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James Turk Explains: Why Gold & Silver During These Turbulent Times

By Jay Taylor      Printer Friendly Version
Nov 5 2008 2:30PM

www.WeBeatTheStreet.com

http://www.cambridgehouse.ca/ch_jtu1.jpgJames Turk is the founder and chairman of GoldMoney, which provides a convenient, safe and economical way to buy and sell gold and silver online using the digital gold currency for which he was awarded four US patents.

After graduating in 1969 from George Washington University with a B.A. degree in international economics, he has specialized in international banking, finance and investments, which has included positions at The Chase Manhattan Bank (now JP Morgan Chase) and the Abu Dhabi Investment Authority. James writes The Freemarket Gold & Money Report (www.fgmr.com), an investment newsletter he began in 1987.  His latest book, published in December 2004, is “The Coming Collapse of the Dollar”, which has been updated for a newly released paperback version entitled “The Collapse of the Dollar” (www.dollarcollapse.com)

Your editor has considered James a friend for many years. He and I are both natives of Ohio, but more importantly we share the realization that an honest monetary system is essential for a nation to remain prosperous as well as for the preservation of personal liberty. In fact, knowing James as I do, he views liberty from a tyrannical government to be the most important attribute of honest money.

We caught up with James on September 23rd as Congress began debating and considering legislation for the most massive reconstruction of our financial system since the 1930s. Here is what James had to say about these most important issues of our day and about steps you can take to protect your wealth and liberty.

Taylor: James we are now witnessing one of the most violent upheavals on Wall Street and I don’t think it would be an overstatement to suggest as many have, that the most sweeping changes since the 1930s are underway. Wall Street appeared a few days ago to be on the verge of a deflationary implosion and fear gripped the hearts and souls of anyone and everyone with an IQ of over 40. How did we in America get in such a mess? How have we squandered our position as the richest nation in the world?

Turk:  Good questions Jay, and the answer to the first one is simple.  We’re in this mess because politicians rejected the wisdom of the framers of the Constitution by going off the gold standard in 1971, and they did it with barely a murmur by the American people, which I think speaks volumes.  The overturning of this basic monetary principle of tying a national currency to gold is not something for which the politicians alone are to blame.  The American people let it happen, which is the tragic part of it all.  It’s as if most people had no sense of history or understanding of the rule of law, but I think this usurping of monetary power by the federal government can accurately be explained another way.  The country had become polarized by the early 1970s.  One group had become enamored with or reliant upon an all-powerful state.  Perhaps because of their relationship with it and benefits they received from it, or perhaps they were just so trusting in political leaders that they simply ignored this basic, fundamental monetary provision of the Constitution and allowed the politicians to run roughshod over it.  The other group is the exact opposite.  They had become so disgusted with the machinations of the state and believed that they were seemingly powerless to change the path it was on that they simply became indifferent to the state, and went on with their lives minimizing their interaction with it, which explains, for example, why voter turnout in federal elections is so low.  Not only does the polarization exist to this day, it has become even more pronounced as the debate over the $700 billion bank bailout makes clear.  Maybe this latest grab for power and pillaging of the American taxpayer will result in a confrontation between these groups which leads to reform that finally – we can always hope – puts the federal government back on the right path.  Restoring the monetary provisions of the Constitution is the way to do that.

When the dollar was taken off the gold standard in 1971, there no longer was any discipline on the money creation process.  So we are now seeing with the dollar what the framers of the Constitution saw with the continental currency during the War of Independence.  Without any external discipline, monetary history gives us the clear-cut message that the currency is always issued to excess, which creates inflation and inevitably destroys the currency.  The continental eventually collapsed, causing economic hardships and widespread deprivation, which is one of the key reasons the framers of the Constitution sought to create a more “perfect union”.  One aspect was a monetary union, where the silver dollar became the unit of account for commerce throughout the union of States – what we today might call a “common market”.  To ensure that the dollar would remain sound and could not be created to excess like the continental, the framers made clear in Article I, Sections 8 & 10 – which provisions by the way were reinforced by the Coinage Act of 1792 – that gold and silver would be the money of the several States that were uniting to form this new union.  And so it was for about 180 years, namely, until President Nixon by executive order threw out the window these provisions of the Constitution and the body of monetary law that had been built up over the decades.

