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Steve Hansen Dad’s advice on investing was golden

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Steve Hansen

Posted: Tuesday, August 23, 2011 12:00 am | Updated: 5:52 am, Tue Aug 23, 2011.

“Entitlement programs will eventually spend us into bankruptcy,” my father said in the 1970s. “Buy gold now!”

Dad came from a long line of California gold miners dating back to 1850. His mother had inherited some small Mother Lode mines from her father. Production had shut down in the 1920s, due to exhaustion of much of the mineral contents, as well as extraction costs.

By 1933, President Franklin Roosevelt’s Executive Order 6102 had put the final nail in the coffin. His decree forbade the ownership of gold coins and bullion. Section 2 of his order stated in part, “All persons are hereby required to deliver ... to a Federal Reserve System all gold coin, gold bullion and gold certificates now owned by them ...”

Suddenly, by the stroke of a presidential pen, the mines became worthless. My grandmother held on to her properties, hoping that someday the order would be reversed. After 31 years, she gave up hope and sold what was left. Thieves had stripped the largest mine, the “Last Chance” near Coulterville, of any value. This included ore cars, rails and even the buildings.

In the early 1970s during the Nixon administration, gold was once again allowed to be purchased by private investors.

By 1973, the U.S. government has stopped backing paper dollars with gold or silver. Bills no longer stated “pay to bearer on demand” their equivalency in precious metals. U.S. dollars would now “float” and be traded on an open market against other world currencies. The American dollar would now be backed by “the full faith and credit of the United States government.”

During the Carter administration, inflation in the U.S. was rampant, and by 1980 gold for a short time shot up to $800 per ounce. My father believed that the lessons of history had justified his prediction of the future. With the little discretionary income he had, Pop invested in a few Canadian Maple Leaf coins.

His primary reason for buying gold dated back to our experiences while living in China. Dad remembered how the printing presses had caused runaway inflation for the Nationalist government of Chiang Kai-shek. As one of the last Americans to leave the country, my father sold his 8-year-old Plymouth sedan for $2 million (in Chinese money, of course). That was about the same as $2,000 U.S.

But Dad’s predictions of the future would take an unexpected turn. Gold prices began to slowly sink in the 1980s. By the time of his death in 1993, gold had dropped to as low as $330 per ounce (still a substantial increase from $37 back in 1971). Even he began to doubt his own wisdom and the monetary lessons learned from history.

I never took my father’s advice seriously. After all, hardly anyone in the media was touting gold. The few who did, for the most part, were labeled as “extremists” or “kooks.” Some of the financial “experts” said it was a worthless commodity. Its value was totally psychological.

“These are modern times,” I thought. “The old rules no longer apply. The United States will always be the strongest country in the world, and will always pay its bills. Therefore, debt doesn’t matter.”

I wish my father had lived to see Monday, Aug. 22, when gold hit $1,900 an ounce! The Goldman Sachs investment firm had predicted just a few days ago that gold would cap at $1,860 by next year. One lone pundit has suggested that the precious metal could go as high as $5,000 per ounce!

The fact is, no one knows where it will end. However, there is one thing we do know. As long as our government continues to borrow trillions for entitlement programs that can never be repaid, the paper dollar will be worth less and less. Zero could be its final destiny, although hopefully we will never see that day.

Runaway inflation has been true for governments throughout the world that have tried to carelessly print money for short-term political gain. Perhaps historian Gregory Gores said it best: “Man does not learn from history. Thus, he is condemned to repeat it.”

Steve Hansen is a Lodi writer.

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