GoldMoney's followers on
Facebook and LinkedIn recently had the opportunity to submit their questions
on the gold and silver markets to James Turk. Here are James's responses to
the thought-provoking queries he received.
1) John Garvens: Silver hasn't done much recently. Why
is this? And what are your thoughts for its future?
James Turk: Silver does not appear to have done
much recently because its price has been in a sideways trading range for 3
months. But the markets are always telling us something, even when prices go
sideways. In the case of silver, the market is telling us that a big base is
being built. Bases like these usually result in big rallies, which is what I
am expecting for silver. It is subtle, but the rally I believe has already
begun. The low in silver was $26.12 on June 28. Silver has been in an uptrend
2) Steven Wood: In the case of mass deflation and/or/
hyperinflation, what are the chances of retaining one's ownership of mining
shares in countries like Canada and the USA?
JT: I assume you are asking, what is the
political risk of investing in America and Canada? It is high in the US,
given past experience. A windfall profit tax – like that imposed on oil
companies back in the early 1980s – cannot be ruled out if the gold
price soars, causing mining profits to soar too.
Mining is a relatively small
percent of US GDP, in contrast to Canada, where mining and natural resource
development play a big role in economic activity. So the political risk in
Canada is lower than the US, but it exists there too. For example, look how
the tax increases changed the nature of the royalty trusts. The bottom line
is that when politicians are desperate for money in countries where property
rights are eroding and the rule of law gets bent for perceived political
expediency, anything goes – and not necessarily for the better.
3) Wayne Sweetman: The Gold lease market is far beyond a 1:1 ratio
of physical gold ownership to paper claims on gold. What ratio do you expect
this is at today?
JT: To restate your question, there is a
lot more paper gold than physical gold, which I wholeheartedly agree. I had
always assumed it was about 20-to-1. But in CFTC testimony last year, one
witness suggested it was 100-to-1. But here’s the key point.
Owning paper-gold instead of
physical gold is like playing the children’s game, musical chairs. When
the music stops, there are never enough chairs for everyone. Translating that
into gold, when the music stops, someone who owns paper gold will end up with
nothing but a broken promise. So why take the risk? Own physical instead.
Monetary history shows repeated busts and collapses occur when people rush
out of paper into physical metal. The reason of course is that physical metal
does not have counterparty risk, which is something to avoid in a financial
bust when promises are being broken all the time. When you own physical gold,
you own a tangible asset, not someone’s promise, which brings up an
There is no counterparty risk in
GoldMoney. Our customers own the precious metals they store with us;
GoldMoney does not owe these assets to our customers.
While there is no counterparty
risk in GoldMoney, our customers do have performance risk – namely that
our representations on our website are accurate. We use audits, governance
procedures, ultrasound scanning, etc to provide our customers with assurances
of integrity that any performance risk is mitigated, meaning that their metal
4) Karan Nagpal: What percentage of people (in your view) know
that gold is money? And what percentage of them are (and will remain)
brainwashed, not able to see the truth?
JT: In Asia, about 80% understand gold is
money. In Europe and the Americas, maybe 20%. Everyone will see the truth
when the fiat currency bubble in which we live today eventually pops, which
it inevitably will. See No. 25.
5) Edward Durfee: When will we able to use goldgrams again?
JT: Unfortunately, I don’t know. We
have had to stop this service in all countries except Jersey, where we
operate, but it is our intention to re-establish this service eventually. We
are studying how to do this.
6) Martin Phillips:
far do you think governments will go to suppress the price of gold and
JT: Not much further. They can only go
so far because they use paper gold to suppress the price, along with
anti-gold propaganda. To make good on their paper-gold promises from time to
time they need to deliver physical metal into the market, which they have
stopped doing. The Bank of England and other European central banks were
willing to dishoard metal for several years beginning in the late 1990s and
continuing into the new century. But the selling from these sources has
stopped. In recent years central banks not involved in the gold price
suppression scheme have become buyers. Given that gold remains very
undervalued (see No. 15), I think we are very close to the price suppression
scheme ending. I forecast back in October 2003 in an interview in
Barron’s that my expected timeframe for this event was 2013-to-2015. I
see no reason to change my thinking. I expect the next two years to be
7) Dr Christopher Payne:
Is the purchase of precious metals i.e., gold, silver or platinum taxable if
you purchase it? Is it considered a form of income? If so how do you protect
it legally from the greedy feds?