The answer to your second question flows from the first.  Once we abandoned the wisdom of the framers, we started along an entirely different path.  It’s the path to what I call the fiat currency graveyard.  And once a currency is on that path, it is easy for the demagogues in Washington to create money ‘out of thin air’ and promise the world to everyone.  But all they have done is create the illusions of prosperity because as we all know, there is no free lunch in the world.  Wealth comes from savings and production, not debt and consumption.  So the money created out of thin air has to be paid by someone.  That someone has been the back of every American who has for decades now suffered the harmful effects of inflation.  We’ve consequently devolved from a nation of savers to one of borrowers, from a nation of producers to one of consumers.  The country has squandered the tremendous wealth accumulated over generations to become the largest debtor the world has ever seen – and probably ever will see.

Taylor: In an essay titled, “The Window is Open”, that you recently wrote and posted on the goldmoney.com website, you make the point that the Fed is providing unlimited amounts of credit to the banking system. You state: “What the Fed would like us to believe is that the liquidity it is providing through its various lending schemes is sufficient to make solvent those financial institutions that have become insolvent. Unfortunately, economics doesn’t work that way.” Could you explain why it doesn’t work that way? And if they can’t bail us out with more and more liquidity, what do you think will happen?

Turk:  To answer this question, you have to look at bank balance sheets.  Back in the 1960s, leverage of 6 or 8 times capital was the norm.  In other words, if a bank had $1 million of stockholder equity, it would accept deposits and incur liabilities of around $6-$8 million.  Today, banks are leveraged at 40-to-1 or more in some cases when you deduct goodwill and the like from their assets.  Now, if a bank has bad assets greater than its capital, it is insolvent.  Simple math shows that dire financial condition is easier to reach if the bank is leveraged at 40-to1 than 6-to-1.  Because of all the imprudent lending by banks during the boom years, banks are now recognizing that they have a lot of bad loans that can never be repaid.  Even where they took a house as security, the value of that house is often much less than the amount of the loan.  The bottom line is that many banks – including some of the nation’s biggest – are insolvent because the market value of its assets is less than its liabilities, which are deposits from its customers and the money the bank has borrowed.  The point is that the liquidity the Federal Reserve is adding by creating new dollars does not help insolvency.  It does not turn bad assets into good assets.  In other words, it does not turn a bad loan into a good loan.  So these bad assets do not disappear simply by transferring them from the banks to the Federal Reserve or even to the government under the $700 billion bailout plan. 

Losses are going to be taken, and Paulson’s bailout plan is putting those losses on the back of taxpayers.  But there is I think a bigger issue here.  The ‘full faith and credit’ of the federal government is being debased.  The federal government is already operating at the mercy of foreign creditors, because domestic savings have already been consumed.  The federal government borrows from overseas to get all the money it spends because only foreigners have the savings now to absorb all the new federal debt being issued.  So the federal government is on a knife-edge.  Any diminution of the government’s financial standing will cause these creditors to flee the dollar as they seek a safer way to hold their wealth.  Actually, I believe that we have already reached that point because there was a huge outflow of foreign capital from the U.S. in August.  So what’s left?  If foreigners won’t buy our debt who will?  The Federal Reserve will buy it, but that’s just another way of saying the Fed will ‘print’ more money to fund the federal government’s insatiable desire to spend dollars that neither it nor the American people have. 

Let’s face it.  The country is broke.  The U.S. no longer is the richest country in the world.  It’s the biggest debtor in the world and that debt is growing every second and the federal government’s debt is growing the fastest.  The politicians are spending the country into bankruptcy.  A lot of promises are going to be broken, which explains why wealth is being pulled out of financial assets and moved into tangible assets.  Financial assets in the end are only worth the financial capacity of the person or entity making the promise.  It is this promise that gives a financial asset its value.  It is clear that lots of those promises are worth less than people thought.  In many cases those promises are not worth the paper they are printed on.

Taylor:  If the banks are flush with cash but won’t lend because they are either using whatever liquidity they can get their hands on to shore up their own balance sheets or because they can’t find willing borrowers with good credit ratings, wouldn’t that portend a deleveraging of the system and with that a deflationary depression not unlike the 1930s?  If not, why not?

Turk:  That’s a good question, and there is a lot of confusion here.  Everyone recognizes that there is a lot of wealth destruction occurring.  There’s no doubt about that as house values, for example, collapse.  But wealth destruction does not necessarily mean deflation. 

