Should we be more concerned about your financial welfare than YOU?
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James Turk: Gold - The Ultimate Inflation and Catastrophe Hedge |
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James Turk, a renowned authority on gold and the precious metal markets and co-author of The Collapse of the Dollar, is founder and chairman of GoldMoney®, a patented gold-based electronic money, transferred over the Internet. GoldMoney.com stores in vaults in London and Zurich about $350 million worth of precious metals owned by its customers and is the largest digital gold currency (DGC) in the world. In Part I of our Gold Report interview, Turk gives us his outlook on the economy and the prospects for gold. In Part II he discusses how GoldMoney works, and why it’s better than storing physical metal in a bank or purchasing an ETF.
TGR: You’re a big proponent of owning gold. Do you think that’s the best course given the current state of the economy?
JT: Yes, for two reasons. Gold is an inflation hedge because it preserves its purchasing power over long periods of time by keeping up with inflation, and inflation is a growing problem. But gold is also a catastrophe hedge, because it is money that doesn’t have counter-party risk. In other words, you’re not reliant upon someone else’s promises for the value of that wealth, which is becoming increasingly important given the perilous state of the banking system and growing possibility of a financial meltdown. But don’t try trading gold. Accumulate it. You really should take a long-term view and steadily accumulate gold month in and month out. In other words, dollar-cost average your purchases. Sometimes you might buy at a higher price, but sometimes you’ll be buying at a bargain, which I think describes the present situation. We’ve been in this set of circumstances many, many times before over the past eight years, but obviously at lower prices. The market runs up to a level and ends up getting hit. The speculative element comes in near the top; they then get forced out, as the market reverses and goes through a correction. But if you have a steady program of accumulation, sometimes you might be buying at a higher price, sometimes you might be buying at a lower price, but the key is that you’re riding with the major trend, and the major trend is still up. And the reason why the major trend is still up is because of all the monetary and financial problems that we’re confronting.
TGR: What do you see is causing the downward pressure on gold after breaking through the mythical $1,000 mark?
JT: I think there are a couple of factors. I think number one on the list is the gold cartel. They’re still trying to keep gold capped in order to make the dollar look worthy of being the world’s currency, when, in fact, we all know the dollar is not. Gold is the barometer that tells whether central banks are doing a good job or not in managing the currency. And by keeping gold lower than it otherwise would be, it makes the dollar look better relative to its major competitor, which is, of course, gold.
Another factor is speculation. There are really two gold markets. There’s the physical gold market where bullion trades—the actual physical metal. Then you have the paper gold market—futures, options, and that type of thing—where you get a lot of speculation. And from time to time, the paper market can drive the physical market, but ultimately, it’s the physical market that determines whether gold is in a major bull market or not. The paper market can drive the short-term swings, both on the up side and the down side, we’ve seen over the past couple of months.
But the physical market drives the
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