Take this gold money and use it. Former metals trader sees boost for online gold payments
cbs.marketwatch.com;
By Thom Calandra, CBS.MarketWatch.com Last Update: 1:02 PM ET May 28, 2002
SAN FRANCISCO (CBS.MW) -- 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.
"People are looking for low-cost alternatives to acquire bullion," 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. "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," 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 in
1971.
"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," he said.
The low that gold hit in July 1999, $252 an ounce, marked a psychological
bottom for the metal, says Turk. Two months earlier, the Bank of England had
begun a series of bullion sales that shone a spotlight on central bank
liquidations of their gold reserves. Investors were shunning the metal and instead
devoting every spare dollar and minute of the day to the Nasdaq stock market.
Turk sees a 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 "forward" their mined metal in a "hedged" attempt to enhance the
price. "So you have the psychological impact that the companies themselves
have the expectation that gold will rise and they can no longer hedge," he said,
pointing to the latest possible gold merger of Canada's Placer Dome (PDG:
news, chart, profile) and Australia's Aurion (AU:AOR: news, chart, profile).
Merger ahead
Placer Dome wants to buy AurionGold,
Australia's No. 2 gold producer, for a
price 30 percent greater than the
company's shares were worth just one
trading day ago. 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 and economists, sees demand
for the dollar and dollar-based stocks, bonds and real estate declining
dramatically as America's consumer and government 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.
"Gold is an advance indicator of
monetary problems, and inflation and
deflation are two monetary problems,"
Turk said, when asked if he believes
gold is a reliable leading indicator of
commodity inflation. "My own
perception is not the quantity or supply
of money but the demand for the dollar,
which will decline." The dollar is down
about 7 percent against a
trade-weighted basket of currencies
since the start of the year.
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 (CA:IMG:
news, chart, profile), Goldcorp (GG: news, chart, profile) and Durban Roodepoort
Deep (DROOY: news, chart, profile). 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 Association.
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 & Money Report, an investment newsletter.
"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," Turk said.
The price of gold at 1 p.m. ET Tuesday was up $5 to $325 an ounce. The euro
was close to an eight-month high of 92.92 against the dollar. Gold's polar
opposite, the Nasdaq stock market, was down about 1.5 percent to its lowest
point since May 7.
Thom Calandra's StockWatch appears each trading day. |
