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Eric King:  “James, I wanted to get your thoughts on what happened with this 1,300 tons of gold from the Bank of England?”

Turk:  “I think this is really very significant, Eric, because first of all the skeptics were saying there was no proof that there was a lot of metal going in to the system from central banks.  But the reality of the situation is you could see the (physical) gold flows into India and China, and that gold had to be coming from somewhere....

Continue reading the James Turk interview below...


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“And we are not talking about 50 or 100 tons, we are talking about a large amount of gold.  So this 1,300 tons of gold that Alasdair discovered, that seems to fill the hole nicely.  It does confirm that the metal (gold) was flowing in to Asia, and it was flowing from Western central banks in to the Asian market.  This is evidence of these gold flows.  So, to me, it’s a very, very significant development.

The LBMA site is reporting the gold forward rate as a negative, meaning that gold forward rates are higher than (U.S.) dollar interest rates.  In theory, this isn’t supposed to happen.  Gold interest rates are always lower than dollar interest rates for one important reason:  Physical gold cannot be created by bookkeeping entries. 

Dollars and all of the other national currencies can be created by bookkeeping entries.  And because they can be created in that way, they have a level of risk gold doesn’t have:  These currencies have the risk that they can be debased because too many of them can be created by these bookkeeping entries.

But physical gold has to be mined out of the ground.  My analysis, in a study that I did last year about the above ground gold stock, showed that for the last 100 years, and throughout history, gold grows at a very consistent rate which is approximately 1.8% per annum -- this is the above ground stock of gold.

So because of this relationship between gold that cannot be debased vs national currencies that can be debased, gold interest rates are always lower (than dollar interest rates).  Here we have a situation where for 4 weeks gold’s interest rate has been higher. 

In recent history, back in 1999 and in 2008, those were the only other two moments when gold’s interest rates were higher than the dollar’s interest rates -- when the gold forward rate was negative.  And we know what happened after 1999 -- the precious metals rallied.  We know what happened after 2008 -- the precious metals prices rallied again.

So my expectation going forward from here is the gold forward rate is just one of these signals that there is a lot of stress in the (fractional reserve gold) system, and that the stress in the system is ultimately going to be met by higher gold prices, because it takes higher gold prices to entice people to get rid of their gold and accept a national currency in exchange.

And it’s this physical gold (being) dishoarded from the above ground stock that ultimately relieves the pressure and the stress that we are now seeing in the LBMA system.”

Eric King:  “When you talk about the fractional reserve gold system and how it’s in decline, James, it is beginning to disintegrate, isn’t it?”

Turk:  “Yes.  This is a run on the bank, Eric ... You had inventories (of physical gold and silver) on the COMEX climbing for years.  And now all of the sudden, over the past 8 months, they’ve taken this huge nosedive.

The gold is being withdrawn from the warehouses because it’s not being valued properly in the West.  And it’s being shipped to the East where it is being valued properly.  People in the East understand gold is very undervalued and it serves a very useful purpose at this time -- the fact that it’s money outside of the banking system.”

IMPORTANT - The is one of James Turk’s greatest audio interviews ever.  It is available now and you can listen to it by CLICKING HERE.  He discusses the plunging gold inventories, the missing 1,300 tons of gold at the Bank of England, what to expect when the paper gold market unwinds, the silver market and much more.

© 2013 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

The audio interviews with James Turk, Hugo Salinas Price, Chris Powell, Bill Fleckenstein, Eric Sprott, Egon von Greyerz, David Stockman, Andrew Maguire, John Mauldin, Art Cashin, William Kaye and Marc Faber are available now. Also, other outstanding recent KWN interviews include Jim Grant and Felix Zulauf to listen CLICKING HERE.

Eric King

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