Let us take Saudi Arabia and the assumption
that it will buy gold with all the money it nets with
its export of oil. This is a mathematical example but
let us now look at the various facts.
Saudi Arabia sells 10 million barrels of oil a day. At
$100
daily rate, when you match it with the gold reserves of
the world, a hideous conclusion becomes clear.
If we take into account all the other factors
such as the increased cost of living, the increased volume
of trade, the increased demand from private sources for
gold, we can actually paint a picture at $1,500 an ounce,
$2,000 an ounce, or even $5,000 an ounce –a different
picture. Demand outstrips supply.
Somewhere between $1,000 and $2,000 the investment bankers
of the world will realize that instead of telling their
clients to put their money in Canadian dollars or Australian
dollars or Swiss francs or Euro, they will realize the
value in gold. If they store their money in gold, they
will start to do business in gold.
Let me recapitulate what the late Edmond Safra, Chairman
of Republic National Bank, has done. I knew him well.
He has done business with everybody. When the Russians
began to have capital surplus in their trade in Europe,
they were afraid to leave their money in banks in dollars,
because they owed money to the United States and they
were afraid that America would confiscate it. So Safra
told them to leave the money in Euro dollars. These were
paper transactions. The Russians deposited the money in
Euro dollars but a month later they used it to buy tractors,
they used it to buy cars, medical equipment, and paid
them also in Euro dollars. The Euro currency market is
the prelude to the Gold Indexed market.
Suddenly other countries, other nations like my native
Hungary, began to use Euro currencies which was basically
a way to avoid past obligations but carry on regular trade.
If nations can be persuaded to make gold deposits at specified
rates, investment bankers will start parceling out gold-backed
bonds and gold-backed securities, because they want to
generate commissions on the gold savings accounts.
Actually, it is the current generation of politicians
who are digging the grave of the current currency transactions
by being irresponsible.
We had sub-prime lending, with a loss of $500 billion.
We had before junk bonds of Drexel, so $500 billion has
gone.
Even the individual "traders" increased the
value of the trade. In the early 1960s Edi Gilbert lost
millions. Bosky traded in tens of millions. By 1995, Nick
Leeson of Baring Brothers lost $1.4 billion.
Enron, $7 billion.
Society General, $7 billion. The numbers are increasing.
The time will come when men or able traders will deal
in gold. After all, the world is changing.
In February 2008, I have been notified by one of the best
known international banking house that they have tentatively
approved my idea of using Gold Indexed Bonds for financing
companies. I have tried to bring it to the attention of
the financial community for several years.
The international banking firm annually asked me to present
companies to them for gold-backed financing.
I wrote my last report on Gold Index Bonds in October
2007. On the front page I placed a remark that I was 7
years old when I began to understand, in 1945, after the
war, the value of gold. That was when I first heard the
word "gold."
It was one of the most moving moments of my life when
my old friend Saul Steinberg remarked at the dinner table
that there is perhaps no other person in the world but
Andrew Racz who was interested in gold at the age of 7.
Let me go through, perhaps with my history, as an illustration
for the future.
After the war most people in Hungary were very poor. My
father died and my step-mother had to be innovative to
keep the family going. I was 14 when she sent me out to
the villages to sell leather goods and bring home some
money. She kept the money in gold and dollars. There were
12 dollars equal to one Napoleon gold, which is roughly
an ounce of gold.
My stepfather and his cousins every night were trading
gold and various foreign currencies back and forth. They
were on the post-war black market. But the money was always
measured in gold.
My stepmother, in 1956 when I left, had her own Bank stored
in the kitchen. Her banking assets were 11 Napoleons and
about $500. We lived much better than the average family.
When I was 21, I went to the Belgian Congo as a student
journalist and I was paid $10,000 for my articles for
interviewing President Tshombe and Sir Roy Walensky.
In 1964 when I emigrated to America, I had $700 in my
pocket but by 1966 I could pay $5,000 for a wedding for
150 people in the Plaza Hotel.
In 1967 I met Saul Steinberg, chairman of then Leases.
Associating with him I was lifted from the class of Hungarian
immigrant to a Wall Street analyst. I made on Leases about
$100,000. In 1969 Mr. Steinberg wanted to buy Chemical
Bank for approximately $1 billion. That was the first
time I heard the word "$1 billion" and I heard
it from a self-starter, a 29-year-old businessman.
Many years later, in 1983, I met Harold Simmons, called
the Texas Tycoon, to my mind the best securities analyst
in the world, who built up a net worth in 25 years from
$100 million to as recently published $7.4 billion. He
did it on pure securities analysis and even today I try
to remember his wise words on the transactions we did
together, the acquisition of 16% of Maxxam, which was
about $150 million, and the potential takeover of Union
Carbide, which was $4 billion.
