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GATA chairman to be interviewed on Tiger Financial News Network
Take this gold money and use it.
Former metals trader sees boost for online gold payments.
By Thom Calandra
May 28, 2002
James Turk's GoldMoney digitizes real gold stored
in a London vault. The service, one of several that
creates gold-backed payment systems, is predicting
an increase in business as gold prices eclipse the
$320 an ounce mark.
Turk, a former commodities manager for the Abu Dhabi
Investment Authority in the United Arab Emirates, sees
gold's spot price toying with the $325 level as the next
step in a multi-year bullion rally. That rally, he said from
his New Hampshire office, could set historic highs for
the gold price.
The gold-based economy, long hidden from the view
of most consumers and investors, is getting more
attention in this year's gold rally, which has seen the
metal's price rise more than 20 percent. Turk's
GoldMoney.com service now counts 3,500 customers
who transfer gold grams electronically as a substitute
for a national currency.
The former Chase Manhattan banker and precious
metals trader secured two U.S. patents for the
technology behind the gold payment system, which can
be used online to buy goods from merchants such as
Amazon.com. quot;People are looking for low-cost
alternatives to acquire bullion,quot; Turk said Tuesday
morning, as the price of gold rose $2.20 to $322.20
and the euro gained almost 1 percent on the dollar.
Turk sees gold benefiting from a slow erosion of the
almost-universal belief that national currencies such
as the dollar, the yen, and even the euro will carry the
day in coming fiscal storms. quot;What drives the gold
price, probably more than anything, even war
mongering, is the perception that a currency or a
currency system will function well or not function
well,quot; he said.
Turk remembers how gold's price tripled from $35
an ounce in 18 months, starting when then-President
Richard Nixon broke the dollar link with gold.
quot;My view at the time was typical -- that gold was going
to $7 when the U.S. government stopped supporting
it at $35. I subsequently learned how gold's price is
really determined. Remember, no one could own gold
in the States until 1974. People learn very fast when
they see the need,quot; he said.
In the same way, the low gold hit in July 1999, $252 an
ounce, marked a psychological bottom for the metal.
Two months earlier, the Bank of England had begun
a series of bullion sales that shone a spotlight on
central bank sales of gold. Investors were shunning
the metal and instead devoting every spare dollar
and minute of the day to the stock market.
Turk sees an actual physical impact of new bullion
buying in the market, in part from gold companies
that are reducing their controversial use of derivatives
and bullion leasing to sell quot;forwardquot; their mined metal
in an attempt to enhance the price. quot;So you have the
psychological impact that the companies themselves
have the expectation that gold will rise and they can
no longer hedge,quot; he said, pointing to the latest
possible gold merger of Canada's Placer Dome
and Australia's Aurion.
Placer Dome would buy AurionGold, Australia's No.
2 gold producer, for a price 30 percent greater than
the company's shares were worth. Placer Dome says
if it winds up owning AurionGold, subject to other,
competing bids, it would sharply reduce the hedge
books of the entire merged company.
Turk, like a growing number of money managers, sees
demand for the dollar and dollar-based stocks, bonds,
and real estate declining dramatically as America's
debt levels cripple the financial system. The relentless
growth of the world's central bank-fed money supplies
since 1992 or so could add to the woes of the dollar,
and other major currencies.
quot;Gold is an advance indicator of monetary problems,
and inflation and deflation are two monetary problems,quot;
Turk said, when asked if he believes gold is a reliable
leading indicator of commodity inflation. quot;My own
perception is not the quantity or supply of money but
the demand for the dollar, which will decline.quot;
Turk's GoldMoney, of course, would thrive in the event of
a fiscal meltdown or a prolonged battering of the world's
currencies, and the way those currencies are exchanged
for one another. Based in the Channel Islands, with a vault
on the outskirts of London, GoldMoney offers users the
ability to exchange their 400-ounce gold bars, coins, and
currencies into electronic gold, then transfer it in grams via
the Internet. There are other digital bullion services, such
as E-Gold Ltd., that exchange assets into vault-stored gold
ownership that is then circulated electronically.
Turk says three gold mining companies are considering
using GoldMoney to distribute actual dividend payments
in gold to shareholders: Iamgold, Goldcorp, and Durban
Roodepoort Deep. GoldMoney does not charge for the
transfer of a 400-ounce gold bar into its London vault, as
long as it is coordinated by the London Bullion Market
A wire exchange of funds to an intermediary, which then
is converted into gold grams for a GoldMoney account,
can run between 1 percent and 2 percent of the total. Turk
points out such a fee is far less than the commissions,
storage, and insurance costs involved in a consumer
purchase of gold coins or bars. An independent audit
of the amount of gold in GoldMoney's vault is
forthcoming, he said.
Turk is also the editor of the 15-year-old Freemarket
Gold amp; Money Report, an investment newsletter.
quot;I think people need to take the Warren Buffett approach
to gold right now; accumulate it and put it away, any way
they can. People are expressing more of an interest in
diversifying their assets, and I think gold will benefit,quot;
Thom Calandra is editor of CBS.MarketWatch.com.