Many people argue that gold is undervalued, but by how much? What are some rational higher prices, and how can we determine these other prices?
To answer this question I have envisioned different scenarios to determine relative values of gold at varying parameters.
I started with the high price of $850/oz. in 1980, because this reflected
the U.S. government's 1971 decision to let the price float up from $35/oz.
in the free world markets. Things changed after 1980, when short selling
was allowed to add a new paper supply of gold, which held back this free
For those who are unfamiliar with short selling, here is a basic explanation. It is somewhat like a promise to deliver gold in the future. A person who sells gold short borrows actual physical metal or a paper contract for gold, sells it, and intends to buy it back in the future, betting that the price will drop. A gold miner might do this to finance a new gold mine, or a speculator might borrow gold at 1% interest to invest the proceeds in U.S. bonds paying 6% interest, and make money on the different rates of interest, as well as the dropping price of gold. This practice warps the market by adding both real gold that is sold without regard to price, and by adding paper gold contracts, which can be created in endless supply, unlike physical metal which must be pulled from the ground with real costs and labor. As long as real metal can be found to dump on the market without regard to price, the process can continue, just as a man who can obtain one more credit card can continue to go into debt. Unfortunately, today, the consensus among gold analysts is that up to 14,000 tonnes, over 5 years worth of global annual gold production has already been sold short that must be returned in the future. And with world consumption demand at 4,000 tonnes annually, and world mine supply at 2,500 tonnes, this short selling is drawing to an end. When it stops, the players who are short gold will be caught in a squeeze, because there will be no more cheap gold coming to market. Then, as gold rises, they will all be forced to close out their positions, and the only way to do that is to buy back the gold, creating a very powerful upward pressure on the price, just like we have seen happen with dot.com stocks like Amazon. When those who have sold the 14,000 tonnes of gold try to go into the market to attempt to buy it back, as they have very carefully begun to do since Sept. 1999, the price of gold will shoot to the moon. Actually, the shorts will be bankrupt long before gold reaches its final price, and those who have bought paper gold futures contracts will realize there will be no gold delivered to them. Just as those holding gold certificates, (U.S. dollars) back in 1971 were no longer able to redeem them for gold at $35/oz. after Nixon closed the gold window. The 1971 default caused gold to rise up to up to $850/oz. by 1980, which was capped by allowing the above mentioned short selling to begin to occur. But after the next gold default occurs, what will be the price of gold?
And now you should be able to see why I begin my analysis of what the near future price of gold might be, by looking at gold at $850/oz. in 1980. This was the last time gold traded freely, without the disruption of short selling, unless you decide to include the short selling disruption of dollar creation, which I will attempt to do in my analysis below. And, this is why gold in the future, will be far more than $850/oz. in price.
Indubitably, gold protects against inflation. Since Money Supply (M3) has grown over time, it seems logical that the price of gold should also increase. Assuming an increasing gold price - in an environment devoid of short selling in the past - allows one an insight into what the price of gold might have risen to. And also, therefore, what the price of gold might rapidly rise to once the short selling stops. The power of compound interest is difficult to picture in one's mind, so I used an Excel spreadsheet to determine the hypothetical values that gold could have increased to over the last 20 years, given different rates. What if, instead of allowing short selling to cap the gold price, other processes had taken place?
What if in 1980, the U.S. Government decided to stop the runaway gold price by returning to a gold standard? What if it artificially fixed the price at $850, but allowed the 'fixed exchange rate' to slowly increase at a known standard, a fixed 3% per year increase, to provide both monetary stability and monetary growth? A 3% fixed annual growth rate is still lower than the rate of inflation and average interest rates levels during the period. Amazingly, gold would have grown to over $1500 an ounce by 2000.
