Gold is currently priced at somewhere around $1,600 dollars an ounce—more than twice as much as it was five years ago— and this has caused a kind of fever. Flashy pitchmen for investing in gold populate television ads, promising to “make you an offer you can’t refuse!” while commercials on talk radio ominously declare, “Widespread fear of hyperinflation is coming down on you like a sledgehammer. Do something before it’s too late.”
Gold these days is loud, and Paul Binder is anything but. He may be Baltimore’s original cash-for-gold man, and he would like to see the United States return to the gold standard, but the 66-year-old has been in the business since 1979, at the peak of the greatest surge in gold prices, long enough that he is able to watch the current scene with a detached philosophical bemusement.
Binder’s North Charles Street shop, too, is as muted as most cash-for-gold places are showy. It is called Baltimore Gold and Silver, but there is no optimistic neon sign full of exclamation points. Above the door it says: jewelry-coins. There is no buzzer on Binder’s door, and the interior is as homey and lived-in as an old bar or a secret clubhouse.
“I try to run my business like it is 1930,” the lanky Binder says, peering out through the jeweler’s glass with which he has just been examining a gold ring.
“Can I have that at a 1930 price?” a customer asks.
Binder barely smiles at the question and points to the calendar on the wall: Friday, Feb. 17, 1933—just before President Franklin Delano Roosevelt nationalized private holdings of gold. “In many ways, I feel like I am from a different time,” he says.
Binder, who taught math in Baltimore City schools before going into business, can put a piece of gold or silver on the scale and mentally calculate the price, and yet he feels like he must punch the numbers into the calculator so that people will trust him. “I can do arithmetic extremely well in my head, and it bothers me that it is of no use,” he says.
Binder makes other concessions to the modern world. Despite the antiquated feel of the showroom, Baltimore Gold and Silver does a large portion of its coin business through internet auctions.
The high price of gold has also forced other changes in the business. “In a bull market, sales always have a scrap mentality,” Binder says. The form gold comes in—the rare coin or the necklace—might add significant value when the metal is priced low. But at today’s prices, it can’t add much.
“On a piece of jewelry like this,” he tells a couple in the showroom, pointing to the woman’s gold ring sparkling with small diamonds, “it’s not the quality of the ring, but the customer. Who wants to buy it? If I can’t sell it, it’s just a lump of gold.”
“Basically scrap?” her partner asks.
Binder nods. The woman says her grandmother just died, and she is reluctant to sell the inherited jewelry. “But with this economy,” she adds, letting the implication hang in the air. Binder has seen a lot of this. He says that five years ago only one-quarter of his jewelry business came from scrap; today 90 percent goes to the smelter.
Though good for a business like Binder’s, this is disastrous for jewelry stores. In Baltimore, a week before Christmas, in what used to be the busy season, Raisa (she says she has only one name), the owner of Gold Rock jewelry store on Howard Street, says, “Business is terrible. The market, the gold price . . . You cannot predict the economy, not now. Nobody wants to buy.” Other jewelry merchants in the area expressed similar sentiments.
With worries about the national debt, the dollar, the Euro, unemployment, China, and a slew of other problems, the economy is on everyone’s mind. And if you talk about the economy long enough, you end up talking about gold. Gold has always induced fevers and rushes, because it promises sudden wealth and yet it also seduces us with the promise of security against collapse. Our current economic situation has brought these two together in simultaneous rushes to invest and divest in gold. But Binder, for one, has seen this sort of thing before.
In 2009, demand for gold as an investment was higher than demand for gold jewelry for the first time ever, according to The Economist. So while jewelry retailers like Gold Rock struggle, investment firms are booming. These firms buy gold from refiners who buy it from people like Binder.
Online gold businesses such as cash4gold.com began to flourish in the mid-’00s, allowing customers to mail in their gold, but as WBAL-TV discovered during a hidden-camera investigation in March 2009 (when states began to pass laws regulating the mail-in gold industry) online merchants are likely to offer far less than local retailers. And many local businesses have begun dealing in gold in the last few years.
