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When Gold Decided the Presidential Race
Gold reached a new two-year high on the Fourth of July. Then, gold hit a higher high of $1,375 on July 6. This latest increase came as interest rates in major currencies continued plummeting. U.S. Treasury 10-year bonds reached an all-time low yield of 1.367% on July 5, with Japan and most of Europe now offering negative interest rates. An estimated $10 trillion of sovereign bonds now yields less than nothing, giving gold a tremendous advantage over the income yield of most paper money in the developed world.
As we prepare for the verbal assault of the Republican and Democratic Party conventions in the next two weeks, it might be helpful to examine a time when gold decided the Presidential election – a time when political rhetoric was just as brutal as it is now, a time when America seemed hopelessly divided between red and blue states – Midwest farmers and workers vs. the Northeastern monetary establishment in 1896:
The 1896 Electoral Map: The Red (Republican) states voted for William McKinley. Blue stated voted for William Jennings Bryan or the Populist Party. The number in each state reflects electoral votes. (Source: Wikipedia)
The 1896 Republican candidate, Ohio Governor William McKinley, ran on a continuation of the gold standard. His supporters were called “gold bugs” and they proudly wore a golden lapel pin called the Gold bug. Bryan’s silver standard won the West and southeast. There were also some minor parties, including the Populist Party, which supported the silver standard, but more vehemently. This party no doubt stole some votes from Bryan, but in the November election, McKinley won 51+% of the vote, capturing all the Northeastern states, plus Oregon and California. Bryan took 46.7% of the popular vote.
Don’t “Crucify Man on a Cross of Gold”
This week marks the 120th anniversary of the most famous speech ever delivered at a political nominating convention. On July 9, 1896, at the Democratic Party nominating convention in Chicago, a young former Congressman from Nebraska named William Jennings Bryan spoke before 20,000 delegates. An ardent supporter of the bi-metallic standard, Bryan railed against the Republican establishment: Five of the six presidents elected from 1868 to 1896 were Republicans and every one of them was born in Ohio! There was only one Democrat – Grover Cleveland, the 1896 incumbent, who was completing his second term.
Using the familiar tactic of preachers in those days, Bryan orated this famous vow: “You shall not press down upon the brow of labor this crown of thorns; you shall not crucify mankind upon a cross of gold.”
As Bryan spoke this final sentence, he placed his hands on his temples, fingers extended, simulating a cross of thorns. With the final phrase, referring to a crucifixion, he extended his arms to his sides straight out from his body and held that crucifixion pose for about five seconds. The audience watched in total silence as he held his arms out with his eyes to heaven. Then he lowered his arms and walked to his seat as the delegates erupted into a frenzy, sealing Bryan’s nomination as the 1896 Democratic candidate.
Most of America had reasons to despise gold – a rich man’s metal, historically considered the most effective antidote to inflation. America was under a gold standard in the 1890s, but it was controversial. Many populists in the West blamed the Panic of 1893 on the erosion of gold holdings, limiting the volume of money or credit. During his term in Congress, Bryan proposed free coinage of silver. Though the Democrats failed to push the silver standard into law, Bryan became known as the “silver champion.”
One inevitable problem with a gold standard is that a rising gold supply causes inflation during a Gold Rush and then deflation when little or no new gold is mined. Silver is easier to mine in quantity, so those who were crippled by low farm prices and widespread deflation wanted a silver standard or at least a bi-metallic standard, with one ounce of silver equaling 16 ounces of gold – a ratio favoring silver owners.