What if in 1980, the U.S. Government used a different rate? What rate? How about letting gold rise as fast as M3? This works out to a 6.7% annual increase from 1980 to 2000. This would be a different sort of fixed gold standard, because each dollar of M3 money creation would result in an increase in the official price of gold. Amazingly, we see that the price of gold could have been fixed at a certain rate, and it would have grown to over $3000 an ounce by 2000.
To be sure, the actual price of gold has decreased from $850 to about $274 over the last 20 years. This averages out to 5.5% annual decrease. In light of the inflation of M3 money growth, and the current severe supply/demand imbalance, today's pathetically low gold price is unrealistic.
As long as gold can be legally purchased with dollars, each dollar in existence is a potential claim on gold. The U.S. holds 8,139 tonnes of gold in reserves. In 20 years M3 has risen from 1.8 Trillion in 1980 to 6.6 Trillion in 2000. If you divide the M3 U.S. Dollar totals by the U.S. Gold reserves, you have a dollar price for gold. In 1980, this means that there were $6,966 dollars that had already been created for every ounce of gold held in the U.S. reserve. In 2000 there are $25,221 in M3 that have already been created for every ounce of our nation's 261,676,989 oz. gold reserve.
What kind of growth rate takes $850 in 1980 to $25,000 by 2000? An 18.5% annual rate. Thinking in these terms then, a rise in price to $25,000/oz. does not seem so unrealistic. Those 20 years of gains seem typical of a wise investment. Even Warren Buffet has done better than 18% for his investors for over 20 years. Who says gold does not pay interest?
At $850/oz. gold, the U.S. 8,139 tonne gold reserve is worth $222 Billion. At $274/oz. gold, the U.S. gold reserve is worth $71 Billion. Needless to say, if our dollars can never be worth more than the gold of our reserve, our nation's gold reserves are worth exactly the same as M3. At about $25,000 oz. gold, the gold reserves are worth the $6.6 Trillion of M3 today.
Nixon's 1971 gold default and gold revaluation was the result of $70 Billion dollars held overseas, and the U.S. gold reserves of 8,139 tonnes being valued at $10 Billion, (at $35/oz.). In other words, the gold default/revaluation took place because gold was valued 7 times less than it should have been. Today, using M3 divided by the gold reserves to arrive at about $25,000/oz. gold, gold at $274/oz. is valued 94 times less than it should be. We are ready for another gold revaluation.
In my analysis I used official statistics for M3 and the U.S. gold reserves. These numbers are real facts that cannot be refuted. The sad part is that the dollar figure may be higher, and the gold figure may be lower - given the fact that no official independent audit of the U.S. reserves has occurred in over 30 years. If there are more dollars, and less gold, then the gold price could eventually far exceed $25,000/oz.
Since the Washington Agreement of September 1999, when the bulk of the world’s central banks, including the U.S., agreed to limit gold sales to 400 tons a year for the next five years, other gold analysts have shown that U.S. gold export figures have averaged 100 tons a month! With this much gold leaving the U.S. on an average month, the allegations are that our government is secretly dumping our nation's gold reserves to prevent the dollar from devaluing... This condition cannot last very long, and the price to be paid will be horrible when we realize we have sold our gold for less than 1% of its true worth, and for what? At the most, 8,139 tons of gold being dumped on the world market at a rate of 100 tons a month will last a maximum total of 81 months, or 6.7 years, starting in September, 1999.
Perhaps you might assume that gold will never go back to full dollar parity of $25,000/oz., because of the thought that the people manipulating gold and the free market are just too smart, powerful, and wise, and that our nation's gold reserves are NOT being liquidated. You might then naturally assume that once the short selling stops, gold will rise to reach the percentage of parity that it did in the climb to $850 back in 1980, or, in other words, 12% of the $6,966 dollars in M3 for each of the 8,139 tonnes. Today then, we might expect the price of gold to reach 12% of $ 25,221. Which brings us back to over $3000/oz. for gold in 2000.
Perhaps all this figuring will allow the prudent investor to know at what price gold might be considered overvalued in the gold bull to come.