It’s hard to walk downtown without noticing signs screaming we buy gold! and we pay more! as pawnshops and jewelry stores in the city have adapted to the new market. Jorj Felder, an employee of East Baltimore Jewelers and Gold Buyers on Baltimore Street, says that though the company has been in the jewelry business for 20 years, it started purchasing gold only three years ago “when people stopped buying jewelry.” He says many gold businesses are “fly-by-night—they open and close quickly,” so East Baltimore Jewelers and Gold Buyers has tried to remain competitive by refining the gold itself and “cutting out the middle man.”
Like Felder, Binder came into the business at the height of a boom, when he was dealing mainly in rare stamps and the price of gold doubled two years in a row, setting a historic high when adjusted for inflation. (We are in the middle of the second high, what some investment advisors call the “second bull run.”) “We had lines outside to sell gold,” Binder recalls.
At the same time, even as Binder cashed in on the cusp-of-the-’80s boom, he wondered how such fluctuation was possible.
“When you look at the gold price, it’s not that gold has gone up,” Binder says. “It’s that currency has gone down.”
He started to study economics, especially the Austrian school. Austrian economists like Ludwig Von Mises and his American student Murray Rothbard, among others, argued that government intervention negatively influences the economy. Whether it is a stimulus package, the adjustment of interest rates, or tax cuts, the Austrian school is against it.
“All business people can make mistakes and miscalculate,” Binder says, explaining the theory. “But business cycles occur when everybody makes the same mistake at the same time,” “Why does that happen?” His answer—and that of Austrian economics— is that artificial economic conditions cause us to do things we would not otherwise rationally do.
“An entrepreneur tries to see the future,” Binder says. “The purpose of interest rates is to allow the future to evolve. Government intervention distorts that.” So, investing in gold is seen by some as a safeguard against the shortsightedness of human folly.
Now, 30 years later, in the middle of gold’s second great rise, Austrian economics have become a staple of Tea Party thinking. In 2010, Glenn Beck— who advertised and discussed gold on his Fox News show—began to talk about Austrian economists on nearly every broadcast. And earlier this month, when U.S. Rep. Ron Paul (R-Texas) finished a close third in the recent Iowa caucuses, he declared, “We are all Austrians now.”
Last July, the Libertarian-leaning Paul, one of the most prominent proponents of a return to the gold standard for U.S. currency, questioned Ben Bernanke, the chairman of the Federal Reserve, during Congressional hearings. “Is gold money?” Paul asked Bernanke.
Bernanke answered that it is not money, but an asset. Paul concluded with a giggle: “Well, some people still think it’s money.” (In August 2011, Jim McTague reported for Barrons that Paul owns somewhere between $1.6 million and $3.5 million in gold-mine stocks, suggesting a possible conflict of interest when Paul voted against raising the debt ceiling last summer when, if the country had defaulted, “he likely would have made a bundle.”)
The United States officially based the dollar solely on gold in 1900 (it had been based on gold and silver previously) at a fixed rate of $20.67 per ounce. It remained at that price until 1933 when Roosevelt nationalized private holdings of gold and the price was set at $35. That price held relatively steady until 1971, when President Richard Nixon—a Republican—allowed the dollar to fluctuate freely, backed only by the promise of the federal government. This allows the Fed to affect the economy by managing interest rates or inserting cash into it, none of which would be possible if the dollar were still tied to gold.
Conservative-leaning states such as South Carolina, Utah, and Georgia have seen bills introduced recently declaring that gold and silver are currency in their states. None of the measures have gone very far, but they hit on one of the most salient features of our most precious metal.
“Gold is a fear indicator,” says Matthew Carr, commodities specialist at the Oxford Club, a Baltimore-based investment newsletter, by phone.
In his exchange with Paul, Bernanke said that people invest in gold “as a protection against . . . really, really bad outcomes.” At some level, the current high price of gold means a lot of people are betting on economic disaster (or a relative few are betting very big).
The irony is that the revived interest in gold for its fiscal security may make it less secure. “Now it’s like any other commodity and is subject to speculation,” Carr says—people are not just investing in gold, they are making side bets on the price of gold. “When you have more speculating taking place, what’s really driving the price becomes murkier, and you get into the situation where there’s a possibility for bubbles,” he writes in an e-mail. Between 1970 and 1980, gold went up from $36 to $615. But people who bought gold at that peak quickly lost a lot of money when it fell below $500 the next year and kept sinking throughout the next two decades, finishing the century below $300. And this was without newfangled financial instruments that create speculation. The upshot for Carr: Gold is “no longer a safe haven.”