During the last quarter of 1894, the U.S. Treasury shipped $84 million in gold abroad. By the end of January 1895, U.S. gold holdings were down to $45 million. Wall Street was placing bets on when the last ounce of gold would evaporate. On February 4, J.P. Morgan got a letter from the U.S. Secretary of the Treasury canceling all gold contracts. The next morning, Morgan stormed into President Cleveland’s office and demanded an audience. On that day, the U.S. only had $9 million in gold to meet demands, and there were $12 million in current drafts against that shrinking supply, so President Cleveland sheepishly asked Morgan, “What would you suggest?” Morgan suggested buying gold from Europe but wanted to use U.S. Treasury bonds. To finance this purchase, President Cleveland sold $62 million dollars in bonds at 3.75%, to Morgan’s syndicate. Morgan swapped the U.S. bonds to foreign buyers at 12%, a tidy profit.
Although this band aid postponed the gold crunch and saved the Treasury, this is why the public hated Cleveland’s willingness to hop into bed with Big Business. They sought a new silver champion in Bryan.
The rhetoric 1896 Presidential campaign equated a vote for gold with a vote for greater sin, misery and poverty. Here’s a clever posting in an Idaho paper equating a vote for gold with every imaginable evil:
The continuance of the “present gold standard” means:
More soup houses;
A debauched ballot;
Suffering and misery;
Crowded alms houses;
A dearth of marriages;
Idleness and stagnation;
Falling prices for all product;
Hungry women and children;
Pauper prices for vegetables;
A contraction of the currency;
A dear dollar and a cheap man;
Half clothed women and children;
Coxey armies marching through the land.
– From People’s Party Paper, 16 October 1896
(reprinted from Times-Democrat, Idaho)
McKinley Won Re-election in 1900 on Klondike Gold – and a Kid’s Book
One of the keys to McKinley’s victory was the prospect of renewed inflation in the gold supply. On August 16, 1896, George Carmack discovered one of the largest gold strikes in history on Rabbit Creek, in Canada’s Yukon, just across the border from Alaska. In 1897, the Klondike Gold Rush was on.
When McKinley ran for re-election in 1900, he chose Theodore Roosevelt, a popular and energetic New York politician who had become a national hero in Cuba in the Spanish American War, assaulting San Juan Hill. Between the prosperity, which came in the wake of the Klondike gold rush and a popular new Vice President, his re-election was assured, but a Midwestern author, Frank Baum, came out with a veiled assault on McKinley’s gold standard, “The Wonderful Wizard of Oz,” first published on May 17, 1900.
The book’s heroine, Dorothy, comes from Kansas. She is swept up in a tornado to the Land of Oz, where her falling house kills the wicked witch of the west, the evil ruler of the Munchkins. Earning her silver slippers, she walks down a yellow brick (gold) road to the emerald (dollar) city to meet the wizard of Oz, a common abbreviation for ounces. Along the way, she meets three allies needing to be made whole, a cowardly lion, a scarecrow and a tin man. Here are some possible references to the silver and gold debate:
The Silver Team Representing
Dorothy Midwestern people
Her Silver Slippers The Silver Standard
The Cowardly Lion William Jennings Bryan
The Scarecrow Farmers
The Tin Man Industrial workers
Toto Teetotalers (The Prohibition Party)
The Gold Team
Wizard of Oz (ounces) President McKinley
The Yellow Brick Road The Gold Standard
The Emerald City Washington, DC
Wicked Witch of the East Bankers
Source: This Already Happened (https://thisalreadyhappened.com/2013/04/27/465/)
As we approach another populist election in which a “living wage” and “job protection,” immigration control and wealth distribution are major hot buttons, it looks like gold and silver are once again soaring on the news. The good news for today’s investor is that you don’t need to prefer gold or silver. They are both rising strongly – silver more so than gold so far in 2016. Through July 6, gold is up $300 per ounce (+28%) so far in 2016, and silver is up $6 (+42%). Both metals are near their highest levels in two years.
As we showed in our May 7 Navellier Gold Update, Gold tends to rise on “Bad News and Bad Presidents – and we’re liable to see a lot more of both.” The advent of the populist Trump and the establishment candidate Hillary Clinton looks a lot like the populist Bryan vs. the establishment candidate McKinley.
Get on board the silver and gold bandwagon. This election year is proving to be quite profitable for gold.
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