Can gold really be valued so highly?
It is imperative to recall that once in the past the total stock market valuation of the NYSE was 1 Trillion dollars. And the total stock market valuation of all the world's gold mines was 1 Trillion dollars. Today, the NYSE market cap is about $15-20 Trillion, while the total stock market valuation of all the world's gold companies is 1/20th of what it once was; that is, less than $50 Billion.
Yes, the gold price is going to go back up again, this next time more violently than ever.
My complete study plus Excel tables for the various growth rates since 1980 may be found below at the author's website at:
Feel free to copy and share this article with whomever you feel might
appreciate its contents.
This article is NOT copyrighted.
By Jason Hommel
U.S. Gold reserves at 8139 tonnes from
M3 figures for 1980 and 2000 from
1.823 Trillion in 1980 and 6.6 Trillion in 2000
Historical high average price of gold for 1980 is $850/oz. from
Playing around with Excel and differing constant rates of growth, between the starting year of 1980, and 2000, and different assumptions...
|Gold x 1.03||Gold x 1.067||M3 Trillions||GOLD x .945||M3/8000 tons||Actual Numbers|
|1.03||1.067||1.067||0.945||1.185||1.067||F/D||$ Value U.S. Gold H||D/F||
|1980||$ 850.00||$ 850.00||$ 1.82||$ 850.00||$ 850.00||$ 6,966.60||8.20||$ 222,425,440,650||12%||8139 tonnes|
|1981||$ 875.50||$ 906.95||$ 1.95||$ 803.25||$ 1,007.25||$ 7,433.37||9.25||$ 210,192,041,414||11%||x 32151oz/tonne|
|1982||$ 901.77||$ 967.72||$ 2.08||$ 759.07||$ 1,193.59||$ 7,931.40||10.45||$ 198,631,479,136||10%||= 261,676,989 oz.|
|1983||$ 928.82||$ 1,032.55||$ 2.21||$ 717.32||$ 1,414.41||$ 8,462.81||11.80||$ 187,706,747,784||8%|
|1984||$ 956.68||$ 1,101.73||$ 2.36||$ 677.87||$ 1,676.07||$ 9,029.81||13.32||$ 177,382,876,656||8%||M3: 1980/2000|
|1985||$ 985.38||$ 1,175.55||$ 2.52||$ 640.59||$ 1,986.14||$ 9,634.81||15.04||$ 167,626,818,440||7%||$1,823,000,000,000|
|1986||$ 1,014.94||$ 1,254.31||$ 2.69||$ 605.35||$ 2,353.58||$ 10,280.34||16.98||$ 158,407,343,426||6%||$6,600,000,000,000|
|1987||$ 1,045.39||$ 1,338.35||$ 2.87||$ 572.06||$ 2,788.99||$ 10,969.13||19.17||$ 149,694,939,537||5%||$ 6,966.60/oz. 1980|
|1988||$ 1,076.75||$ 1,428.02||$ 3.06||$ 540.60||$ 3,304.96||$ 11,704.06||21.65||$ 141,461,717,863||5%||$ 25,221.93/oz. 2000|
|1989||$ 1,109.06||$ 1,523.70||$ 3.27||$ 510.86||$ 3,916.37||$ 12,488.23||24.45||$ 133,681,323,380||4%|
|1990||$ 1,142.33||$ 1,625.79||$ 3.49||$ 482.77||$ 4,640.90||$ 13,324.94||27.60||$ 126,328,850,594||4%|
|1991||$ 1,176.60||$ 1,734.71||$ 3.72||$ 456.21||$ 5,499.47||$ 14,217.71||31.16||$ 119,380,763,812||3%|
