Gold As The Truest Measure Of Value - Interview With Anthem Blanchard

Posted 15 Jun 2010

Welcome to the RunToGold Podcast. This is Trace Mayer. I have a special guest with us, Anthem Blanchard.

Trace: Welcome, Anthem.

Anthem: Hi, Trace.

Trace: Now Anthem is currently CEO of nuMetra, which is a federated CDN (a content delivery network) and they are working on a new, innovative approach to transferring bandwidth, particularly for streaming video, through the Internet.

Anthem, you've been involved in the gold industry for a long time haven't you?

Anthem: I have, I have. Since I was born, actually, as I was raised by a gold-bug, James U. Blanchard, and it was a case of really being indoctrinated into the Austrian school of economics, and understanding what real money is, and also I went to the traditional school of finance at Emory and I am actually going back into the gold industry.

So, I am very familiar with gold, as well as the traditionalist-type mentality for monetary policy.

Trace: We are very grateful to your dad, he was involved in this sound money fight back when gold was illegal, and there were criminal penalties for holding this most dangerous of all controlled substances, this inert yellow metal! He actually campaigned quite a bit in the public sphere to get gold re-legalized, so we are very grateful for your family's work in that regard.

Anthem: As am I.

Trace: Now, Ben Bernanke last week on Capitol Hill testified "I don't fully understand movements in the gold price".

And so, I'm trying to figure out which is more frightening: that investors worldwide are losing confidence in these little paper coupons, or that the shepherds of these major world reserve currencies like the dollar, the evaporating Euro, these colored coupons; that they don't understand what's going on with money.

I was wondering if you could speak about that?

Anthem: Sure, I think that really it draws from a deeper conclusion and understanding that quite simply, one is never educated at all throughout the educational processes, (at least the ones I had and pretty much the one that everyone I've spoken with has had), in actually learning about gold as being the truest money and the truest measure.

Some of the ways that you can actually look at gold, and the reason why it is one of the truest measures, if not the truest measure, is that it can, comparatively speaking, valuing one asset class versus another, you can distinctly tell that gold holds its value, because it is valued.

And so therefore, it makes comparative ratio-type exercises, puts on, so to speak, x-ray glasses, and it is a secret decoder of sorts. So once you know that secret of looking at comparative value, then price in terms of a national currency, becomes irrelevant.

Trace: Yeah, I mean I wrote an article on it, the Numeraire.

Anthem: Yes, I love that article!

Trace: Yeah, we use gold as our unit of account. We don't necessarily need to use it in ordinary, daily transactions (although that has some wonderful uses when we do use it) but even without that we can still keep our financial statements, our income statements, our balance sheets, our cash flow statements, keep them denominated in gold, and then as you say we are able to more accurately calculate prices, which are really just a ratio between two different assets.

And so, when we use these synthetic commodities, these little colored coupons that have no value in themselves, well how do we get a reliable measure? As you say, we have to use an asset which is in effect nobody's liability.

Anthem: Exactly, and as you very well know any fractional reserve banking system by nature, issues liability currencies.

Again it's the right to pay, the right to bear actually, (to pay is what we originally had back in the gold standard days), but today it really is just a fiat decree of a debtor, in particular the governments, having to accept, or having to get paid in these national currencies.

So, it's very difficult to get comparative value off of a liability, off of any sustainable long-term period, so it makes it very difficult to make wise choices.

Trace: Yeah, exactly. We've moved from money, to money substitutes, from money substitutes to these little fiat currency illusions, these little coupons.

They say the dollar is an “IOU nothing” and the Euro is a “who owes you nothing”! So when you do look at these fiat currencies, in effect they are just common stock, the common stock of the various institutions or organizations that they represent. Whether it's this entity known as the United States or this entity known as the Euro or as Iceland, since all of them are declining relative to gold, it does portend some turbulence in the future, like we are seeing politically, too.