The wealth destruction during the Great Depression led to deflation because the dollar was on a gold standard.  As promises back then were broken and as people moved wealth from financial assets into tangible assets, a deflation was the inevitable result because people converted their dollars into gold, which forced a contraction of bank balance sheets which is another way of saying that the money supply contracted.  Today we are again seeing wealth destruction, but where’s the deflation?  Who can honestly say that their cost of living is declining?  Sure the price of gasoline has dropped the past couple of months, but compare gasoline prices today to where they were a year or two ago.  The point is that the cost of living continues to rise because of inflation, so this time around, wealth destruction is not resulting in deflation.  We are not seeing the same monetary outcome as we did in the 1930s, and given the way the Federal Reserve and central banks around the world are printing money, it is quite clear to me that inflation is going to get much worse. 

One last point.  Banks have not stopped lending.  Bank balance sheets are still expanding for two reasons.  Companies that no longer have access to the commercial paper market and other sources of funding are drawing down on back-up lines of credit that they have with the banks.  The second reason is that the banks are buying, and therefore monetizing, some of the new federal debt being issued.  As bank balance sheets grow, the quantity of dollars grows lock-step.

Taylor: Interest rates have been very low. In fact I think using even the governments inflation numbers which we know are suspect, investors are getting negative real rates of return.  Wouldn’t you expect higher interest rates if investors were worried about inflation and an erosion of purchasing power of the dollar? Given rising levels of inflation, why do you think investors are content to lend their money to the Federal government when their returns even before paying taxes on interest income are negative?

Turk:  It doesn’t make sense, does it?  The yield on a 1-year T-bill is about 2%, and the inflation rate is closer to 5%, even by the government’s own calculations which I think understate the true rate of inflation.  But even by this measure, when you own a T-bill you are losing 3% of your purchasing power every year – even more actually when you consider taxes you are paying on the interest you receive.  Why people accept this loss of wealth is hard to fathom, but I think it is due to conditioning.  People have been so propagandized into thinking that federal government debt is a safe haven that they accept this notion without even thinking that what might have been true in the 1950s, 1960s and 1970s is no longer true today.  When the realization hits home that the federal government has made too many promises and is over-committed, we will have reached the tipping point.  In other words, the dollar has collapsed up to now largely because foreigners no longer want to hold dollars.  When Americans start exiting the dollar too for safer alternatives, its collapse will accelerate.  History shows that it takes about six months from the moment the tipping point is reached for a currency to totally collapse.  

Taylor: We did see interest rates rise dramatically during the 1970s inflation era. So far nothing like that has happened here. How do you explain that? Are the markets anticipating deflation? Or what?

Turk: No, it’s not any anticipation of deflation.  This unusual willingness to accept negative real rates of return is occurring I think for two reasons.  First, much of the dollar-denominated debt is held outside the U.S. and holders of this debt – mainly central banks – are a big factor.  What they do affects the price of dollar debt, and therefore, dollar interest rates.  So central banks have by their actions created an artificial situation in which dollar interest rates are far too low to compensate them for the risks of holding dollars.  But they are willing to live with this absurd situation because they recognize what will happen if they sell their dollars.  Not only will dollar interest rates soar, the dollar’s rate of exchange to other currencies would collapse, hurting their country’s exports to the U.S. 

Thus, central banks are unwilling to rock the system, at least so far, and I say “so far” for a reason.  I think the attitude of foreign holders of dollars is rapidly changing, so even central banks may soon be running for the exits and away from the dollar.  It will be interesting to see who breaks ranks first, but clearly, the first one through the door will be in the best position because they will be dumping their dollar assets at the best possible price.  Pity the last central bank through the door, or to be more precise, pity the citizens of that country.

The second reason that people are willing to accept this loss of purchasing power by holding dollars is that most people simply don’t understand it yet, or if they do, they are searching for solutions.  The fact that the demand for gold and silver has been so strong of late shows that the average person is coming to understand very quickly the fragility and uncertain outlook for the banks, and more to the point, are acting more quickly to protect their wealth than the foreign central banks.

Taylor: How long do you think the Chinese and other creditor nations will put up with the U.S. dollar given the obvious signs of weakness that are taking place in our financial system?

Turk:  Not much longer.  I think they understand that the financial risks they are taking are becoming too great.  Also, they are now recognizing that their policy in recent years of accumulating this dollar debt no longer makes sense.  In fact, there was a report on Bloomberg just the other day by Yu Yongding, a former adviser to the Chinese central bank.  He made exactly this same point.  His recommendation was that instead of accumulating all this foreign debt, and particularly dollar denominated debt, the central bank should be investing this wealth within China to improve that country’s national welfare, instead of financing the lavish lifestyle of the U.S.

