Introduction: Mr. Gorman has been actively extolling the virtues of honest money for nearly 28 years, the last fifteen of which he has spent as president of Resource Consultants, a Phoenix, Arizona based wealth advisory firm. Mr. Gorman has hosted the longest-running financial talk radio show in the Phoenix area, Hard Money Watch. And for the past 12 years, he has hosted an annual two-day wealth protection seminar attracting today's top free-market minds. Additionally, Mr. Gorman is the author of the ‘Net best-selling book, The Value of Honest Money as well as a monthly investment newsletter outlining asset protection strategies. He is also a member of the board of directors of two public mining companies.
Daily Bell: We would like to begin by thanking Pat for sharing his extensive knowledge of honest money and free-market principles with the Daily Bell.
Pat Gorman: Thanks for giving me the opportunity to help educate your readers to what is really going on out in the real world.
Daily Bell: There aren't many people who've been sounding the alarm as loud and for as long as you have about the dangers of fiat money – and the need for people to accept personal responsibility for taking care of their financial future. Let's start by discussing fiat money and why you are so opposed to people relying on it for a store of value. Why do you think so many American's still believe there is intrinsic value in the US dollar, or any other fiat currency for that matter?
Pat Gorman: The best way to describe how I feel about fiat money and the way we as Americans are manipulated every day is to tell you what I wrote in the Introduction of my book, "The Value of Honest Money." Let's begin at the beginning. We are in the grip of a financial crisis that threatens to wipe out the savings of millions of middle class people, and if you don't know about it or don't understand, then you are in grave financial danger. Money is not what it once was. People used to exchange silver and gold coins for goods and services and today it's notes from central banks.
Without a linkage between an underlying asset and paper money, central bankers and politicians who supervise monetary policy, have removed many of the restraints that previously kept the generation of money in check. The only real money is backed by specie – something like gold and silver. For thousands of years these two precious metals, especially, have been seen as honest money. Every time over thousands of years in history that a government thought they could create money out of thin air, the economy of that civilization has suffered or even been destroyed. We are on the cusp of destruction in America right now.
Daily Bell: We acknowledge an obvious monetary elite. What is the impact of the Internet on them, and is it similar to the Gutenberg press.
Pat Gorman: The Internet has a constructive and a destructive impact on all of us. Yes Guttenberg was able to open a whole new world of printed material for millions to read and the first things that came off his presses were constructive. However as time went on the propaganda machine took over and then the press was used to reinforce leadership agendas that were in the interest of a power elite but not necessarily everyone else. Finding the truth in any form of media is most difficult these days. Everything we read and research needs to be validated and verified. I do believe, however that the Internet still has the best capability to educate us about what has historically helped to build and maintain civil societies.
Daily Bell: If what you are saying is true — and you certainly won't get an argument from anyone here about the ic;">real value of paper money and the inevitable downward direction in which it is headed — what can people do on a personal level to protect their wealth and escape the chaos that may loom ahead?
Pat Gorman: The first thing to do is exchange at least some paper money for real money, gold and silver. Gold and silver have helped protect people when governments or bankers became too controlling. You need to take possession of these real assets and hide them away somewhere. One of the problems is that in today's society, people tend not to exercise personal responsibility but to leave control to others. That is exactly the reason we are where we are today.
Daily Bell: We certainly agree that employing human action on an individual level is a necessity for those who wish to ensure the protection of their property and wealth. Do you think Americans should be fearful of another round of gold confiscation? After all, FDR issued a confiscation order back in 1933 during the height of the last Great Depression. What's to stop it from happening today as well? And what can holders of honest money do about it?
Pat Gorman: Now you have asked a great question. Your readers may not have heard my take on this situation from anyone before but you had better listen. My feeling is that they will NOT call in gold in the US anytime soon and probably not in your lifetime. Let me explain: Back in 1933 when FDR called in the gold and made it illegal to own, this country was in a depression. What is a depression? It is a lack of liquidity. Our government was broke. They had spent all the money they had printed and they could not print any more money without additional gold to back it up.
They called in gold and $20.22 per ounce. Then, they revalued the gold at $35 and change. This allowed the FDR regime to print enough money to put thousands of men to work on such projects as the TVA, the Hoover Dam, and the Pacific Northwest project. This was only temporary however. I am not saying that I condone what the government did but it did provide temporary liquidity. You must also remember that almost 100% of the American people dealt in gold. Our paper money that was printed at the time was backed by gold. To create instant money they had to have instant gold.
Now, let's fast forward to today. We are in the midst of what I believe is a new depression and our government has already decided to print their way out of it. We create money nowadays out of thin air – and that wasn't so readily accepted when Roosevelt was President. America already had a Fed, but the Fed had certain restraints that it had to abide by, at least publicly. There is not much that restrains the Fed anymore, unfortunately.
