Gold! Stocks or Physical?

November 22, 2001

Let me begin by saying that I am a precious metals dealer. I have been such since November, 1977, and do not sell gold stocks, or any other stocks, for that matter. I have clients in all 50 states and Singapore, and enjoy what I do. With that caveat, allow me to examine the plusses and minuses of each. Fair?

To begin, let's look at gold stocks. Yes, I do have some, and hope they might eventually do well, although so far, I am at a loss position. A share of stock in any corporation, gives the owner of that share, a small piece of ownership in that corporation. It may be a billionth ownership, a ten thousandth, or in a small privately held corporation, even total control. The share of stock represents something, as opposed to a dollar bill, which represents nothing. Owning shares of stocks in any corporation, unless it is a huge percentage of outstanding shares, gives the owner of the shares no say in management decisions. The share holder suffers, if the corporation is poorly managed, or makes management decisions that are ill conceived. The shareholder suffers from labor strikes or market declines in the corporation's product. Home Depot and Wal (China) Mart have recently showed above expected profits. I try to stay away from "China Marts," because I believe that if it weren't for China Marts buying tens of billions of dollars worth of goods from Red China each week, the so called "China economic (slave labor) miracle" might not exist. Millions shop at Wal Marts each week, and their profits are up. It is to be expected that Wal Mart share prices will go up as a result. The same with Home Depot's shares, although they are way down from their peak.

So much for stocks in general. How about gold or silver mining stocks? First of all, remember that gold is not an American consumable, as is Home Depot and even Wal Mart. Gold is consumed all around the world. India buys far more gold than does America. Gold is mined all around the world, and is desired and admired in all languages, customs, and nationalities. Far more gold is mined in South Africa than in America. More gold is mined just about everywhere, than in America. Silver mines by the score are shut as tightly as a bottle of Coke on a grocery store shelf, as it is probably impossible to mine silver at current prices. Some gold mines are open, and can produce gold at current spot prices, which are currently in the neighborhood of $275. Many gold mines are shut like the silver mines, because they cannot produce gold at the current price. It is logical, that if the prices of gold and silver rise, many mines will re-open, as it will become profitable to operate their business. Many will never re-open, as they are flooded beyond recovery. Gold production has become a lot more efficient due to the "heap leach" process of extracting the gold from the ore. The milled ore is placed on a plastic bed with a drain, and is flooded with cyanide, which separates the gold from the rock. The cyanide can be used over and over again, making the process very efficient.

Share holders of foreign and domestic corporations are at huge risk of government takeover or interference with their businesses. In America, you might as well forget about ever mining gold in underground mines, which still have billions of ounces of gold left in them. MSHA, which is the mining version of OSHA, plus the EPA, and various other tree hugger branches of the "environmental" movement, have seen to that. This leaves the strip mines in America, which use the "heap leach" process, plus mines in Indonesia, South Africa, etc. Are you familiar with Zimbabwe? Zimbabwe used to be called Rhodesia. Rhodesia ceased to exist, when it was taken over by blacks, headed by a tyrant named Mugabe. Now the remaining white farmers are being forcibly thrown off their land, which they own, and for which they have deeds. Deeds and ownership make no difference when a government is overthrown by a mob or tyrant. The same thing is now happening in South Africa. Hundreds of white farmers have been murdered, and the mayhem continues. White farmers are simply leaving. They are abandoning their land…because they want to live. An isolated farmhouse is no place for a white man or family to live in South Africa.

What happens to gold mines, when the land is taken by the mob, or a dictator that is backed by his army? Many years ago, when white rule was removed from South Africa, I said that the land's days were numbered, and still fervently believe it. Many of South Africa's mines are thousands of feet deep, and require continual huge amounts of forced air to make work possible, because the temperature is 160 degrees at those depths. Managing and maintaining these productive mines is a highly skilled profession. If the operation is seized by a moronic dictator, and South Africa becomes another Zimbabwe, will the mines and their stock be worth the paper on which they are printed? The same potential overthrow and ruination could happen in Indonesia or any other violent, uncivilized, or lawless state.

If South Africa, or other lands are seized and ruled by the unintelligensia, not only will the mine stocks become worthless, but the world's supply of physical gold will be hopelessly curtailed. Permanently so, I am certain. With far less gold being produced, if this happens, the stock will be worthless, and the physical gold will zoom up to the stratosphere in price, due to short supplies. Will it happen? Yes, but I have no idea when, any more than I can know when metals prices will escalate. I only know they will. I think the entire continent of Africa, other than Egypt, is doomed. How can it continue, when with each passing day, more AIDS spreads, more tyrants abuse the business people who have brains, and more land is seized. Africa cannot feed itself any longer, whereas it used to export food. How long before the gold and diamond mines are considered rich plums to be seized by the might of the worthless? When it eventually happens, it will spell the mining industry's demise. The stupidest people, often think they are brilliant, and capable of anything…a common mentality of loquacious dictators, such as Hitler and Castro, both or whom destroyed their nations, as Africa is now being destroyed.

Pieces of paper with ink on them, in the form of dollar bills, represent nothing. Pieces of paper with ink on them, in the form of gold and silver mine shares, represent microscopic ownership of these mines. If the mines can no longer operate, or have been ruined, who wants to own a part of them? The NASDAQ stocks represented ownership in corporations that mostly showed no profits, and their crash was as foreordained as are the rise and fall of the tides. South Africa's distant future is as bright as a candle lit in a baseball stadium. For the time being, the mines are producing gold cheaply. How long? I haven't the slightest idea.

I, therefore have a few shares of Durban Deep, and a couple of others, but in the main, I love physical gold and silver. I consider actual possession of something, far better than owning a microscopic piece of the action of something I think has a dim future. Africa, Indonesia, or lands ruled by tyrannical dictatorships throughout the world, will eventually go the way of all flesh, when it comes to mining, productivity, profits, or innovation. If they destroy their heritage, as they are wont to do, my physical gold and silver will be worth that much more. Gold is eternal, and has been loved and considered actual wealth by all nations throughout thousands of years of history. This will not change. Only its sources of supply will change.

Just thinking of how idiots can ruin something wonderful, keeps me thinking about the novel I have been urging all of you to read, and that is ATLAS SHRUGGED, by the late Ayn Rand. If you have read ATLAS SHRUGGED, you can see exactly how the gold mines in dictatorships can go to zero. Another one you will love, if you share my animosity towards big domineering government, and love the Second Amendment, is UNINTENDED CONSEQUENCES, by John Ross. It's great! (it has a superb ending!) And of course if you haven't read my CONSEQUENCES, ask me for it by e-mail, ( and I'll e-mail it to you free.

Shares of physical? I'll take a bit of the former, possibly, and mostly the latter. After writing this, I may sell my shares!

Nearly 40 percent of all gold ever mined was recovered from South African rocks.