BUSINESS GOLD AND SILVER

THE MAN WORKING the smelter at the small metals refinery near D/FW airport was damned near tears. Around him stood 55-gallon drums filled with the jettisoned heirlooms that symbolized special moments in careers, marriages and family, priceless things that connected present generations to those once, twice and further removed.

Class rings, wedding bands, silver chalices, gold candelabras, a couple’s first (and perhaps only) silver place-setting, jewelry that could have been worn by a queen or a ragpicker… all were going into the fire for their melt-down value, and there was nothing the man could do about it. There was simply too much silver and gold to process and not enough time to sort through the artifacts for their private stories.

“It was just plain-old human nature at work -when you had silver approaching $50 an ounce, and gold going for over $800,” says Tom Taylor, president of National Smelting & Refining Corp.

“People who had spent $100 to $200 for an eight-place setting of sterling cashed out for $1,000 to $10,000 two years ago. We had literally hundreds of 8-ounce goblets come in. Young people, especially, turned it in. Youth took advantage of the market and forgot memories for monetary value.

“But we also had a lot of elderly ladies who couldn’t make it on fixed incomes make the same decision,” says Taylor.



STEVE IVY, 32, spent the past 12 years building a Dallas coin shop into a family of corporations that takes in $40 million a year in sales and ranks as the nation’s second-largest rare-coin dealership. Since spring 1980 (the season when gold and silver made an obvious decline from their respective $850- and $52-an-ounce highs the previous January), prices for Ivy’s products have fallen by half, his volume and staff have halved and he has moved into smaller quarters.

He shrugs it off as simply a market cycle -what someone else might call “life in the big city.” He has been collecting rare coins since age 8, trading and selling them since age 12, and he harbors no doubts that they’re investment winners.

“Over the past 25 years, quality coins have appreciated an average 25 percent a year. But some years, there’s been no appreciation, and some years, there’s even been a decline. To take advantage of cycles, one has to be willing to hold onto them for a lengthy period of time.. .say, five years, minimum.

“Coins went up in value from 1976 until early 1980, quintupling in value. A $1,000 coin in 1976 was probably worth $5,000 in spring of 1980. Since that time, the same coin is worth $2,500 to $3,000. There have been similar patterns of growth and decline in the coin business before. Each decline has been followed by better growth and by bigger peaks.”



ONCE OR TWICE a month, after he has received his paycheck and taken care of necessities, a familiar visitor walks into David Smith’s West Mockingbird Lane office to make his usual purchase: dimes, dated 1964 or earlier. That was the last year that U.S. dimes, quarters and half dollars contained 90 percent silver.

Smith is a precious-metals dealer -the vice president of Dallas-based Monetary Gold & Silver Exchange. That 9-year-old firm was known only by its “Silver” moniker until December 31, 1974, the day it became legal for U.S. citizens to own and trade gold in bullion, coin and other investment forms.

Now Smith trades in South African krugerrands and Mexican 50-peso pieces and 100-ounce bars of gold and silver worth small fortunes; but he’s willing to accommodate new converts to precious-metals mania for as little as the price of a single Mercury or Liberty dime. Those have little if any numismatic (coin collectors’) value, but they do contain almost a tenth of an ounce of silver (.076 percent) and represent the least-painful method of dabbling in the arenas of sheiks, central banks and others of means. One day in late May, the afternoon price fix by Handy & Harmon in New York pegged silver at $6.71 per Troy ounce, and Smith was quoting his dime buyers about a tenth of that, or 67 cents a dime. It was then that Smith shared this visitor’s special investment philosophy -as good a reason to own precious metals as any he’s heard:

“He said he could buy a loaf of bread with that dime when it was made. He said that as long as that dime will still buy a loaf of bread, he’ll continue to buy dimes.”

Well, unless he was talking about day-old bread or was shopping at Mrs. Baird’s Thrift Store, the dime buyer violated his own investment criteria that day. Silver recently traded near its three-year low; but lows and highs, ups and downs, depend on that overworked word, “perspective.” You’ve got one perspective if you traded silver at 40 cents an ounce in 1941, another perspective if you bought-in at 92 cents in 1959, and still another if you got in on domestic Treasury sales at $1.29 an ounce from 1965 to mid-1968.