|1992||$ 1,211.90||$ 1,850.94||$ 3.97||$ 431.12||$ 6,516.87||$ 15,170.30||35.19||$ 112,814,821,802||3%|
|1993||$ 1,248.25||$ 1,974.95||$ 4.24||$ 407.41||$ 7,722.49||$ 16,186.71||39.73||$ 106,610,006,603||3%|
|1994||$ 1,285.70||$ 2,107.27||$ 4.52||$ 385.00||$ 9,151.15||$ 17,271.22||44.86||$ 100,746,456,240||2%|
|1995||$ 1,324.27||$ 2,248.46||$ 4.82||$ 363.83||$ 10,844.12||$ 18,428.39||50.65||$ 95,205,401,147||2%|
|1996||$ 1,364.00||$ 2,399.11||$ 5.15||$ 343.82||$ 12,850.28||$ 19,663.09||57.19||$ 89,969,104,083||2%|
|1997||$ 1,404.92||$ 2,559.85||$ 5.49||$ 324.91||$ 15,227.58||$ 20,980.52||64.57||$ 85,020,803,359||2%|
|1998||$ 1,447.07||$ 2,731.36||$ 5.86||$ 307.04||$ 18,044.68||$ 22,386.22||72.91||$ 80,344,659,174||1%||12% of F|
|1999||$ 1,490.48||$ 2,914.36||$ 6.25||$ 290.15||$ 21,382.95||$ 23,886.09||82.32||$ 75,925,702,920||1%||$ 2,866.33|
|2000||$ 1,535.19||$ 3,109.62||$ 6.67||$ 274.19||$ 25,338.79||$ 25,486.46||92.95||$ 71,749,789,259||1%||$ 3,058.38|
|2001||$ 1,581.25||$ 3,317.96||$ 7.12||$ 259.11||$ 30,026.47||$ 27,194.05||104.95||$ 67,803,550,850||1%||$ 3,263.29|
|2002||$ 1,628.69||$ 3,540.27||$ 7.59||$ 244.86||$ 35,581.37||$ 29,016.05||118.50||$ 64,074,355,553||1%||$ 3,481.93|
|2003||$ 1,677.55||$ 3,777.47||$ 8.10||$ 231.39||$ 42,163.92||$ 30,960.13||133.80||$ 60,550,265,998||1%||$ 3,715.22|
|2004||$ 1,727.87||$ 4,030.56||$ 8.64||$ 218.67||$ 49,964.25||$ 33,034.46||151.07||$ 57,220,001,368||1%||$ 3,964.14|
|2005||$ 1,779.71||$ 4,300.60||$ 9.22||$ 206.64||$ 59,207.63||$ 35,247.77||170.58||$ 54,072,901,292||1%||$ 4,229.73|
|2006||$ 1,833.10||$ 4,588.74||$ 9.84||$ 195.27||$ 70,161.04||$ 37,609.37||192.60||$ 51,098,891,721||1%||$ 4,513.12|
|2007||$ 1,888.10||$ 4,896.19||$ 10.50||$ 184.53||$ 83,140.84||$ 40,129.20||217.46||$ 48,288,452,677||0%||$ 4,815.50|
|2008||$ 1,944.74||$ 5,224.23||$ 11.20||$ 174.39||$ 98,521.89||$ 42,817.85||245.54||$ 45,632,587,780||0%||$ 5,138.14|
|2009||$ 2,003.08||$ 5,574.26||$ 11.96||$ 164.79||$116,748.44||$ 45,686.65||277.23||$ 43,122,795,452||0%||$ 5,482.40|
|2010||$ 2,063.17||$ 5,947.73||$ 12.76||$ 155.73||$138,346.90||$ 48,747.65||313.03||$ 40,751,041,702||0%||$ 5,849.72|
In every column, only the numbers in the years 1980 and 2000 have any real significance. All numbers in all rows in between the year 1980 and 2000, represent a constant rate of compounding interest rate, and are not real, annual figures. The constant rate of compounding growth is listed at the top of each column. For the first column, 850 x 1.03 = 875.50; ... x 1.03 = 901.77 and so on down the years.