Taylor: So, do you see an opportunity sometime in the near future to profit from shorting the long bond using something like a Rydex inverse fund or something like that?

Turk:  Yes, but that’s obviously not for everyone.  But if you are a professional trader or speculator, selling short the long bond – and for that matter, the dollar itself – looks like a good trade.  For most people though I just recommend the prudent approach.  Don’t buy the federal government’s debt, or for that matter, any dollar denominated debt.  And minimize the amount of dollars you hold.  Instead, keep most of your liquidity in gold and silver bullion.  View this bullion like you might view a savings account, but importantly, it is a sound money savings account – not a dollar denominated one. 

In other words, the dollar value of your bullion will fluctuate and you won’t of course earn any interest on your bullion, but you are getting something very important in return.  Gold is an inflation hedge because it preserves purchasing power over the long-term.  Also, gold is a catastrophe hedge because it does not have counterparty risk.  That means gold’s value is not dependent upon some bank’s promise and creditworthiness.  Both of these attributes of gold are important in the best of times, but they become particularly important when you are saving for that proverbial rainy day.  Right now there is a downpour on Wall Street, and this storm is spreading.

Taylor: Does the dollar have to get weak in order for gold to rise in price? Or could we see a “stronger dollar” and higher gold prices?  And what about silver? Does the same dynamic hold true? Do we have to see a weaker dollar in order to see higher silver prices?

Turk: Gold can rise regardless whether the dollar is rising or falling.  For example, in the 1930s the dollar was one of the strongest currencies in the world, and yet gold rose 69% from $20.67 to $35. 

Keep in mind that there are four forces at work when you talk about gold’s rate of exchange – what we normally call the gold “price” – to the dollar.  These four forces are the supply and demand for gold interacting with the supply and demand for the dollar.  So at any time, depending of course on their relative strengths, the interaction of these four forces could cause gold to rise regardless whether the dollar is rising or falling.  The same principle holds true for silver.  

Taylor: In another essay you wrote on August 18th and posted at goldmoney.com, titled, “A Fabrication Bottleneck or Something More” you noted that coin dealers were having trouble keeping gold and silver products on hand.  Could you explain to our readers why you think this problem has occurred?  Do you know if shortages of the metal have continued since then?

Turk: Yes, the shortages are continuing, and I think they are actually getting worse.  You may have seen that the US Mint has run out of the new Buffalo gold coin.  What’s more, the shortages are global.  They are happening everywhere because the soaring demand for precious metals is a global event. 

The reason for the shortages is twofold.  First, the price is too low.  The price needs to rise to lessen demand.  Second, the demand continues to soar because people everywhere are becoming increasingly worried about the meltdown of the global financial system.  They recognize that banks around the world are holding toxic paper.  Insolvent banks are not just a U.S. phenomenon.

Taylor: Have you had trouble at goldmoney.com keeping up with demand for gold and silver purchases?

Turk: No, not yet anyway.  There are a couple of reasons for this.  GoldMoney does not sell coins or small bars.  We deal only in bars that meet the standards of the London Bullion Market Association, and these bars are by far, the most liquid and marketable form of gold and silver.  Second, we buy these bars in London and Zurich, the two biggest markets in the world for physical metal.  These points actually highlight one of the key advantages of buying gold and silver through GoldMoney.  We enable the little guy to buy metal in the world’s two most important gold and silver markets right alongside the big institutional players.  That means you can purchase physical metal from GoldMoney at very advantageous rates compared to other alternatives. 

For example, in GoldMoney the spread above the spot price to purchase gold ranges from 0.98% to 3.74%, depending on the size of the transaction.  Larger transactions get the better fee because of the economies of scale they bring, and we pass these benefits back to our customer.  Thus, the spread GoldMoney charges is much smaller than that charged by coin dealers because the fabrication and handling costs of coins and small bars are significant.  We avoid these costs by dealing in large bars.

Taylor: GATA has done some stellar work in exposing suspect action on the part of government and major Wall Street institutions in manipulating markets and in particular the gold market. To what extent do you think the President’s Working Group aka The Plunge Protection Team has suppressed the gold price and to what extent do you think they will be able to do it in the future?