Also, today, less than 5% of the American people own physical gold. By the time this current bull market hits its highs there will still only be about 10% to 15% that own physical gold and silver. Today over 90% of the American people have 401Ks, IRAs, Keogh's, mutual funds, money market accounts and all sorts of paper products they call money. That's where the action is — and what is actually being confiscated. But paper wealth can be confiscated by stealth; it's not like real money. Taxes are one of the easiest forms of confiscation of course.
Daily Bell: What about Exchange Traded Funds? We hear an awful lot about them from mainstream commentators. Are buying units of ETFs the same thing as buying physical gold or silver and don't they eliminate the aggravation of safely storing physical metals?
Pat Gorman: Absolutely not. The ETFs are not the same as owning the physical in your hand. First, you cannot call the managers of an ETF and ask them to convert your holdings to gold. Second, ETFs were never really created for the public – but for the big boys. Most hedge funds and large managed funds are restricted or even prohibited from investing in the futures market. However they can put their money in these types of funds. Read the prospectus of any one of these types of funds and you will most likely never send them a dime. In the GLD and SLV you will find that three companies manage these funds. Two out of the three never have to be audited and the gold or silver on-hand hasn't been audited either to the best of my knowledge. Meanwhile, the managers of these same funds can sell short; they can go naked, and they can lease their gold or silver. They can pretty much do whatever they want. What happens to their gold and silver holdings if they get caught on the wrong side of the market? Does anyone remember Long Term Capital Management? (LTCM)
Daily Bell: Why do you think the public is so fooled by ETFs?
Pat Gorman: The public is so taken with this type of fund because the public in aggregate realizes that it needs to own gold or silver and these funds are talked up in the brokerage community. Brokers are comfortable with paper products – and these funds have some aspects they find familiar. So they convince clients that buying into these funds is basically the same as owning physical gold and silver. The broker remains in control and the client believes he or she has accomplished appropriate diversification. Not so. Also, ask your financial advisor about taxes and ETFs. No long-term capital gains benefits on these babies no matter how long you own them. Good Luck!
Daily Bell: OK, you're obviously not happy about ETFs. Would you advise buying them for growth purposes rather than protection purposes? Or do you prefer shares in gold and silver mining companies for capital growth?
Pat Gorman: I think that a well-rounded portfolio will have various different items in it. Once you have an ample amount of physical gold and silver then by all means consider mining stocks. Start with some real long-term producers, bigger players. Then take advantage of the exploration companies that seem promising. If you do your homework you'll be able to find some promising possibilities. Look for companies that have savvy investor relations departments and good client support.
Daily Bell: To summarize then, you advise people to use physical gold and silver to protect their wealth and to buy shares of gold and silver mining companies to grow wealth.
Pat Gorman: No question about it. My approach is that you use your resource stocks to build wealth quickly – during bull markets such as the one we appear to be in. Then you sell off profits, and lock-in those profits by purchasing more physical gold and silver. You have to be disciplined to do this. Nothing in life, or investing, is easy.
Daily Bell: We have heard a lot about precious-metals supply shortages over here in Switzerland and that many dealers in the US too are backed up with orders causing deliveries of honest money to be delayed as much as 60 or 90 days. Is there any truth to this and, if so, why aren't metals prices reflecting this?
Pat Gorman: The demand for physical gold and silver has been off the charts. People around the world are waking up to how fast fiat money is crumbling worldwide. The mints and manufactures are working full tilt to keep up with the demand. Many new people that have never owned gold or silver are coming into this market. They need to be careful out there, of course. No market, especially a hot one, is without wolves.
The second part of your question is very interesting. What has happened over the last eight or nine months is that the physical market and the futures market seem to have dislocated. You have to remember that the spot prices you see on your computer or anywhere else are the prices put in place by paper traders, some of whom are very obviously interested in manipulating the market, and for various reasons in keeping a cap on prices. However, you must also remember that there is only a finite supply in the world of physical gold and silver. As demand increases, so do the premiums or price. When these guys get caught on the wrong side, and I believe they will, eventually, then all bets are off. The paper price and physical price will be heading for the moon.
Daily Bell: Bill Murphy, founder of the Gold Anti-Trust Action Committee (GATA), has been fighting to stop what he calls the blatant manipulation of gold by mainstream financial institutions and governments. Do you agree with him about such manipulation?
Pat Gorman: Hats off to Bill. He sits in a lonely place and the mainstream continues to beat him up. Bill Murphy is a true American. Want to find out the truth? Bill's GATA site is where you should go.
Daily Bell: One of the things Bill talks a lot about is forward leasing and how this is used to sell short the gold market against future expected gold production. Can you comment on this, both of in terms of how the process works and how it affects both high finance and junior mining equity?
