In the spring of 1876, men were pouring by the thousands into a gulch full of dead trees in the Black Hills of what is now South Dakota.
They called the place Deadwood, and it was barely a town. Nobody even laid out its streets until that April. It was mostly tents— even the stores were tents and log cabins— and the main street was a trail cleared through the gulch. By May that trail was lined on both sides with saloons, dance halls, gambling houses and brothels.
The whole camp was illegal, since the land belonged to the Lakota by treaty, and murders were common.
None of that kept anyone away, because a gold rush was in full swing. Men were lifting gold straight out of the creek beds with pans and shovels. Every valuable foot of the gulch had already been claimed… and they STILL kept coming.
Three miles over the hill, a French-Canadian prospector named Moses Manuel had a different plan.
Toward the end of that winter, Manuel and his three partners had picked up loose pieces of quartz with gold in them. That meant a vein was somewhere close by. But the snow was deep, and they couldn’t find it.
When the snow began to melt, Manuel wanted to go back and look. His three partners refused— they didn’t think it was worth anything.
So Manuel went alone, every day for nearly a week. Finally the snow melted and at the bottom of a gully, he saw quartz. He broke some out, carried it back to camp, pounded it up, panned it, and in his own words “found it very rich.”
The next day, April 9, one of his partners finally agreed to come up the hill, and they staked a claim. They called it the Homestake, i.e. what miners called a find big enough to go home on.
It turned out that Manuel had found the vein that Deadwood’s gold came from. In other words, the thousands of men down in the gulch were panning the bits that had washed off Manuel’s vein.
But you can’t work a vein of hard rock with a pan. It takes shafts, heavy machinery to crush the ore, and a LOT of money those four prospectors didn’t have.
The following year they sold the claim to a mining investor from California named George Hearst and his two partners. The price was $70,000, or about $2 million in today’s money.
The gold rush itself peaked within a year or two. The creeks gave out, and the men moved on.
Hearst’s company was just getting started, and by 1880 it was already paying dividends.
The Homestake went on to become the largest gold mine in the Western Hemisphere. It produced 41 million ounces of gold over the next 125 years.
Then came the Great Depression. In the years after the 1929 crash, the Dow Jones lost almost 90% of its value, and prices across the economy fell by about a quarter.
Gold was different. Back then the price of gold was fixed by law at about $20 an ounce… so the Homestake was selling a product whose price could NOT fall.
While the rest of the stock market was collapsing, Homestake’s share price more than quadrupled. By 1933 it was the highest-priced actively traded stock on the New York Stock Exchange.
Then in January 1934, President Roosevelt devalued the dollar by about 40% by raising the price of gold from $20 an ounce to $35.
And Homestake’s dividend went from $7 a share in 1929 to $56 a share in 1935… during the Great Depression.
The men who rushed to Deadwood got a good season or two. The company built on Manuel’s vein lasted 125 years— and it paid its owners the most when stocks collapsed and the government decided the dollar should be worth less.
Governments are making that same decision today.
The national debt is now over $40 trillion, and Congress borrows $2 trillion more a year, and Treasury yields just hit their highest levels in decades
A government can print money by the trillion, but it can’t print an ounce of gold or a barrel of oil, or anything else that’s real or critical to the economy.
So owning gold makes a lot of sense, and we’ve been saying so for years.
But there’s another way to do it, which is to own what George Hearst owned, i.e. a business that digs gold out of the ground at a profit, has no debt, and pays its owners in cash.
It’s even better when that business started like the Homestake did— after the gold rush, mining the hard rock that men with pans couldn’t work.
That is what we want to show you this month.
– Peter Schiff & James Hickman
Written by Karl Bagga – Chief Investment Strategist
It is easy for investors to get caught up in the macro. There is always some new data point to latch onto or some short term-panic. The reality, though, is that a lot of the time, there is very little investment signal to be obtained from the macro environment. Instead, it can lead to people…