Turk: There are a number of ways to measure the price suppression.  One simple way is to look at platinum.  Gold and platinum historically trade at about the same price.  But when platinum climbed over $2000 earlier this year, gold was only $1000.  There is still a huge divergence between their prices.  There are other examples, but it is clear that most everyone understands by now that the gold price has been suppressed.  The body of evidence that GATA has accumulated over the years is overwhelming.  The good thing is that it is available free on the GATA website, (www.gata.org).  Some holdouts still dispute the gold price suppression scheme, but the important point is that none of them have ever refuted any of the facts or other hard evidence that GATA has assembled.

There’s one other important point I would like to make.  The price suppression has worked to our advantage in that it has kept gold cheap.  So we have been able over the past several years to accumulate gold at bargain prices.  Importantly, gold remains cheap, so don’t worry if you think you have missed the boat.  You haven’t.  But there is a downside too.  The share prices of gold mining companies have underperformed because their costs have risen faster than the gold price, squeezing margins.  If gold were trading at a fair value, the prices of mining shares would be much higher. 

Taylor: You recently wrote an essay titled “Thinking like Fat Tony”.  Could you summarize that article for our subscribers and explain how sometimes the common sense of every day folks trumps the formally educated ruling elite? What lessons can we all take from Fat Tony?

Turk:  Basically, we need to think outside the box.  Don’t take what you read in the papers or hear on TV as gospel truth.  Think for yourself, and be prudent about risks.  We’re already in some tough times, but it’s going to get worse.  We are witnessing the end of fiat currency.  The wealth destruction it has already caused is staggering.  Just look at what has happened to the shareholders of the banks over the past year or so.  But it is going to get worse.  Not only will more bank shareholders be hit, but so too will bank depositors, which is why I recommend that people keep their liquidity in gold and silver bullion.  Everyone should minimize the amount of dollars they hold.  Avoid dollar-denominated assets like T-bills and other government debt as well as the dollar-denominated debt of companies.

Taylor: I know you follow the work of Dartmouth educated economist John Williams as do I.  John has openly talked about prospects for a hyperinflationary U.S. economy as early as 2010.  Do you see that as a possibility?

Turk:  John Williams does some great work, and I am definitely in the hyperinflationary camp.

Taylor: If hyperinflation occurs, what do you think the repercussions might be for Americans remaining in this country, both from a financial perspective and also in terms of our personal liberties and freedoms?

Turk:  I fear it won’t be good.  First, from a financial perspective, we know from history that hyperinflation always results in massive economic dislocations and wealth destruction.  Look at what is happening in Zimbabwe today.  Look at what happened in Brazil and Argentina in the 1980s.  Look at what happened in Weimar Germany in the 1920s.  And frighteningly, Weimar Germany may also show what will happen to our personal liberties and freedoms because the seeds of Germany’s 1930’s fascism were planted in the monetary turmoil the decade before.

I believe that the writing is already on the wall with all of the actions Washington is taking to impede our rights and individual freedoms.  This trend will continue.  Sadly, the federal government has devolved into what is today called “corporatism”, but this innocuous sounding name is nothing more than a way of gilding what is really a fascist power.  That is to say, private interests are in control of the coercive power for the state, and they use this power for their benefit to the disadvantage of others.  The recent $700 billion proposal to bailout the big banks is a good example.  Some 90% of the American people are against it, but banking powers are pushing it through nonetheless.  The American people no longer control the federal government.  It is controlled by banking and other corporate interests, which then use the federal government to control the American people.

I just wrote an article on this point.  It’s called “Government Money or Sound Money” and is published on (http://www.financialsense.com/).  The article includes several quotes from Warren Buffett’s father, Howard Buffett, when he was a Congressman from Omaha in the late 1940s.  Rep. Buffett understood that the balance of power and control shifted away from the American people to the politicians in Washington when the right to redeem dollars for gold was ended in 1933.

Taylor: People frequently ask me and I’m sure they ask you too, how high will gold go? I usually tell them I think that is basically an irrelevant question. Rather they should look at the purchasing power of an ounce of gold which is a relatively stable unit compared to the dollar which can be supplied in infinite amounts. I often refer to the Dow/gold ratio and note that over the past 100 years, whenever the DJIA has bottomed, we have seen a 1:1 Dow to gold ratio. Therefore, it doesn’t really matter if we go into a deflationary period of time and the Dow goes to 500 and gold to $500/oz. or if we go into hyper inflation and the Dow goes to 1,000,000 and gold to $1,000,000 per ounce. The point is that an ounce of gold will buy the Dow.  Do you view gold in that way as well, as a stable unit of purchasing power?