“Three years ago, silver was priced just a little higher, and gold, just a little lower, than they are right now,” says Mert Rosenberg, Dallas regional manager for First National Monetary Corp., a national brokerage organization headquartered in Southfield, Michigan. “But just look at the upside potential and the downside potential. You’ve seen price moves [in those three years] of $6 to $51 for silver and $340 to $840 for gold.”



GOLD. SILVER. Rare Coins.

For most Dallas-area residents, these things have remained invisible investments, despite times in 1980 and 1981 when television and newspaper supplements carried three times as many ads for coin and bullion dealers as they did for chiropractors and siding firms. The only times the public visited many of those firms was when they wanted to cash-in the valuables they thought contained gold or silver. Even then, they didn’t realize that their treasured high-school ring was only 10-karat gold -or about 39 percent of the real thing. Or that they were often dealing with a pawnbroker who paid 50 percent of metal value instead of a gold dealer who would pay 95 percent.

“It pays to shop, to call around,” says gold dealer Tom Taylor, who would also like to see the percentage of U.S. gold bullion owners increase from its estimated 2 percent of the population to something higher -say, 14 percent. That’s more in line with Western Europe, where for centuries gold ownership has been a way of life, not a novelty.

A few dealers say that the very newness of gold ownership (which since its legalization in 1975 has also drawn attention to investment-grade silver) has possibly frightened away some people. There are 10 standard sizes of gold bars and wafers, ranging from quarter-ounce to 400 ounces. South African krugerrands, which outsell other gold coins up to 100-to-l in some dealerships, come in four sizes ranging from a tenth of an ounce to a full ounce of gold. Commissions and fees vary according to size and amount of purchase, and rarely does the purchaser buy gold at the London gold “fix” he hears on the radio (which is aired twice daily, at approximately 5:30 and 9:30 a.m. Dallas time).

These are minor steps that a reputable dealer can walk the novice through. Deak-Perera, an international foreign currency and investment service with a Dallas office in the Diamond-Shamrock tower, stresses the importance of “reputable.” You can judge that by the length of a dealer’s time in business, his reputation with other dealers and by referrals from someone who has been there before.

But a good reputation doesn’t necessarily mean the best price, even though the majority of dealers operate only on a 1 to 5 percent price spread between their gold (or silver) buys and sells. On any given day, a very small dealer may be able to give the investor a better buy than the largest investor, simply because he previously bought and inventoried gold at a lower cost than will be quoted on the spot market. Some brokers inventory little or no gold, so if it’s on an upward roll, you’ll have to match your bankroll to what is quoted. That’s why most dealers stress shopping by phone to find the best buys.

Who should own gold or silver? Simply put, anyone with discretionary money and the time to wait, says Taylor. “You ought to put away money you don’t need today and go for the two-year, three-year and longer haul. Don’t go into gold for a three-to six-month profit. But remember, it’s the most liquid investment you’ll ever have.”



CASHING-OUT is seldom a prime consideration to the investor/collector buying gold or silver coinage for its numismatic value, according to coin dealer Steve Ivy. “People usually don’t have to sell them at any given time, and they’ll rarely sell unless they can make a profit. In fact, the desire to sell them is only, if ever, spawned by the prospect of a significant profit.”

Unlike raw gold or silver, Ivy says, rare coins remain finite in supply; and most of those that are out are tucked away in collections. However, there is some correlation between the movement of the Consumer Price Index and gold and coin prices, except that Ivy says “coins go down slower and not as deep as gold and go up faster and higher in relation to gold.”

About 15 percent of Ivy’s 10,000 nationwide customers buy as collectors; about 15 percent buy as investors; the remainder buy as hybrids of the two. He encourages would-be investors to investigate the pleasurable aspects of owning coins, and he advises that there is usually a 25 percent spread between the wholesale and retail price of a coin. In other words, if you spend $1,000 today for one, you’ll only get back $750 if you try to turn it back immediately. Also, if a person is getting into coins simply as an investor, not a collector, Ivy says that he or she should have a minimum net worth of $50,000 before even considering the investment.

You can scratch any gold bug and find price optimism -even if one economist is predicting Armageddon and another is forecasting manna from heaven. The true gold bug believes that economic collapse will render hard assets (rare coins, gold, silver) the only assets of value. Economic recovery, on the other hand, tends to feed inflation, which also weakens paper money and drives up the value of hard assets.

