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March 27, 2007

TARNISHED

When I started Investment Rarities 33 years ago, the big name in silver was the Constitution Mint. Unfortunately, they guessed wrong in silver futures and went bankrupt. Over the years we’ve seen many bullion dealers get caught up in futures trading and go broke. Frequently they take their customer’s money and their metal down with them.

When gold started to rise in the late 1970s, my main competition was Jonathan’s in Los Angeles. They would sell Krugerrands for a buck a coin markup and beat everyone’s price. Jonathan even had his own radio program. When he eventually failed and was charged with a crime, I was not surprised. It’s impossible to run an honest business without charging enough to make a profit. That’s why 90% of all coin dealers fail every decade. Invariably they take their customers money with them. I can count at least fifty coin dealers who have failed in the city of Minneapolis alone since I began in business.

Another company that flourished in the silver business was Bullion Reserve. Everyone used to tell me how smart their president was. One time, a PR guy I knew in California called me to tell me how clever the Bullion Reserve president was. It was like, "too bad you’re not that smart". It got old hearing about the guy. Then one day he brought his motorcycle inside his house, into his rec room. He hooked a hose up to the exhaust and ran it into his sauna where he sat until it killed him. When they audited the books, investors were out sixty million.

Then there were the Alderdice brothers in Fort Lauderdale. They operated International Gold Bullion Exchange. What a splash they made. They had a bunch of railroad ties in their vault painted gold that everybody thought was bullion. They sold gold 4% under spot, but they held the gold for six months. I knew it was a fraud from the beginning. I wrote the SEC, the State securities department of Florida, the Federal Commodities Trading Commission, the Wall Street Journal and Barrons, where they advertised. Nobody even responded. Unfortunately, most of their clients never got any gold. The loss to customers was supposedly 200 million.

I mention all this because the other day a man called to tell me he bought 15 one-thousand ounce bars locally and the dealer was storing them for him. The chance of this dealer lugging around sixty-pound bars and actually having them in stock are remote. Time and again, I’ve heard stories like this. I know the pitfalls because I’ve been asked to help hundreds of investors get their silver and gold back, all to no avail. When the bullion market heats up, as it appears to be doing, the marginal operators spring up like poison mushrooms in the spring. Many established businesses seem to lose their bearings in a hot market. They get greedy and they speculate. You cannot name any other company that has survived for thirty years and continues to flourish in the bullion markets. Not one. Half the battle for us (and for you) is not doing anything stupid. Follow our advice closely and you will be okay. You will never ride the bullion markets up and then find out you have nothing, as so many have done before you. We are looking out for your interests and that’s as straight forward as I can make it.