Column A: What if, in 1980, a fixed 3% per year increase... we see that gold would have grown to over $1500 an ounce by 2000.
Column B/C: What if, in 1980, the rate of increase of M3 or 6.7%?... it would have grown to over $3000 an ounce by 2000.
Column D: This is the rate at which Gold has declined each year, ON AVERAGE, since 1980. This is NOT the actual price average in each year. The only accurate prices are for the year 1980, and for 2000 (so far).
Column E: Once again, I started with gold at $850, and I kept changing the rate until I saw Gold in the year 2000 reach about $25,000. (on average) an annualized 18% interest for 20 years... Who says gold does not pay interest? You just can't clip the coupons when you want to, you have to wait for gold and fiat money devaluations to tell you when.
Column F: Representing another way, the natural assumptions used to create column E, that is to say "gold=dollar"... we see that the rise to $850 gold in 1980 fell short of the $6966 dollars that had already been created (existing as M3) for every ounce of the nation's approximate 8000 ton gold hoard. So, I simply started column F with the $6966 number, and let it rise to it's natural $25,000 mark by the year 2000. Another way to state it, (column I), the rise to $850 gold in 1980 really only saw the price of gold reach 12% of what it should have logically reached, $6966/oz. Note, the rate of increase is the same as the increase in M3, 6.7% since the numbers are based off of M3 to begin with.
Column G: Given that the price of gold has gone down, while dollar creation has gone up, the U.S. has been led to the same dangerous type of situation that led to the last gold crisis, and the one before it in 1933!... In 1971, there was about $70 Billion paper U.S. dollars overseas, and at our fixed $35/oz. we only had $10 Billion worth of gold. Let's say that a 7:1 ratio got us into trouble which resulted in the gold default when Nixon took us off the gold standard and stopped redeeming gold for $35/oz overseas. This 7:1 ration is why we got into trouble and had to close the gold window. Too many dollars, and not enough gold. So, how far have we overextended this time? Well, from column C, we see dollar creation going up, and from column D, the gold price going down. Since, in 1971, the U.S. Citizen could not legally hold gold, we did not include domestic money in our 7:1 ratio for 1971. Is it any wonder then, that the "floating" exchange rate for gold quickly moved to about $245 after 1971, or 7 times the stupidly low price of $35/oz. for gold? Since today, (and since the mid 1970's), the U.S. citizen can buy gold, and even hold it in an IRA, it makes sense to now include domestic money in our calculations. In fact, I'm sure the M3 money supply statistics do not include foreign dollars that could be added to this calculation... By dividing column F by D, we can see a comparison ratio by how far we have overextended each year since 1980. Anytime this number is over 1, there has been fraud, ie, more dollars created than gold. Or, looked at another way, multiply the number in column G by the current low gold price to determine the "real" price for gold to make the dollar/gold ratio balance out so that there are no more dollars than there is gold to back them up. All the numbers in colum G are far above 7. Once again, looked at another way, in view of how history has acted in past revaluations, it is not unrealistic to see the price of gold quickly multiply by a factor of 92, or revalued up to $25,000/oz!!! Yes, our money IS backed by gold, we just do not see any redemptions at the real price of $25,000/oz.
Column H: This is the eroding dollar value of the U.S. gold hoard of 8139 tonnes. At $850 gold, our nation's hoard is worth $222 Billion. At $274 gold, the U.S. gold hoard is worth $71 Billion. Needless to say, if gold was worth (equal to) the dollars created, our nation's gold hoard is worth exactly the same as M3. I could reproduce the M3 column, but why bother. At $25,000 oz. gold, our nation's gold reserves are worth about $6.6 Trillion.
