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The Scramble for Physical Metal Intensifies

Monday, December 6, 2010   RESOURCE INVESTOR-    BY James Turk  

The scramble for physical gold and silver is intensifying.  People increasingly want to own the real thing, and not some paper substitute, all of which come with counterparty risk.  This conclusion is apparent from the following two charts of gold and silver forwards, which are based on data made available by the London Bullion Market Association through November 24th (the most recent data available).

Because gold is money, gold almost always trades in contango, meaning the future price is higher than the spot price.  The percentage difference between gold’s spot and future price is gold’s interest rate, so in this regard, gold is not different from other moneys, except gold’s interest rate is lower than those of national currencies. Interest rates are a reflection of risk, and because gold’s purchasing power cannot be debased by central bank or government actions, the risk of losing purchasing power when holding gold is low.  So gold is rewarded by the market with a low interest rate.

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