Mining Gold in Precious Metals : Fears of Fiscal Hard Times Are Good News for Continental Coin Corp.

After 25 years of dealing in gold and silver, Todd Parker doesn’t like to take chances.

He won’t pose for photographs, mindful of kidnaping threats. “It’s a serious problem in today’s terrorist environment,” he said. The address on his driver’s license is his place of business, Continental Coin Corp. in Van Nuys.

Continental isn’t Fort Knox, but Parker says it will do. There is a closed circuit TV system, armed guards and gated entry. An elaborate phone-taping system records his metal traders’ institutional transactions to eliminate any price disputes.

Parker, 44, is a survivor. Back in the 1970s he sold dehydrated, storable food (a 90-day supply cost $123.90). His company also bought gold from newly arrived Vietnamese refugees at a military camp.

In 1979, Parker and his former partner were convicted on seven counts of grand theft involving $1.4 million worth of missing gold and silver bullion that was supposed to be stored in their vault for customers. He served a 90-day sentence.

“It’s been totally expunged,” Parker said of that episode in his career, noting he made restitution to some customers. “It’s finished.”

$140 Million Annual Sales

Parker is still in business today, with a different company, at the same Sepulveda Boulevard location as general manager and part-owner of privately held Continental Coin. Parker and company President Gordon O’Rourke said Continental did $140 million in sales last year, making it one of the biggest gold and silver dealers in the state.

The industry has plenty of competition. The San Fernando Valley alone has 50 coin dealers. And investors prospecting for precious metals can turn to brokerage firms and mutual stock funds. Some banks, such as Safra Bank California in Encino, will finance purchases of precious metals. Even K mart and Sears sell newly minted U. S. Treasury gold and silver coins.

For the most part, coin dealers are unregulated. Those who sell futures or options must be licensed, but the Commodity Futures Trading Commission has closed down various boiler rooms for selling illegal precious or strategic metals investments that are tied to overseas exchanges.

Alan Van Vliet, owner of American Coin in Studio City, calls the boiler rooms, “Blue suede operations. They have brokers working on commission who will tell customers anything to make a sale. It unfortunately gives the whole industry a blemish.”

Bad News Is Good News

Then there is the task of overcoming a five-year period of low inflation and a bull stock market. In the precious metals business, bad news is good news. “Jimmy Carter was the greatest thing that ever happened to the business. We hated to see him go. We’re hoping for a Democrat in the next election,” Parker said.

Gold is trading at about $460 an ounce, but with the recent rise in the prime rate, war signals from the Persian Gulf and renewed fears of inflation, Parker’s instincts tell him the business is heating up again. “We’ve noticed just over the last 30 days some big money interest,” he said. “You can feel it and smell it.”

Like all investments, gold has its risks, as prices fluctuate daily. But gold bugs are looking for the ultimate hedge against disaster. They cite as evidence the suit theory: one ounce of gold in 16th-Century England would pay for a well-made suit of clothing. The same was true during the Civil War, as it is today.

O’Rourke is a gold bug. He has squirreled away some of the metal as part of what he calls, “my survival kit,” fearing the day when the U. S. dollar is devalued. That, of course, would come as news to Secretary of the Treasury James A. Baker III.

Continental’s walk-in trade accounts for 30% of its business. “Ten years ago, the old customer was a farmer with a bag of cash. Now we get doctors, attorneys, people who work for Water and Power,” Parker said.

Continental buys and sells gold and silver bullion, rare coins and jewelry as well as running a foreign exchange window. To keep inventory coming, each day Continental posts a sign outside with the day’s prices it will pay for silver coins. Recently, dimes were going for 40 cents each; quarters for $1 and silver dollars for $8 apiece.

The business is strictly spot trading, cash and carry. No home deliveries, no margin or futures accounts, no storage facilities for customers’ bullion. Some of these services helped get Parker into trouble before.

Parker caters to the various tastes. He sells a privately minted one ounce Oliver North commemorative silver coin for about $13, and a one ounce Platinum Noble, a monetized coin issued by the Isle of Man, for about $620.

Continental also runs its own private mint--it’s quite legal--somewhere in Ventura County, turning out gold and silver bullion bars. Parker is vague about its location for security reasons.

One of the most crowded markets is government-issued gold coins. Customers are now looking for more than just a hedge, Parker says--they want a chance for some appreciation on their investment. The coin’s premium, that is the price charged above the actual value of its gold content, is the telling gauge.

