Monday, October 12, 2009

Demand For Physical Possession Of Gold Is Driving The Price Of Gold

Long-time gold market analyst James Turk was recently on CNBC Europe discussing how and why the scramble by investors and Central Banks for taking possession of physical gold (vs. owning derivative forms of gold like ETFs and leveraged gold investment accounts offered by the likes of Kitco and Monex) is now driving the price higher. 

A perfect example of this, Turk points out, is that the demand for ETFs like GLD has gone sideways for several months (measured by GLD's reported inventory of bars) while the price of gold has gone from under $900 to new all-time of $1050.  He also mentions the tightness in the physical market.  In that regard, I have mentioned that, although the tightness is not apparent at this point in time in the bullion coin market, we have several accountings of delivery problems, including my own,  reported by investors on the Comex and the LBMA (London Bullion Market Association), the two largest gold and silver bullion bar markets.

Turk also explains why gold preserves the purchasing power of your wealth against the devaluation of the U.S. dollar and he discusses why an investor can avoid counterparty risk when they own gold outright [without using debt].  I would add that even keeping your cash in a bank exposes you to the counterparty risks of your bank being closed down AND the possible defaulting of the FDIC.  The possibility of the latter would have been completely dismissed even a year ago.  Anyone who thinks now that it's not a possibility is whisling in the dark.

This video of Turk on CNBC  Europe is a little over four minutes and worth every second of watching it:

James Turk On Gold


  1. Turk definitely has some valid points.

    You're point on the risks cash in a bank today is pretty valid too. We really have come to an amazing point economically as a nation. I don't think we are anywhere close to out of the danger zone as some in DC would have us believe.

  2. Hal, I worked as a trader on junk bond desk in the 1990's. I've seen how corrupt Wall Street is, especially w/regard to hiding derivatives and fraudulent mark to market. It is 100x worse now.

    Both Wall Street and DC are much more corrupt than any of us realizes, including those of us who participated in the corruption first-hand.

    Take what we know to be the truth, and compound it by several multiples and that's how fraudulent the whole system is.

  3. Dave,
    caught this from someplace today, but details possible problems with physical delivery as of late:

    Cannot vouch for the source, but it makes plenty of sense.

  4. Ya that story is bona fide. Rob Kirby is the source and he reported it in Midas last week ( and I exchanged some emails with him asking about the credibility of his source. He said his source is 100% bona fide and someone who is in a position to know what was going.

    There is a rapidly growing understanding of the necessity to have control over one's physical gold and silver and it's affecting the paper frauds out there.

    I just spoke to a local bullion trader who told me that his business has really spiked in a big way over the past week and his buyers are wealthy locals who are coming out of the woodwork and who want to buy a lot of bullion privately, with cash, no paper trail and they want physical possession of everything they buy. He also told me one of his big suppliers of bullion coins is running out of inventory.

    One of his buyers told him that he thinks the U.S. has at most 6-8 months before it collapses.

  5. Dave,
    That is amazing that you have that kind of access!

    The story seems solid to me. I love it that people are buying gold with cash (no trail as you said). Things are heating up.

  6. The dollar is getting smoked right now. 75.63.

    So much for the "controlled, orderly" decline. We may be in for a real cliff dive...