Column I: Another way to look at what column G is trying to say. This column represents the price of gold, how cheaply one can buy it, compared to what it is actually worth. Gold today, at $274, is, when rounded, 1% of the price of $25,220. We can see that this was not always so, and you can show people who say "it's always been this way" that, no, it hasn't. Assuming that dollars inflated with hot air will eventually all blow away, and that column F is where we must, eventually end up, when the piper has to be paid, when the fiat fades, and the free ride ends, and the cookie crumbles, Von Mises is finally vindicated, and History finally catches up with the cheaters, as all fiat currencies fade to the wind, this will be the final exchange rate if the dollar is as good as gold, assuming the additional injections of money into M3 stay at the same rate of about 6.7% per year, and that people in the endgame with gold will be willing to give it up for dollars, whatever they are... If the dollar becomes worth less than gold, this number will be obviously much, much higher than $25,000 per ounce. Gold bugs like to say that the dollar, paper or electronic, is worthless. The real problem is that the current dollar is worth far, far MORE than gold. This will be a problem when these valuable dollars all try to buy what is real, all at once, when their value begins to come back down to reality. People will spend their electronic paper before it loses 99% of it's current, over-valued state. Down to reality is (dollars down in value, down in purchasing power, in the coming dollar devaluation) down to $25,000 per ounce of gold.
Top part: The numbers used to figure U.S. dollars, M3, and the U.S. gold hoard. These numbers are the real facts that cannot be denied. The sad part is that the dollar figure may be higher, since one might include stock valuations and/or derrivitive positions to bring the dollar figure up to 66 to 100 Trillion dollars. And, the gold figure may, in fact, be much lower, since there has been no official audit of the U.S. gold hoard of approximately 8000 tons since 1960 or even earlier? And, since the Washington agreement of Sept. 1999, other gold anylysts show that gold export figures have averaged 100 tons a month. With this much gold leaving the U.S. on an average month, the allegations are that our corrupt government is secretely dumping our nation's gold to prevent the dollar from devaluing... This strategy cannot last more than a few more months, or even a year or two, and the price to be paid will be horrible when we realize we sold our gold for less than 1% of its true worth, and for what? To buy enough time until past the next election? This will be far worse than Nixon's Watergate or Monicagate. At the MOST, 8139 tons of gold being dumped on the world market at a rate of 100 tons a month will last a grand total of 81 months, or 6.7 years, starting in September, 1999, assuming that the rate does not increase, and that U.S. officials would actually run through the entire 8139 tons.
Bottom part: Assuming that gold will NEVER go back to parity, not in the next 100 years, in case you want to assume that the people manipulating it are just too smart, powerful, and wise... Assuming that gold will only reach the percentage of parity that it did in the climb to $850 back in 1980, and that it will hit a similar 12% of it's real true price, take a look at the last column, 12% of F. Because no matter what anyone says, column F represents the true picture of excess money creation, which is the true definition of inflation. Column J is really redundant, since it mirrors Column B, both being based on M3, but it's just another way to look at the potential price of gold. Gold at $850 is 12% of what it might have gone to. Thus, 12% of column F, brings us back to over $3000/oz. for gold in 2000.
If this article has motivated you to buy gold, and you are unsure where to start, as one reader was, here are a few suggestions:
> Dear Jason:
> I read your article which was e-mailed to me; it makes so much sense. How
> does one go about aquiring gold? Would I go to the bank or to a coin market,
> or is it better to buy gold stocks or both? Does one need a special account
> or broker for it?
> I would appreciate a reply.
> Thank you.
> XXXX XXXXXXX
Dear XXXX XXXXXXX,
I'm very glad my article has convinced you to act.
From all my studies in the last two years, I believe silver is poised to jump higher and sooner than gold. See Ted Butler's articles at gold-eagle.com at http://www.gold-eagle.com/silver_section/reports.html
If you are in the market to buy less than $25,000 worth of either precious
metal, I would suggest a local coin store. You want to buy any metal
as close to the bullion price as you can. This might cost you about 10%
over the spot price of each metal, so a bullion silver one ounce coin
might cost $5.50 instead of $5.00, if that is the spot price. Sometimes you can buy dented coins that still contain all the gold/silver content right at the spot price, ask your dealer what he has. Numismatic coins have "collector" value, and can cost any number of a multiple. A typical U.S. silver one ounce coin might cost from $8.00 new for a U.S. Eagle to $12 to $25 for an old silver dollar. You don't want these coins, obviously.