JT: I can’t answer the first two
questions because they involve matters outside of my area of expertise.
Regarding the last question, the best way to protect your metal is to store
it in different countries. When gold was confiscated by the US government in
1933 and made illegal to own, gold that was outside America and owned by
Americans was not confiscated. You might find my article, “The Myths and Reality of Gold Confiscation”,
to be interesting and helpful.
8) Laurent Torriani:
you think Gold and Silver are going to be remonetized ? If yes, what country
will be first to do that?
JT: No, I think it is unlikely. The
precious metals impose too much discipline on governments, and politicians
don’t like that, particularly the socialists. But as Margaret Thatcher
presciently warned years ago: “the problem with socialism is that you
eventually run out of others people’s money”. The relevant
acronym is OPM (pronounced “opium”), and most politicians are
hopelessly addicted to spending it. But governments have run out of money,
and some have even run out of the ability to borrow money. So the European
Central Bank and other central banks are taking this debt and turning it into
currency. They call it “quantitative easing” or QE for short, but
they should call it what it is – money printing.
9) Kim Greenhouse:
moved you to temporarily retire the transaction part of GoldMoney where
people could buy goods and services with goldmoney.com, and do you think you
will be able to turn it back on so that we can transact with goldgrams?
JT: As we mentioned at the time, it
was to avoid increasingly onerous and uncertain regulatory burdens for our
company as well as our customers. We also said that because the use of the
metal payments was not significant, we anticipated that stopping this service
would not be inconvenient for the majority of our customers, and hopefully it
has not been. See No. 5.
10) Stijn Kox: Many people
need to spend all their income and savings on housing, loans, bills, etc.
They can't afford it anymore to buy gold and silver. How can they protect
themselves against an economic crisis? What's the alternative to gold and
JT: There is no doubt that times are
tough for many people around the globe. And I wish there were some easy
answers, but I do not see any alternative to owning some physical gold and
silver. They are one’s savings.
11) Julian Seidenberg:
all this talk about money, gold and wealth, what are your thoughts on the
wealth of free access to organic food, clean water, natural medicine, natural
wilderness, etc? Many of the same parties that are manipulating the gold
price also seem to be trying to stop us from accessing these. What can we do
to prevent loosing access to the planet's natural wealth?
JT: These are complex questions, and I
do not have an answer. I do, though, have an opinion. The fundamental building
block of any society is the rule of law, and our society has developed the
way it has to continually improve humankind’s standard of living
because of the protection of individual liberties and property rights. The
tragedy of the commons demonstrates that resources commonly owned get abused,
and in some cases, even destroyed. So I believe that private property is
fundamentally important to your questions. But there is also one other
element, which is the building block of Anglo-Saxon common law. It is to do
no harm. If people, acting as we all do in our interest to improve our
situation, also followed this principle, we all no doubt would be better off.
But of course, when there has been harm, damages and/or corrective measures
should be available through legal judgments through a court system run by
private enterprise, not government. In short, the world needs less
government, not more, but I do not know how to make that happen.
12) Ricky Reemer: James, I am
concerned about two things when events really heat up: 1) government
confiscation, 2) new taxes on gold. Question: is there anything, really, that
can be done to protect oneself against this kind of government intervention?
JT: As we all know, the future is
unpredictable and uncertain. So all we can do is look at the things that have
happened in the past and take steps to protect ourselves. It is clear from
history that when governments are out of control, anything can happen, and
there is only one way to protect yourself – diversify. You need to diversify
your assets as much as practical. Not all governments act in unison, so even
if you lose some assets by grabs from ham-fisted politicians and bureaucrats,
if you are diversified, you won’t lose everything.
13) Dennis Cline: What is the
best way to invest in gold, yet hedge against a serious downdraft in the
event of a financial crisis?
JT: Gold is not an investment; it is
money. Gold does not have a management team, balance sheet, P/E ratio, and
does not generate cash flow. So one saves gold, rather than investing in it.