Pat Gorman: When someone sells a market short or leases a product like gold into the market, they are in fact selling a product that they don't have, and that the owner may want back someday. But the process has had a depressive effect on the market and on financings. Lenders tend to ask, "Why should we put our money into this project as long as the price looks like it will go nowhere?" I do believe that GATA's efforts are now starting to pay off. The physical demand for gold is rising. Fewer are looking to lend. There are now bankers from major countries coming to the market very quietly and trying to divest themselves of US dollars and acquire gold. The manipulators days are numbered. If indeed this ends as abruptly as we think it will, you may find that there are certain opportunities available of now that you won't be able to avail yourself of soon.
Daily Bell: Recently the IMF has announced they are selling gold again. With governments or internationally unelected organizations, such as the IMF, continuing to sell against dwindling inventories, aren't those desirous of a low price for honest money running out of options? How long can they keep this up? Won't prices snap upward sooner or later?
Pat Gorman: What the IMF has said they are going to sell is miniscule – if it happens at all. Let them sell. Buyers will snap their offerings in a minute. In fact, in our opinion, it may be a payoff of sorts. Everyone wants gold nowadays, and they may end up selling at insider prices to leaders of countries that have promised, for now, not to let the dollar crash. Don't ever be fooled by what the IMF is doing, or says it is doing.
Daily Bell: Where do you think the price of gold and silver will eventually top out when the general public wakes and starts to buy precious metals seriously?
Pat Gorman: All markets have cycles. If you look at the gold and silver market strictly on a cyclical basis, we started the bull market in the fourth quarter of 2003. This is a 30-year cycle that goes back quite consistently to the 1700s. The cycle itself should last 10 to 12 years. That being said, if all that happens over the next five years or so is the cycle completes itself, then believe it or not we should see gold top out at approximately $4,575.00 and silver spike over $100.00. Think that's crazy? We live in seriously weird times. Did you ever imagine Americans would be willing to carry a trillion-dollar deficit for the next decade?
Daily Bell: One last question, many honest money wealth advisors feel silver is poised for even larger percentage gains than gold. Do you agree with them?
Pat Gorman: Yes, I would have to agree with them. My belief is that silver for a period of time will outperform gold. But it will also have very volatile swings up and down. By the time big public buying gets going, most people will only be able to afford silver. Gold is bankers' money and as long as bankers continue to play fiat-money games, gold will continue to gain.
Daily Bell: Pat, on behalf of all of our readers we thank you for sharing your views with us. For those of you interested in subscribing to Pat's free wealth protection newsletter or discussing your own wealth protection needs, pay a visit to www.BuySilverNow.com and be sure to tell them your heard about it here at the Bell.
Pat Gorman: Thank you very much for having me. I would like to invite anyone who is reading this interview to log onto our web site and check out our upcoming Wealth Protection Seminar. This will be our twelfth year and it is where you will get very real answers about what is going on in the market. We have very limited space and we would love to see you there. God Bless us all. We are going to need it.
It is interesting to speak to someone like Pat Gorman who has spent most of his life in the precious metals business. He has an appreciation of what constitutes honest money that most of us don't have. The points he makes are well thought out and the product of both experience and cogitation.
He is persuasive, for instance, on the gold confiscation issue. Most people hold paper money and this is easily confiscated without having to resort to the brute force of physical confiscation. On the other hand, there will continue to be those who do not wish to have much of their physical assets held locally – and for these individuals off-shore emplacement will provide much-needed comfort. Perhaps Switzerland is a good choice!
He is clear-eyed about the different kinds of products offered in lieu of physical gold and silver. It is true that ETFs are among the most talked-about products when it comes to precious metals purchases, but Pat makes good points about their efficacy and exposure to the real thing. Essentially, there is nothing that compares to buying and holding gold or silver. If you don't hold it, then you ought to have a good idea as to why you are not holding it.
One reason not to hold physical metals, and we certainly agree with Pat on this, is because you wish to purchase equity in mining stocks. Let me elaborate on this a little. Precious metals markets wax and wane just as fiat markets do. We are not taught to think this way because, in fact, we are not taught to think about money at all. But when you speak of business cycles, you are essentially speaking in monetary terms.
Once one grants that there are two kinds of monetary bull markets in the world, fiat and honest money, then it makes sense that you would be buying gold and silver mining stocks as well as physical gold and silver. From our perspective, the reasons that gold and silver stocks tend to go up later in an honest money business cycle is because physical gold and silver are purchased first. It is only when the prices for silver and gold become too expensive for most to afford that mining stocks begin to get bid up. When you see mining stocks bid up high, you know you are approaching the end of a precious metals bull market. Mining stocks are relatively low yet as an asset class and there are indeed some fantastic bargains out there.
We appreciate the common sense and down-to-earth wisdom of Pat Gorman. Here is a man that has preserved vast amounts of knowledge about honest money during an era that for the most part discounted such knowledge. It is idiosyncratic and determined individuals such as Pat who blazed the trail that many investors have now rediscovered. We owe stubborn pioneers such as Pat Gorman a debt of gratitude.