous, because..... well..... George Bernard Shaw put it best:

“You have to choose between trusting to the natural stability of gold and the natural stability of the honesty and intelligence of the members of the government. And due respect to these gentlemen, I advise you, as long as the capitalist system lasts, to vote for gold.”

Ladies and Gentlemen: It's been my pleasure. Thank you very much.

Now I'd be pleased to address any nagging questions or thoughts which you may be entertaining.