National Review: Buying Your Golden Opportunity

Gold coins i i

Stephen Spruiell says it's not just advertising that makes analysts pro-gold. iStockphoto.com hide caption

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Gold coins

Stephen Spruiell says it's not just advertising that makes analysts pro-gold.

iStockphoto.com

Rep. Anthony Weiner (D., N.Y.) has uncovered a conspiracy between conservative talk-radio hosts and the gold companies that advertise on their shows. According to Weiner, the conservative talkers scare their listeners into believing that the government under Pres. Barack Obama is headed for insolvency, and that the U.S. dollar is headed for a period of intense instability. This makes the listeners want to invest in gold, which is what the advertisers are selling.

Weiner is only about five months late to this party. Prompted by Ken Vogel's reporting in Politico, MSNBC ranter Keith Olbermann and Comedy Central's Stephen Colbert have been on the case since last December, respectively ranting and making (admittedly funny) jokes about the symbiotic relationship between conservative talk radio and retail gold companies such as Goldline International.

But the involvement of a member of Congress adds a disturbing element to the plot. Weiner has issued a formal report condemning Goldline, called on federal agencies to investigate the company, and explicitly accused Beck and others of impropriety in their relationships with Goldline, insinuating — never proving, of course — that Beck's criticism of the administration is at least partially motivated by a desire to scare up business for an advertiser.

"Conservative Pundits Profit on People's Fear" is the title of one section of Weiner's report. After listing a number of conservative commentators who are sponsored by Goldline, the report concludes: "The message that these commentators push is that government is out of control and unsafe, inflation will continue to devalue the dollar and that as an investor you should protect yourself by stock piling gold coins."

For example, one of these right-wing commentators recently said:

When I watch Chairman Bernanke, Secretary Geithner, and Mr. Summers on TV, read speeches written by the Fed governors, observe the "stimulus" black hole, and think about our short-termism and lack of fiscal discipline and political will, my instinct is to want to short the dollar. But then I look at the other major currencies. The Euro, the Yen, and the British Pound might be worse. So, I conclude that picking one [of] these currencies is like choosing my favorite dental procedure. And I decide holding gold is better than holding cash, especially now, where both earn no yield.

Except that wasn't a right-wing commentator. It was famed investor and self-described liberal David Einhorn, speaking at the Value Investing Congress last fall (average registration rate: around $3,000). It turns out that while conservative talkers such as Beck are speaking loudly and angrily (and advertisers like Goldline are offering their listeners small, retail forms of protection), Democratic donors are silently making huge bets predicated on their being right.

Granddaddy Dem donor George Soros recently doubled the size of his gold holdings, which now represent 7.5 percent of his $8.8 billion fund. Former Goldmanite Eric Mindich, head of the hedge fund Eton Park, has invested over 4 percent of his fund in gold. Mindich doled out around $94,000 in political contributions in 2008, all to Democrats. John Paulson, the investor who became famous for shorting the housing market and, more recently, for being named in the SEC's lawsuit against Goldman Sachs, started a separate fund devoted just to gold investments. Paulson is another major donor to Democrats.

A Weiner spokesman tells National Review Online that the congressman has never said that investors shouldn't use gold as a hedge against inflation or instability. His problem is with Goldline International and other retail gold companies that sell gold coins at significant mark-ups over the coins' "melt value."

The companies respond to this charge by arguing that the gold content of the coins is only part of their overall value. In the 1930s, Franklin Roosevelt issued an executive order making it illegal for Americans to own more than $100 worth of gold, with the exception of gold coins "having a recognized special value to collectors of rare and unusual coin." Gold retailers such as Goldline argue that part of what makes their coins valuable is that, in the event that this administration or a future one adopted a similar measure, the owners of these coins could argue that they are collectibles.

Weiner does not offer a satisfactory rebuttal. The report states that Roosevelt's executive order "did not define special value or collector value," implying (I guess) that Goldline's coins might or might not meet that definition. But on the very same page, Weiner argues that Goldline's coins are not a good investment because the IRS taxes them at the 28 percent rate that applies to collectibles, rather than the 15 percent rate that applies to stocks, bonds, and real estate. So Goldline's coins are not worth the mark-up, because the government probably wouldn't consider them collectibles. And they're also a bad investment — because the government taxes them as collectibles.

This is not to say that I personally think Goldline's coins are a great investment. I own gold the way Soros and Paulson do, through the SPDR Gold Trust. (What's the saying — vote Right, live Left?) But this isn't exactly a risk-free proposition, either. Put aside for the moment the obvious, which is that all these conservative commentators and all these liberal hedge-fund guys could be 100 percent wrong (hey, it's happened before): Hard-core gold lovers love to denigrate what they call "paper gold," the idea being that, in a crisis, an exchange-traded fund would be more vulnerable to chaos and instability than personally owned physical gold. Also, some people just like to collect gold coins for their own reasons.

One way to look at this is as a typical liberal nanny-state intervention. Busybody Democrat with too much free time wants to tell you what to buy — news at eleven. But there is a darker possibility here, one foreshadowed by government bans on short-selling and denunciations of those seeking insurance policies against widespread sovereign defaults as greedy "wolf packs" bent on destroying the global economy. Weiner's report is a tinny echo of these broader crackdowns, an attempt to delegitimize dissent by painting it as something motivated by profits instead of patriotism. Glenn Beck and others are trying to sound, for the nation's small-dollar savers (what few we have left), the same alarm bell that the nation's large-dollar money managers have evidently heard loud and clear. That's not against the law — yet.

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