Junk silver consists of dimes, quarters, and half dollars minted prior
to 1964. They contain 90% silver, and each "dollar's worth" such
as 10 dimes, 4 quarters, or 2 halves, contain roughly the same ammount
of silver, which is about .72 of an ounce. It varies, of course,
the 1890 quarters tend to have some silver worn off of them... These junk silver coins are typically too cheap to spend time to individually grade them... a silver quarter costs about a buck. So, you can buy them in bags. This is my number one recommendation. A typical coin shop has about $100,000 worth of inventory in junk silver, but it's obviously not the stuff showcased under glass in the front counters... it's back in the safe in large canvas bags.
If gold goes to $600/oz. some gold stocks may rise up by a factor of 100. This stock is called DROOY. There is a risk that South African gold mines may be "nationalized", in case of a large price rise. And, there is a risk of bankruptcy if gold continues to lanquish or drop for a few more years, but, from looking at the balance sheets and reports, I believe this is unlikely in DROOY's case at the moment.
Two other stocks are HGMCY, and GOLD, the second of which is being bought out by FN, Franco Nevada.
See gold-eagle.com for a report on all three gold stocks.
You can also buy gold in an IRA, but to me, this makes little sense.
Since there are no reporting requirements with gold when you buy it, how
can they compute capital gains if it is NOT in an IRA? Also, you want physical
possession, and don't want to leave it in the hands of a company
that might go bankrupt and wipe out your IRA claim... Of course in a gold bull, any new laws may be passed...
The main answer is that "gold is aquired privately"...
The most private way is through the coin shops, annonymously, with cash. Don't show the dealer any ID, and don't tell him your last name. And, in the U.S. you have to buy lots in less than $10,000 each. More than this, and there is reporting requirements. Less than a $1,000 purchase in CA might require sales tax. In Colorado, sales tax is added on ALL coin purchases.
You can also order gold over the phone from large national dealers that will mail you gold. I'd suggest calling Micheal Kosares over at www.usagold.com at 1-800-869-5115, (tell 'em Jason Hommel sent you) or Bruce Gibson at www.investmentrarities.com at 800 328 1860 but it's less annonymous this way. You'd have to send a check, and they will place the order and lock in the price with you on the phone, only during market hours. When they get your money and your check clears, they send out your gold by registered mail, which is fully insured by the Post Office. Yet, the Post Office carriers have no idea what the package may contain.
Finally, if you have over $25,000 to spend, you can contact a broker, and set up a commodities trading account. I've never done this, but apparantly it's a lot of paperwork and takes a week or two. Then, you buy the nearest futures contract, which may be a month or two away, and you let your broker know you intend to take delivery. I suppose this is the cheapest method, with the lowest commission costs. However, I believe the smallest purchase is a 100 oz. gold contract, or a 5000 oz. silver contract. And while you are waiting for delivery fulfillment, the default may occur. After all, I figure somebody who is owed the 14,000 tonnes of gold sold short into the market will not have gold returned. And perhaps those who know this are already unloading their long paper contracts cheaply, to take the proceeds and buy physical metal today.
This is how Warren Buffet bought his 130 million ounces of silver over a one year period. He used many buyers with many brokers to spread out his purchase so as not to be suspected so as to avoid a run up in price as he was buying. Amazingly, today, there is less than 100 million ounces of silver left in official hands, yet there is over a 200 million ounce annual deficit!
If you have any additional questions, you can email me at
Or, if you wish to make a donation so that people can lobby congress to stop the market manipulations holding back the gold price, you can visit GATA's website, at http://www.gata.org