Gold Breaks Above $850

By: James Turk (Goldmoney)

Last week was a good one for the precious metals, as gold managed to climb back above $850, which has been a barrier for months. From their closing low the week before, gold climbed 11.0% in terms of US dollars while silver did even better, jumping 14.5%. The gains were even greater in other currencies as the dollar generally strengthened during this period.

The same factors continue to drive gold higher. In today's monetary and financial turmoil, people are looking for safe havens, and gold is the safest of them all.

Importantly, the market is starting to differentiate between 'physical gold' and 'paper gold' like certificates, ETFs and other proxies, which is the point of a recent article in The Telegraph in London. Headlined with "Merrill Lynch says rich turning to gold bars for safety", the article goes on to say:

"Merrill Lynch has revealed that some of its richest clients are so alarmed by the state of the financial system and signs of political instability around the world that they are now insisting on the purchase of gold bars, shunning derivatives or "paper" proxies. Gary Dugan, the chief investment officer for the US bank, said there has been a remarkable change in sentiment. "People are genuinely worried about what the world is going to look like in 2009. It is amazing how many clients want physical gold, not ETFs," he said, referring to exchange trade funds listed in London, New York, and other bourses."

I have long been skeptical of the ETFs, and have written extensively about them in the past to highlight the inherent weaknesses of these vehicles. So it is gratifying to see that the market is now differentiating between owning the 'real thing', namely gold, which is a tangible asset, and a paper proxy, all of which are inferior because they come with counterparty risk. It is of course this risk that has people "genuinely worried", as explained in the article in The Telegraph.

As currencies bob up and down against each other, they sink against gold at different rates.

Comment:
"If Merill-Lynch's richest clients are going for actual physical gold and silver then I believe that the average "Juan" needs to have some, even in modest amounts."