Turk: Yes, that is one of my favorite ways of looking at it too.  The inflationary or deflationary outcome of course depends on what the Fed does, and while neither outcome can be predicted, I do predict that they will fumble the ball.  After all, the Federal Reserve is worryingly and frighteningly similar to the command economy planners of the old Soviet Union.  Why should we expect the Federal Reserve to do any better than the politburo?  The economy is too complex to give to a group of central planners the power to create money, particularly where there is no external discipline on the money creation process as existed under the gold standard.  We should therefore not be surprised by the dreadful mess the country is in.

The Federal Reserve was created in response to the Crisis of 1907.  Americans were told that a central bank would prevent future crises, so it is ironic that 100 years later we are in the midst of a crisis worse than the one in 1907.  And look at all the other havoc wreaked by the Fed over the years, for example, the Great Depression and the fact that a dollar in recent decades has lost more than 90% of its purchasing power because of inflation.  This sorry record makes it clear that the Federal Reserve should be closed down, as Congressman Ron Paul has advocated.  Let’s close down the Federal Reserve and once again for the good of country define the dollar as a weight of gold.

Taylor: If you think gold and silver are both undervalued, which do you think is more undervalued? Which metal should provide the most protection against inflation?

Turk:  Silver is clearly more undervalued.  It now takes about 66 ounces of silver to buy one ounce of gold.  The historical average is 16.  So I expect silver will continue to gain on gold in the long run, but silver comes with a lot more volatility.  Consequently, silver may not be for everyone. 

Either metal will protect you against inflation, but both metals also have another attribute that is becoming increasingly important.  I can’t emphasize this point enough, but when you own physical metal, you do not have counterparty risk.  Gold and silver are the only money not dependent on someone’s promise.

Taylor: Our newsletter focuses not only on precious metals, but as you are aware we are also bullish on energy including uranium and nuclear power as well as base metals. Do you have any thoughts about the future price of those markets realizing of course that each market has its own unique characteristics?

Turk: I’m bullish on all commodities.  Some say commodity prices have been rising because of global economic growth, and particularly the growth in developing countries like China, India and Brazil.  I believe commodity prices have been rising because of the ongoing collapse of the dollar.  There are many savvy investors around the world that would rather own a million dollars worth of commodities instead of having that money sitting in a bank account.  So even though commodities have recently had a setback, their prices are I expect destined to go much higher as the problems with the dollar continue to build.

Taylor: So I think we both agree that we are now seeing the start of some very tumultuous times in America.  I know you believe an essential thing to do is to buy physical gold and/or silver bullion to preserve one’s wealth.  I know you also believe that holding physical gold and gold shares is a desirable thing to do.  But you have carved out a very unique way to own and store gold and silver bullion, namely through your patented (www.goldmoney.com). Can you please inform our readers what the advantages are of owning gold and silver purchased and stored through GoldMoney?

Turk: Well, I have already mentioned our low fee structure, so getting more gold or silver for your money is one key advantage of GoldMoney, but there are others too.  We store your gold and silver in London and Zurich at your choice, which is not only convenient for you, but a great way to diversify your metal holdings geographically.  Your metal is insured by a policy underwritten at Lloyd’s of London.  You can transact conveniently online in front of your computer, and you can buy or sell gold and silver up to our daily limits 24/7 in four different currencies – the US dollar, Canadian dollar, euro and British pound.  To purchase gold or silver, you simply wire your funds to a Customer Segregated Funds account that we maintain with two major UK banks, and they pay interest on your money until you make a purchase.  When you sell, the proceeds can also be placed in this same account, and the banks will pay interest until you decide to transfer your money back to your bank account or make another purchase.  Importantly, when you sell, you always get the spot price.  But here’s the really important advantage of GoldMoney.

Your gold and silver are safe.  We have a very detailed governance procedure that is applied rigidly and dependably to make sure your metal remains safe.  One part of this process is a regular audit by one of the Big-4 auditing firms, and their report is available to our customers upon request.

Taylor:  What might be some disadvantages? What might be some of the risks as opposed to storing it in your own home?

