For the past
couple of years, bullion dealer Tom Cloud has been the precious metals guru
on the always-interesting and highly-recommended FTM Daily radio show. He's been in the
business for 35 years, can separate the legitimate players from the con
artists, and always has a good story to tell. So we've asked him to become a
regular contributor to DollarCollapse, via a weekly
Q&A in which he'll recap the past week's metals action and cover one or
two related topics. Today, among other things, he explains those
tungsten-filled gold bars that seem to be turning up everywhere - and how to
DollarCollapse: It's a pleasure to finally speak with you, Tom. Let's
start with a little background. You've been in the precious metals business
for three decades and have developed an unusual niche. How did you get there?
Tom Cloud: I used to be a market maker where I'd take an order
for $10,000 or whatever and then buy a [futures] contract to lock in the
commission. Eventually we had two full time employees just to do the hedging
and even they couldn't handle the volume. It turned into a paperwork
nightmare, so we shifted gears. Now I'm a broker who matches buyers with
eight of the biggest dealer inventories in the world. I'm always getting
deals from wholesalers who have too much of something and are willing to
discount it, allowing us to get clients a better price. We don't charge a
commission on sales, which means our round-trip prices beat most other
I also keep
you away from the telemarketers, the Swiss Americas and GoldLines
that have these 40% markups and put people in rare coins and tell clients
that gold will be confiscated. I want to put customers into bullion that goes
up or down based on the spot price of the metal, with the lowest possible
DC: Has the attitude of your customers changed since the
announcement of QE3?
TC: The phone's been ringing off the hook. People get it;
they know that the money supply will keep growing and that with a bank
account yielding 1%, you've got a guaranteed annual loss of 6% - 10% on your
purchasing power. Eventually, people will stop worrying about
recession/depression and start worrying about getting rid of worthless paper,
and the velocity of money will pick up. That's when precious metals will
DC: How can buyers avoid those tungsten-filled bars that
are showing up?
TC: It started with the 400 ounce bars the Chinese and
Germans found last year with tungsten in them. No one trades those bars
except governments. You'll notice that right after that the Chinese started a
massive sell-off of US treasury bonds. Then everything got real quiet and we
haven't seen any more of those bars.
Mainland China Treasury Holdings ($ billion)
Last week it
was ten ounce bars showing up in New York, bought by jewelers who were just
trying to get the cheapest price they could. If they had an atomic scale
they'd know right away that the bars had tungsten in them.
There are two
ways to avoid this. First, don't buy deals off the street. If a guy walks in
and says 'I'll sell you these coins at 5% below spot,' I won't buy them.
Instead I buy from the US Mint, the Canadian Mint and the major wholesalers,
and I've never had a single counterfeit coin or bar come through. And not a
single coin goes out to a client that hasn't been atomically weighed. For the
past three years we've filmed the process of bullion being weighed and boxed
and in that time we haven't had a single complaint about a wrong number of
DC: What's your take on the relationship between gold and
TC: The gold/silver ratio got out of kilter because of
central banks buying a lot of gold in anticipation of Basel III making it a
Tier One asset. Silver really needed quantitative easing to guarantee that
we're not going to have a recession, because in 2008 silver went down 22% in
six weeks and gold went up 8%, as people moved to gold for safety and
liquidated their silver because it's an industrial metal.
QE3, silver is the hot thing. We sell nearly as much dollar volume of silver
as gold, which means a lot more ounces. I'd expect the gold/silver ratio to
keep compressing, which means silver will outperform gold as long as they're
printing money and the world doesn't go into a recession/depression.
There will be
corrections of course, and the companies shorting the silver market are
getting braver all the time. The other day JP Morgan put [the paper equivalent
of] 50% of the world's mining supply of silver on the market in five minutes.
The price dropped but partially recovered by end of day, which implies that
this market is getting harder and harder to manipulate.
DC: What's the wisest accumulation strategy?
TC: I've got a lot of cost averagers
who buy $5,000 or $10,000 of bullion each month. But a second group that's
really hitting us now is people who have 10%-25% of their money in precious
metals already but in just the last few months have decided to increase that
percentage. One just called today who went from 35% to 50% precious metals.
John Paulson, the 26th richest man in the world, says he has 44% of his fund
in metals, and the Aden sisters
have raised their allocation from 35% to 45%. Those kinds of things are
making people move to higher percentages, and I'm seeing more of them.