Trying to Buy Gold Bullion? It Just Got Harder — A Demand for Gold

Trying to Buy Gold Bullion? It Just Got Harder — A Demand for Gold

The price of gold has had a remarkable run over the past few days, surging about 10% to US$1,635 per ounce.

With global markets still gripped by high volatility, it got me thinking, what is the real cost one could purchase physical gold at?

Well, for starters, there is no gold.

That’s according to Josh Strauss, a partner at money manager Pekin Hardy Strauss in Chicago.

To be clear, he is talking about physical gold.

For example, the quoted price on the ticker might be US$1,635/oz, but the real price to buy physical gold bullion is more like US$1,800/oz.

Meaning there is about a 10% premium to buy the physical stuff.

Canadian gold dealing giant, Kitco, announced on Wednesday it was out of almost all standard one-ounce gold coins.

American Eagles and Buffaloes (one-ounce gold coins), issued by the US Mint, were also out of stock.

The reason: extreme demand.

The US Mint does have Eagles available, but to buy them direct will cost US$2,175.

Why hasn’t anyone noticed what’s happening with gold bullion?

There is obviously high demand for gold given its extreme rise over the past few days.

But the reason that financial traders haven’t realised the full surge is because they deal in paper contracts for gold.

Basically, gold IOUs with a promise to deliver gold if the buyer ever wants it.

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Another possible reason is, in times of depression and inflation, investors protect their wealth by buying Treasury bonds.

However, by historic measures, these are now extremely expensive — thus offering little protection.

Most Treasury bonds now sport tiny interest rates and some inflation-adjusted yields that are slightly negative. Meaning, you are almost guaranteed to lose a small amount over the life of the bond.

Cash not worth its weight in gold

Central banks have promised to print as much money as is needed to keep economies alive, and the US government has agreed to spend US$2 trillion propping up the economy.

And we know what happens when cash gets endlessly printed: inflation.

If you think gold is undervalued now, what will it look like in a few months?

Studies have shown that gold has a low correlation with other assets.

Meaning, gold tends to zig when everything else zags.

Though the markets might be up today, consider the current volatility and what the economy might look like in a few months.

The spot price of gold could match the price of physical bullion, which is in low supply mind you.

Holding gold can be a contentious topic among wealth planners.

But one Wall Street insider warns if you don’t consider owning gold soon, you do so at your own peril.

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Lachlann Tierney,
For The Daily Reckoning Australia