Turk: The disadvantage of GoldMoney is that you do not have your metal in hand.  It’s stored instead in a specialized bullion vault.  But if you have enough metal in your account, you can take delivery of an LBMA-sized bar.  Keep in mind though that when you have metal in hand, you have to weigh up the disadvantages of storing it yourself.  For example, there are risks to storing gold or silver in your own home, like possible theft. 

What one has to do is weigh the advantages and disadvantages of the different ways to own physical metal, which brings up an important point.  Always own physical metal.  Don’t own what I call paper gold, like certificates, pool accounts, and even an ETF.  These products give you exposure to the gold price, but they are financial assets and therefore dependent upon someone’s creditworthiness.  When you own physical gold, you get exposure to the gold price without having to rely upon anyone’s creditworthiness. 

When you buy physical metal, you have two alternatives – buy it and store it yourself or buy it and have someone store it for you, which of course is what we do in GoldMoney.  If you choose this option, please be sure that the company you are using to store your metal has the same industry leading governance procedures that we use in GoldMoney, the most important of which are the regular audits that are available to you to read. 

In short, don’t take risks with your precious metal.  It is the bedrock asset in your portfolio, so you want it to be as safe as possible.  So, for example, do not store your metal in a bank.  Most of the metal confiscated by the federal government in 1933 was stored in banks.

Taylor:  I recall that you talked once about the potential of using debit cards to use your gold or silver holdings in day-to-day transactions? Is that still a possibility?

Turk: Yes, it is.  We look at this periodically, but so far always come up with the same answer.  These card programs need a large user base to be cost-effective, and we’re not there yet.  We will be eventually though, so imagine the possibilities of what you would be able to do with your GoldMoney debit card.  Simply hold your liquidity in gold or silver, and then make purchases around the world with a plastic Visa or MasterCard debit card connected to your GoldMoney account.  That’s the future, and hopefully it’s not too far away.  It’s just one way to help us achieve our overall objective – to enable gold and silver to once again circulate as currency in global commerce.

Taylor: You have done a wonderful job in building GoldMoney.  How much metal are you storing for your customers?

Turk:  Thanks, Jay.  We are storing about $405 million of metal owned by our customers.  We have been growing rapidly since our launch seven years ago, and the growth rate has not slowed down even though we are getting much bigger.

Taylor: James do you have some parting words of advice for our subscribers?

Turk: I guess we should end with a big picture overview that I think explains the prevailing macro trend.  It comes down to one question.  Where do you want to hold your wealth?  Broadly speaking, you have two choices: financial assets or tangible assets.  For the past several years, people have been opting for tangible assets, and for good reason.  Financial assets are backed by someone’s promise, and promises are being broken left and right.  Many promises made during the boom years are not worth the paper they are printed on.  So for reasons of safety, people are opting for tangible assets.  This trend has been well established over several years now, and I expect it to continue.  People are moving into tangible assets, and the most liquid and safest of them all is gold, with silver right behind.

Taylor: Thank you so much for your time, your wisdom and for your tireless effort on behalf of the common man. GoldMoney is the protector of common folks while fiat money is used by the powerful and elite to reallocate wealth from those who produce it—the miner, manufacturer, farmer, inventor, etc to the bankers and politicians. Mrs. Taylor and I have parked a bit of the net proceeds from the sale of our house a few years ago into goldmoney.com and we have been very pleased with the way our holdings have been handled.

Turk:  Thank you, Jay.  It’s always a pleasure to speak with you.

The Interview of James Turk was carried out in the October 2008 issue of J Taylor’s Gold, Energy & Tech Stocks newsletter. Next Month, J Taylor’s Gold, Energy & Tech Stocks will interview Bill Laggner of Bearing Asset Management. This fund has gained over 100% so far in 2008 by taking a deflationary view of the markets. What will deflation mean for the gold markets? For gold mining Shares? What about silver and silver mining shares? Be sure to subscribe to J Taylor’s Gold, Energy & Tech Stocks to find out the views of this hedge fund and how you can not only survive but hopefully profit from this bear market.

J. Taylor

 

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Jay Taylor is editor of J Taylor’s Gold, Energy & Tech Stocks weekly and monthly newsletter. Jay provides stock recommendations with a major focus on the mining and energy sectors and also provides strategies designed to profit from major trends. Visit (www.miningstocks.com) for more information and/or call Claudio Bassi in Jay’s office at 718 457-1426 Monday through Friday between 9:00AM and 4:00 PM Eastern time

To find out more about J Taylor’s Gold & Technology Stocks newsletter, please visit www.WeBeatTheStreet.com