The most colorful illustration I was ever injected with
was my involvement in the Hunt brothers play in silver.
Many people analyzed the brothers' objectives. Many
people attacked them. It took me years to realize and
I would like to make a statement here that although in
1980, in an article called "Gold and the Polish
Debt," I recommended Bunker Hunt for a Nobel Prize
for economics.
In looking back I was right, and the Hunts were right.
They pointed out to the world that commodity prices were
rising, that paper currencies would suffer, that we were
entering a new world. They were 25 years ahead of their
time, and he paid a price that is unbelievably harsh for
a human being.
The Hunt brothers had the courage to think ahead and when
they suffered, when they were humiliated, they went back
to the drawing board and rebuilt their empire quietly,
profitably. Every year I try to encourage the Hunt brothers
to permit me to write their memoirs but they turn me down.
Obviously the silver accumulation was only 25 years ahead
of the time.
I only try to relate the growth of the numbers as they
came into my life.
Saul Steinberg's son, Jonathan Steinberg, became
president and formed a company called Wisdom Tree that
manages about $4.5 billion in ETFs. Jonathan Steinberg
was an inventor in his business and he got some of the
best people in the world to support him. I heard that
he complained to his father that he still fails to get
$1 billion extra every month. He was upset and he told
me that he would like to be as great a man as his father.
When I told him one month that he didn't get a billion
dollars that that's only a bump in the road, he
was relieved that other people had similar setbacks.
And now we are approaching an election in 2008. The candidates
talk of spending—universal health care and similar
items. The USA is bankrupt. We have $2 trillion, or maybe
more, in foreign hands. Our gold reserves are down to
8,000 tons.
In going through the numbers our total gold reserves could
be wiped out in about six months by the oil production
of Iran, Iraq and Venezuela—three nations who are
absolutely not in love with the United States. We can
do it.
You ask would it better if the price of gold were $2,000
and our gold reserve of 8,000 ton would be worth much
more money?
Investment bankers and securities analysts are not politicians.
I had the privilege of discussing with President Nixon
in 1982 my theory of using American gold to buy up the
dollar deposits of Russian banks, the Russians bank credit
and bankrupt the Soviet Union.
I had a similar discussion with the late Gov. John B.
Connelly of Texas.
The issue today is not who is going to wipe out whom,
who is going to demand more from whom. The issue is now
the survival of the world while we need oil, when we need
wheat, when we need currencies to foster the trading activities
of 7 billion people. It is my humble opinion that gold
at $2,000 would be a step in the right direction.
Gold at $200 is not an inflation hedge. Gold at $2,000
has nothing to do with what's called the lunatic
fringe, as they used to be called. Gold at $2,000 is just
one step towards a rational world.
The world in 2008 has changed a great deal from the time
I was 7 in 1945 and I began to understand that people
In Gold Trust.
The number has grown phenomenally.
Last week when I was notified about the Gold Index Bonds
to be used for corporate transaction, I was also asked
by the same sources to try to persuade the government
of Mongolia, Rio Tinto and Ivanhoe to accept the fact
that if they monetize gold, the value of Rio Tinto would
increase. The 2.5 million Mongolians would be able to
get very early at least $500, if not a billion dollars,
and the peaceful development of Mongolia would begin.
This report is not an exposé of Mongolia, except
that I state that expected prices in five or ten years
Mongolia could be one of the richest countries in the
world. At the moment we are only talking of the 2.5 Mongolians.
However, every human being is part of the universe which
is being financed by currencies and gold.
The takeover value of Rio Tinto is $150 billion. The value
of Mongolia's mineral reserves is probably $250
billion. That makes $400 billion.
I must say that it is exhilarating to be involved with
such transactions. I have written at least 200 pages on
Mongolia, and many articles. It makes me feel that I have
fulfilled partially my destiny in this world.
My step-mother, who took over my younger brother and me
in 1945, after my parents died, had tremendous faith in
me. She did not know the expression "one billion
dollars," she did not know the expression "four
hundred billion dollars."
For a curious coincidence she did know the name of Saul
Steinberg because in 1968 it was Saul Steinberg who smuggled
my younger brother out of Hungary.
However, I venture to suggest that in 1968 Saul Steinberg
didn't know the word "four hundred billion
dollars."
Looking through all the ventures of a lifetime, $400
billion would justify saying the words "I have arrived."
However, it's happening now and it is becoming a reality.
Gold is going to $2,000!
Both myself and gold reached a height that only occurs
in the American Dream.
It is 2008. My stepmother, Nixon, Connelly and Sofra are
dead.
Saul Steinberg and I are very much alive.