The price of gold may go down in the future if there were a massive
deflation, which I believe highly unlikely. Nevertheless, if a deflation did
occur, the purchasing power of gold would likely rise, which is what happened
during the Great Depression. In other words, if a deflation were to occur
today (which would be different than the 1930s because the dollar is not tied
to gold as it was back then), the price of everything else would fall more
than the price of gold. So my point is that gold is the hedge in case there
is a financial crisis, and I expect that there will be. But it will have a
hyperinflationary outcome, not a deflationary one.
14) Adam Holland: Can I have
some of yours?
JT: You mean my gold? Sure, if you
offer a product or service that I would like, and I am once again able to use
GoldMoney’s payment system to “click” some of my metal to
you in payment.
15) Magdalena Michelle:
you think gold and silver prices are being manipulated? If so, where do you
believe gold and silver prices should be?
JT: Yes, I have made this point
repeatedly since noticing anomalies in the gold market back in April 1997
when I wrote “Managing Markets”. Consequently, over the
years much of my work in this regard has been publicised by www.gata.org, which has been
the leader in bringing this manipulation to light.
My point has been that the central planners manipulating the
metals have been in a managed retreat since the low prices reached back in
1999. They allow the gold price to rise a little each year, and gold is up 11
years in a row so far. But it is still far below its fair value, which the GoldMoney
Index suggests is presently around $11,000 per ounce. Assuming the
gold/silver ratio falls from the present level around 57 back to 20 ounces of
silver to equal one ounce of gold (though 16-to-1 is really the historical
norm), then the fair value of silver is $550 per ounce. Are these prices
reasonable, and can we expect to see them in the future?
Yes, they are reasonable, based
as they are on logically derived mathematical formulas that have proven their
value over decades. If the US monetary authorities do not change direction
180-degrees and head in the right direction, I expect to see these prices in
the future when the fiat currency bubble, now four decades old, eventually
16) Elizabeth Denison: The legendary Jim Sinclair counsels to hold
physical gold. Would you say that buying metals
through GoldMoney is as safe as buying physical metals?
JT: When you buy through GoldMoney you
are buying physical metal. But we store your metal for you, instead of you
having to worry about storing it.
There are only two ways to buy physical gold, i.e., a tangible
asset. You buy it and store it yourself, or you buy it and have someone store
it for you. Each approach has advantages and disadvantages, just like most
everything in life. If you store it yourself, you have your gold at hand, but
there are risks. If you store it at home, you run the risk of theft, and the
cost of insurance is probably prohibitive. Also, if you need to sell your
gold, your liquidity is impaired. You need to take your coins/bars to a
dealer, which takes time and may be inconvenient. Depending on the size of
the bars you purchase, you may need to have them refined before the dealer
accepts them, which costs money. Lastly, you do not want to store your gold
in a safe-deposit box because of the risk of government confiscation.
In contrast, if you choose to store your gold professionally,
you do not have it at hand. But you have good liquidity, convenience,
insurance and most importantly, safety if you choose the right professional
storage firm. With GoldMoney you also get the opportunity for international
My recommendation is to buy gold in both of these ways. The
principle I am following in making this recommendation is that
diversification mitigates risk. So buy some gold to store yourself at home
and buy some to store professionally, particularly in different countries and
political jurisdictions to again diversify as much as practical. The mix you
choose between these alternatives is up to you, but basically, the aim is to
choose whatever mix with which you feel most comfortable.
17) Jared Chin Jitfu:
James. What is your advice for the people from a developing country in
southeast Asia (such as mine) in hopes of preparing for the coming inevitable
global debt failure? Mainstream media shielding the public from what's
happening in US and Europe isn't helping to promote the awareness of the
JT: It is the same advice I give to
people living everywhere. We have some difficult times coming in the months
and years ahead. You need to prepare to make sure you and your family are
protected, come what may. Fortunately, we have the tremendous resources
available through the internet to help us achieve this objective.
We cannot predict the future, which of course means that
uncertainty is something we must deal with. One of the best ways to overcome
uncertainty is to accumulate physical gold and silver. View them to be your
savings, which everyone needs whether you are saving for retirement, to
purchase some consumer good or just for protection from a “rainy
day”. It doesn’t make sense to save national currencies anymore
because the low interest rates banks offer do not offset the risks or the
loss of purchasing power from inflation. So save gold and silver instead.
18) Laurent Torriani:
you think there is going to have more and more regulation about owning
physical gold and silver in the future?
JT: Sadly, yes, it seems likely.