Most people involved in the gold business reject Carr’s analysis. They say when the speculation on gold crashes, the metal itself will be more valuable than ever. But the possibility of a gold bubble raises serious questions. If gold is a hedge bet against the economy collapsing, what is the hedge against gold? Should we invest in guns, backyard bunkers, and bottled water? Or better yet, farmland, herd animals, and solar power?
That last option is precisely what local financial consultant and organic farmer Nick Meredith advises—and has done. He closed the financial portion of his Baltimore-based consulting firm Bulwark Holdings last year to start a farm in Frederick County and focus on preparedness consulting.“If you’re talking true systemic collapse, you’d be way better off investing in something productive like making alternative energy and getting a place to produce food,” Meredith says by phone. “But I still invest in gold, because I don’t think a Mad Max scenario would happen everywhere at once.”
While Binder agrees that no investment is entirely safe, he thinks the dollar will ultimately go down to zero and gold is his safest bet.
Binder is no Tea Partier, however. He shares some ideas with the movement, but he is as far from its political posturing and prophetic zeal as he is from the late-night antics of cash-for-gold commercials. “Politics is like two wolves and a sheep voting on what’s for dinner,” he says.
Binder calls himself an anarchist, or an anarcho-capitalist, after Rothbard, who combined Austrian economics with a strong ethical strain of anarchist thought. Like Rothbard, Binder sees the connection between the Right and the Left. He thinks that both Occupy Wall Street and the Tea Party need to come together and “see that the problem is the marriage of business with government. We need to get away from the fascist tendency of joining them. At some point you realize you don’t need someone to tell you what to do.”
Though he is an anarchist, Binder has to live within the legal norms set by his chosen industry. “I rarely have a slow day,” he says, “because the city ensures I have plenty of paperwork to do.”
He is referring to the receipts that he is required, like all other pawnbrokers, to submit to the city. Binder says that as gold prices rise, he is not worried about being stolen from, but he is concerned about people trying to sell stolen goods to him. He tries to avoid buying stolen goods, but keeping such records keeps him insulated legally if he does: “I lose the money, but I’m not carted away in handcuffs.”
A number of pawnbrokers have met just such a fate over the last few years. In 2010, city and federal agents raided four pawnshops said to have trafficked more than $20 million in stolen goods, according to The Baltimore Sun. And last December, the theft of $70,000 worth of jewelry led law enforcement to a Carroll County jewelry and loan business, where two men were charged, according to WBAL-TV.
Baltimore City Police spokesperson Donny Moses says the city doesn’t keep statistics specifically concerning gold, but notes that, in terms of reported theft, gold comes nowhere close to electronic devices. “Baltimore is just not into gold,” he says.
The steady stream of customers that makes its way into Binder’s store each day makes one wonder. People keep coming to sell gold, though Binder freely acknowledges that it is an unbalanced transaction because he knows what gold is worth and they usually don’t. He compares it to “playing poker where you can see your opponents’ cards. It’s asymmetrical information. I enjoy peeking at cards . . . without winning a lot. I enjoy a close game much more.”
You can see this when he is on the floor. Binder tries to ensure that his customers have at least some idea of what they are doing.
“Here, just so you know,” he tells the couple with the gold rings, “I offer you 88 percent of what I can get for the gold.”
“You have to make a buck,” the man says.
“Only if I don’t make any mistakes, and I don’t miscalculate the market,” Binder replies and smiles.
“My objective is to have a good day—work hard, not get yelled at by anyone,” he says later. He takes a similarly less-than-driven approach to his off hours. On Sundays, he and his wife/business partner Cheryl Binder visit small towns in Maryland “by the most absurd routes” Binder can find: “I can get you from Frederick to Columbia without going on a numbered highway. Five ways probably.”
Other than these Sunday trips, the couple does not travel at all. “The city is fascinating, and it all comes to me,” he says. “Most people work hard at something they don’t like so they can have a vacation. If you enjoy what you do, you don’t need to get away and you can live on a lot less money.”
Despite the rush going on around him—or maybe because of it—Paul Binder knows that some things are more valuable than gold.