Gold bugs (interchangeable with hard-asset or hard-money people) tend to fill Holiday Inn seminar rooms when the metal is headed up, but then disappear from sight when it’s cratering. A notable Dallas exception is Dr. LeRoy S. Brenna (PhD, statistics, Virginia Polytechnic Institute), a self-admitted hard-money man who not only had his own daily hour-long economic show on UHF Channel 33 before the demise of that station’s business-news format, but also recently was invited to address a convention of financial planners at the Loews Anatole hotel. Brenna’s credibility is enhanced by absence of the word “gold” from entire segments of his conversation, plus his observation: “Gold is not for all times. There is a time to be in gold and a time to be out of it.”

Brenna thinks that this is one of those times to be in gold. He has never really been out of gold, just less noisy when it’s been on the skids, as has been the case since late winter and early spring of 1980. When a Dallas Morning News article in February 1981 quoted half a dozen area precious-metal dealers as predicting $l,000-an-ounce gold during the year, Brenna kept off the bandwagon, even though he runs several mutual funds related to hard-asset investments and gold mining stocks.

We ran across Brenna in early 1978, when he had this to say: “There are a lot of reasons to believe that we are on some kind of six-year cycle as far as monetary events are concerned. I think, in turn, that 1980 will be the end of the next six-year cycle.”

Brenna then went on to speculate that gold could reach the unheard-of price level of $400 in 1980 (it was $190 an ounce at the time), and added: “It is conceivable that we [his gold-stock mutual fund] are going totally into cash-in the first part of the Eighties in anticipation of a severe correction in gold, with the anticipation for gold turning up in 1983 and going to well over $1,000 per ounce… if the six-year cycle continues as it has in the past 30-odd years.”

The objective here is not to paint one man as a gold guru, which he is not, but to tell the novice what to expect on an exploratory visit to a metroplex precious-metals dealer. For their own protection, most dealers subscribe to a compendium of economic and investment newsletters. A publication called “Newsletter Digest” (Hunts-ville, Alabama) even tried to summarize the information sources monthly and present the prevailing prognostications.

With respect to gold (and by implication, to its companion runners, silver and rare coins), the predictions are mostly up -way up. The top metals analyst at Merrill Lynch won’t bat an eye at predicting $3,000- to $4,000-an-ounce gold and $300- to $400-an-ounce silver by 1985. Brenna has escalated his bid to $5,000 an ounce but has extended that to 1986, the last year of his current cycle. In a recent issue, the more-conservative “Silver & Gold Report” simply hedges its bets: “We think it’s a safe bet that within three more years, gold will be trading above its former peak of $850 per ounce.”

“Silver & Gold Report,” particularly, offers ample graphs and supply/demand estimates to support its case; and statistician Brenna, who assembles such data to support his own articles, can play the razzle-dazzle role, if necessary. But he prefers a more basic tack:

“There are a number of technical considerations you can examine about gold prices – coinage rates, government bullion sales, import-export restrictions and quotas and the like,” he says. “But you might as well scrap them.”

“The key factor today behind the price of gold is political thought. Gold bullion could be defined as the barometer of uncertainty.”

He means the barometer of fear -fear that used to be rekindled every time the OPEC ministers made hotel reservations, or every time gasoline zipped ahead another nickel a gallon, or growth in bank savings deposits came to a screeching halt. Those were inflationary influences of one sort, which were largely wrung out of the national economy during the waning days of the Carter administration and the opening days of the Reagan reign.

In wringing inflation out of the economy, however, we’ve all but wrung the economy’s neck, and that perception is not restricted just to hard-asset hard-liners. A number of economists believe that the Federal Reserve Board will react to a crisis “trigger” -such as a rise in unemployment of more than 10 percent or a few major bank failures-by reinflating the money and credit markets to help finance the government’s deficits and end the recession. A little-publicized clause in the Monetary Control Act of 1980 provides the mechanism to do so by reducing from 16 percent to 4 percent the amount of reserves that member banks must maintain with the Federal Reserve to cover new obligations in the credit creation process.

Should the above scenario come to pass- and there is no guarantee that it will -the hard-asset people predict that theeventual outcome would be hyperinflation, which would restimulate interest ingold and silver. But the outcome is nomore guaranteed than the scenario, andmoderates see only modest inflationarystimulation during a loosening of moneyand credit, which would mean a holdingpattern for gold and silver.