Rather than focusing on individual freedom to choose, governments seem intent
on more control. It seems inevitable that physical gold and silver will be
subject to more regulation too.
19) Julian Seidenberg:
you think the International Monetary Fund will try to step in when currencies
start collapsing, and issue Special Drawing Rights (SDRs) with the intent of
eventually establishing a single world currency? How do you think that will
JT: The IMF and its banker friends
will no doubt try everything they can think of to keep the fiat currency
bubble from popping. Think about it for a minute. If you had the power to
create currency out of thin air, which is what the bankers do, would you give
up that power willingly? Wouldn’t you fight to protect the special
cartel governments have given you as a banker? Of course you would,
regardless whether you are speaking about a domestic currency or one that
circulates internationally. Governments and the institutions they control
like the IMF will fight the return of gold, but they will lose the war, even
though they may win some battles occasionally. Eventually the forces of the
market prevail, and those forces indicate that gold’s 5,000-year history
as money proves it is preferable to fiat currency. After all, look how badly
fiat currencies have been doing the past decade.
20) Terje Petersen:
Australia adopt a gold standard? Can any single nation adopt a gold standard
unilaterally or does it need to be a collective effort by many nations?
JT: The gold standard is history. I
doubt if it will ever be re-established. I am not in favour of the gold
standard. It is far better than the present system, but why let governments
control currency? I am in favour of letting the creative forces of the free
market develop technologically advanced currency, and do so in an environment
where governments simply protect everyone’s inalienable rights to life,
liberty and the pursuit of happiness. I therefore favour Ron Paul’s
idea to allow competing currencies.
21) Scott Anderson:
comments are made about the difficulty of getting all of the eurozone countries
on the same page, each working toward the same goal as one. If a leader
united the eurozone and they were indeed able to follow one plan to save the
euro, what would this mean for gold and silver?
JT: The problem with the euro is that
it has become politicised. It is under the control of politicians. The ECB is
not like the Bundesbank, which was a point I made in a recent article.
If the politicians and eurocrats somehow manage to get all of
the eurozone on the same page, they would only happen if they impose more
controls and draconian measures throughout the zone. Controls erode free
markets and destroy currencies because they restrict people’s freedom
to act, thereby lowering the demand for the controlled currency. Money like
every good or service is subject to supply and demand. The interaction of the
supply and demand for money determines its purchasing power. Falling demand
coupled with the never-ending increase in supply from government printing
means a currency loses purchasing power. That outcome is bullish for gold and
22) Thomas Fink: Will the
world depression eventually become bad enough so that people will barter with
silver and gold?
JT: It is not the depression that will
cause this outcome, but rather, government controls. And it could very well
happen, particularly in localised areas. It could also happen at the
government level. For example, Malaysia has been very outspoken in restoring gold
as a means of payment between countries.
23) Abu Llyas Lothringen:
will it be possible to use GoldMoney to make payments for European Union and
Middle East & North Africa residents?
JT: Hopefully, yes. The use of gold as
currency is an important objective of GoldMoney. But it is impossible to
predict when this service will be restarted.
24) Anonymous: Where is
gold headed, I mean how high can it go?
JT: In places like Weimar Germany in
1923 and Zimbabwe more recently, and many South American countries in the
1980s and early 1990s, gold went to infinity. In other words, the currency
was destroyed in these countries, and no one would exchange their gold for
currency. There have been dozens of currency collapses since Would War II.
Expect more in the years ahead, unless governments suddenly start pursuing
sound money policies, which I think is unlikely.
25) Felix Fms: When will I
be able to fund/withdraw my GoldMoney Holding with Bitcoins?
JT: Probably never. BitCoins are the
ultimate currency backed by nothing. It is not money in my view because money
is a tangible asset, and BitCoins are not.
From time to time, new conventional “wisdoms”
defying logic and historical precedent become fashionable and fixed in the
mindset of the population, holding sway until the bubble brought about by
this fallacious thinking pops. We saw this phenomenon during the internet
bubble, when it was said that profits don’t matter – only market
share does. We saw it again in the real estate bubble when it was said that
home prices only go up. And we are seeing it now when people say the dollar
is money. It is not money in the true meaning of that word. The dollar is
only a money-substitute, as are all the national currencies of the world.