So, it's kind of a scary time we are moving into, but at the same time for those of us who are able to put on those x-ray glasses, I think that there are a lot of potential deals to be made, and to be had if we are able to accurately discern what is going on.

Anthem: There's no doubt, and again I know that I've been able to use it quite successfully for myself, personally, to make choices about value, where to invest or where to save my value. It's been quite good for me.

So I think that the charts really speak for themselves. You have a lot of great charts in your website, and it's really just that once you're able to see over a long-term, multi-decade period.

One asset, specifically gold in this case, we are able to look at the price of oil in terms of numbers of grams of gold, or the Dow, it paints a whole different picture.

Trace: Yeah, because actually on my website there's a link called key ratios, and I've got some of the various key ratios. You mentioned one of them, the Dow to gold ratio, and everybody it is all happy that the Dow is doing better it's over 10 000 and "oh, there's a recovery!" .

But really, when you look at the Dow pricing of gold, we are currently in at 8.38 ounces of gold for the Dow, which is lower than we had several months ago.

So the Dow has actually been falling, losing more of its value pricing gold. We are currently seeing the same thing with barrels of oil, right now it's at 1.73 gold grams per barrel of oil. So, I'd like you to speak a little bit more about how exactly do use these ratios with each other to make better investment choices.

Anthem: Well for myself personally, I like to look at what I called the ultimate savings and investment cycle barometer in that Dow gold ratio and the reason why like it so much is that gold, as a relic of the end of World War II's the Bretton Woods Treaty, is priced on all the major exchanges and specifically the London Bullion market, it's primarily set in dollars in terms of receiving payment, yet they are also set in other currencies but the vast majority of the clearing gets done in dollars, so when you've got the Dow and all of the earnings, the unit of account for the Dow 30, irrespective of what those companies are, and those are meant to represent the industry, the big industry players obviously being in the US, it also is the dollar.

So by canceling out that dollar in the numerator and the denominator of the ratio, one all of a sudden it’s able to take the most variant of all variables, when it comes to finance, given the foreign exchange market is the largest in the world and the dollar is by far the most circulated currency, national currency, that all of a sudden it illuminates the picture to really be able to see how expensive or cheap our investment is, relative to savings, and how long left to have to go roughly until we get to the investment cycle.

Trace: It really makes me wonder, does Bernanke really not "fully understand the gold price movement” or is he just feigning ignorance. Because it really boggles the mind to think that people who are in charge of these institutions, that are moving trillions of dollars around, the value that they don't understand, the role that this monetary metal plays as captured in the spot gold price.

Because the LBMA you mentioned, I think that their actual daily transactions were up something like 40% year-over-year, so there's a lot more gold changing hands this year on the LBMA than there was last year and so gold is functioning as a major currency with tens of billions of dollars changing hands every day. So, I think that there's a lot that we as investors can gain from being able to use it to perform the calculation value.

Anthem: Absolutely, absolutely.

Trace: I think we've used up about most of our time. Do you have any recommendations or tips for the listeners of run to gold?

Anthem: Well, I would suggest to focus on saving-type investments and obviously in terms of the ultimate form of savings, being able to look at gold as being the ultimate form of savings.

But also looking at cost-cutting saving cycle-type plays. So whether that's media, whether it’s a form of escapism… unfortunately that's what happens in saving cycles, is people have to save and not spend as much. Anything that people can get distracted from their, unfortunately, more difficult financial situations. I think that that's a real growth industry, and history has been a very good indicator of that.

So those are my passing thoughts.

Trace: So things like the five dollars Starbucks every day is not so much a good play in the saving cycle?

Anthem: Seems to be pretty easily substitutable products and I guess you could look at McDonald's at that specific example, so it's garnering a lot of market share.

Thank you very much for this discussion and we’ll have you on again just like we've had you on before.

DISCLOSURE: Long physical gold, silver and platinum with no interest in the problematic SLV or GLD ETFs or the platinum ETFs.