On a recent day, for example, Continental was selling a one-ounce South African Krugerrand for $462.50, a mere 40 cents premium over the going price of gold. A Canadian Maple Leaf gold coin sold for $478; an American Eagle for $478.50; and the newest Chinese Panda gold coin for $540.

Pandas Most Coveted

In recent years the Chinese Pandas have been the most coveted gold coins. Minted by the Chinese government in limited amounts, the coin designs change each year. Parker calls the Panda coins “gourmet gold” that appeals to the yuppie market.

The U. S. Treasury got into the business last year and is hawking its new American Eagle coin with all the fervor of Procter & Gamble launching a new laundry detergent. The Treasury’s ads read: “An investment you can actually hold.”

The American entry is selling well, although Parker says the U .S. government’s 1985 ban on Krugerrand imports helped wipe out demand for the rival coin. “We melt Krugerrands every day. Melt and refine it into pure gold, make kilo bars and resell into the jewelry industry downtown,” Parker said.

The remaining 70% of Continental’s business is made up of wholesale gold and silver trading on the spot markets done with institutional customers, including banks.

Both Parker and O’Rourke say that with their trade comes the threat of violence. O’Rourke tells the story of how he was waiting for his daily shipment of gold and silver bullion to be delivered from the airport to his New York coin business one afternoon in 1975. He said he hired armed guards, but to scrimp on costs, they were not driving an armored truck and he had no insurance.

Suffers $1.3-Million Loss

It was bumper-to-bumper rush hour traffic on the Long Island Freeway when a Cadillac forced O’Rourke’s truck over to the side. Several men, he said, “jumped out with guns, handcuffed the guards with all these other cars around in broad daylight. It was incredible.” The loss was even more incredible, $1.3 million, O’Rourke said, and helped put him out of business.

O’Rourke then moved to California and went to work setting up a rare coin division for U. S. Silver in Van Nuys, then operated by Norman Vineberg and Parker.

A few months later, in March, 1976, U. S. Silver was in receivership. What went wrong? “The assets didn’t meet the liabilities,” Parker said, revealing sound math but little else.

Court records show that it was a complicated case that finally ended in Parker and Vineberg’s convictions for grand theft. U. S. Silver was supposed to be storing gold and silver for customers in its vaults. But Parker and Vineberg sold off some of the stored metals, which was not part of the storage agreement.

The state’s case claimed Parker and Vineberg improperly engaged in arbitrage, selling the metals and simultaneously purchasing a futures contract for the same amount of gold and silver at a lesser price in order to turn an added profit. But the prosecutor claimed Parker and Vineberg didn’t use all of the cash to buy futures contracts, instead using some of the money in their business to pay for salaries, bonuses and employee pension plans.

Had Receipts, Little Silver

Herbert Wolas, who was appointed as U. S. Silver’s receiver, recalled, “When I went to the vault there was some silver with names on it. But not many. There was a whole class of customers who had receipts for, say, 100,000 ounces of silver. But only 50,000 ounces was there.”

An independent audit revealed a $1.4-million shortage in bullion. Wolas started selling off the company’s assets to pay creditors. O’Rourke then bought U. S. Silver’s rare coin subsidiary, Continental Coin, and brought Parker in as a partner.

During their trial, Parker and Vineberg argued they had every intention of replacing the gold and silver. They also claimed that their attorney had told them the arbitrage of stored metals was legal. They blamed their accountants for providing them with bad numbers, leading them to believe their arbitrage business was profitable when it was not.

The jury didn’t buy it, however. Vineberg died before he could serve his sentence.

Since then, O’Rourke and Parker have built up their business, diversifying into foreign money exchange. In 1983, however, Continental Coin was fined $1,000 for failing to report currency transactions over $10,000 at its exchange post near the Mexican border.

“In all our dealings with Parker, they held up their end. And it’s not to my advantage to say anything positive about a competitor,” said rival dealer Van Vliet. Another dealer, Barry Stuppler of Gold and Silver Emporium in Encino, said, “Obviously they have had problems in the past. And he’s endeavored to straighten them out.”

There is a movement inside the coin industry to set up a national accreditation system to weed out unscrupulous dealers. Wary consumers, Parker suggests, should use common sense: stick with established dealers and, “You put your money down and you take it home.”