In recent decades, people have
lost sight of the fundamental truth of economic activity that goods and
services are paid for with other goods and services. One
cannot consume the currency we accept in payment, which is used merely to
facilitate the exchange of goods and services. Only goods and services can
improve our situation in life. So to properly describe its purpose, currency
is a tool we use to temporarily hold some wealth in the form of deferred
purchasing power, until we are ready to purchase a good or service.
The deferred purchasing power
embedded in national currency is not solely reliant upon the view of market
participants, as is the case for physical gold and silver. Rather,
it also relies upon the creditworthiness and reliability of the issuer of the
national currency, which is a feature that highlights the fundamental
difference between tangible assets (land, food, an oil well, gold, etc.) and
financial assets (basically anything dependent upon a counterparty).
As society developed, the most liquid and reliable tangible
asset – namely, gold and silver – became money in a market
process that began in pre-history, thus giving the precious metals what is
now a 5,000-year track record as money. When used as currency, the precious
metals enable tangible assets to be exchanged for other tangible assets,
resulting in an exchange that is immediately extinguished. There is no
However, if a national currency is used to “buy”
some good or service, the exchange is not complete because the currency is
nothing more than an I.O.U. dependent upon the promises of both the
government that is the issuer and the counterparty, which is the government
and its central bank in the case of cash-currency while banks are the
counterparty for deposit currency. The party accepting this I.O.U. does not
extinguish the exchange until they can use the national currency to purchase
a tangible good or service; this period of time often entails considerable
risk to the holder of the national currency. This basic monetary principle
applies regardless whether one is considering a purely domestic transaction,
or an international one.
In our society, one works
efficaciously to produce some marketable good or service, and we all accept
currency in payment. We accept currency not only because
it is useful to each individual, but also because more broadly, it makes
possible the division of labour, which enables humankind to achieve a higher
standard of living than if we had to rely on barter.
So to understand the essential
nature of the ongoing fiat currency bubble, we need to recognise that
currency today is a money-substitute. It is not money itself because the
dollar and other national currencies are not tangible. And to avoid being
caught up in this bubble, we should hold physical gold and silver. Even though
they are not used much as currency – which is a paradigm that GoldMoney
eventually hopes to change – they still are money.
Trillions of dollars have been
widely accepted in global commerce in the belief that those dollars can
eventually be turned into tangible goods or services. The
fiat currency bubble will pop as the understanding grows that dollars –
and indeed all fiat currencies – have been issued to too great an
extent. There are not sufficient goods and services at current prices to
satisfy everyone’s desire to spend their accumulated deferred
purchasing power held as dollars. As confidence in the dollar erodes, the
fiat currency bubble will eventually pop. It inevitably must because the
banking system continues to create dollars “out of thin air” to
provide the federal government with the dollars it is spending. The
structural federal deficits and the undisciplined approach to creating
currency that ultimately enables the issuing of unlimited dollars explain why
we are approaching hyperinflation of the US dollar. And while BitCoins may
not end in hyperinflation, like all national currencies, they are not backed
by anything tangible.
26) Joaquin Carrasco Almazor:
have gold price and silver prices been stagnant for so many months now?
JT: Bull markets as well as bear
markets have periods where the price moves sideways. Markets require
patience, and we are in one of those times. It was only a year ago that gold
made a new record high, which is not a long-time within a multi-decade bull
market like the one gold is experiencing.
27) Joaquin Carrasco Almazor:
this current world of speculative and virtual economy, what is the role in
the future as a shelter value for something that is apparently anachronistic
like precious metals?
JT: Anachronistic? The
barbarous relic is central banking, not gold.
28) Joaquin Carrasco Almazor: Do you think in a “potential
revaluation” of silver given its current non-accumulative situation
like it is for gold?
JT: Yes, but the revaluation will be
driven by market demand, not any formal government action to revalue silver,
for example, to make it a currency again.
29) Marco Simanek:
silver have more potential than gold?
JT: Yes, because their ratio is still
abnormally high. Currently, it takes about 57 ounces
of silver to equal one ounce of gold, whereas the historical norm is 16-to-1.
So as this precious metal bull market moves forward, I expect the ratio to
fall, meaning that silver will outperform gold in the months and years ahead.
But remember, silver is more volatile than gold, so its not for people
unwilling to accept the volatility.