Special Report December 19, 2010, 8:30PM EST

Soros Gold Bubble at $1,375 as Miners Push Each Button to Tears

(page 4 of 6)

Yet the council still clasped to gold jewelry after more than a decade of marketing campaigns inspired by the ubiquitous "A Diamond is Forever" advertisements from De Beers, the world's biggest producer of the gems. In May 2001, the World Gold Council embarked on a new, $55 million effort called "Glow with Gold." The council aimed to boost jewelry sales and rebrand the precious metal through advertisements, arguing gold's brand had been muddied by the likes of golden credit cards and breakfast cereals.

It didn't break the slump. The expense pushed the council into a deficit, according to Thompson and Burton. It also fueled debate about the group's very existence.

'Jeopardy'

"The future of the council was very much in jeopardy," said Katherine Pulvermacher, who joined the council's investment team in 2001.

The following April, the World Gold Council had a turbulent annual meeting in Melbourne, Australia, according to Thompson and Kelvin Williams.

Neither man will detail what happened, but it ended with Bobby Godsell, then chairman and CEO of what was then called AngloGold Ltd., stepping down as chairman of the World Gold Council and Thompson taking his place. Godsell, 58, did not return calls seeking comment.

Thompson wasted little time moving forward. He didn't renew the contract of the then World Gold Council CEO with whom Godsell had led the "Glow with Gold" campaign.

401ks

During his rainy day golf match with Burton, he laid out his idea: Create a trust that would offer gold through shares sold on the New York Stock Exchange. The trust would divide ownership of a single, 400-ounce bar of gold into about 4,000 shares, which would rise or fall with gold's spot price.

At the time, when millions of Americans had become comfortable investing through their 401ks, gold could be elevated to the same status as other assets, Thompson argued.

Nothing like it had been approved by the SEC.

"If you can't get that done, you'll be fired,'" Burton recalls Thompson saying. He accepted the challenge.

With the World Gold Council staff, Burton tracked and tested similar products in other markets first. The group offered its backing and some marketing support to Graham Tuckwell, an Australian natural resources consultant who on his own created the world's first bullion-backed, exchange-traded fund and got it listed on the Australian Stock Exchange in 2003.

Tuckwell

Tuckwell, founder of London-based ETF Securities Ltd., struck on the idea after an acquaintance mentioned an oddball product in 2002: wine securities. They were "funny little things" that allowed shares of a particular vintage to be traded on a stock exchange, he says.

The World Gold Council and Tuckwell then got a similar product listed on the London Stock Exchange. And the World Gold Council supported a parallel South African project with Vladimir Nedeljkovic at Absa Capital.

Each success brought momentum and confidence, says Burton. The NYSE was the Holy Grail. It was the only market big enough to have a real impact, Thompson and Burton say.

It took two years and as much as $15 million on preparations and lawyers for Burton and his team to win approval, according to Burton, who is now a partner at California Strategies LLC, a public affairs consulting firm.

As they worked in 2003 and 2004 to shape an NYSE product that could pass muster with the SEC, Burton and the investment staff started gaming out what he called "threat scenarios."

'Perfect Storm Scenario'

What if the funds were so successful that gold went into a bubble?

"There was a potential perfect storm scenario where suddenly gold would fall into the clutches of hedge funds and momentum traders in very, very aggressive, leveraged plays, which could spike the price and then drop the floor out from underneath it," Burton recalls of the talks.

"Our biggest concern was it would burn another generation of investors and you'd start the whole goddamned tale of tears over again," he says.