IBTimes had an interview with James Turk, Founder & Chairman of GoldMoney.com.
Who is your target audience?
We have around 15,000 clients all over the world, and they share one common aim. They want to protect their wealth from the turmoil of national currencies and the uncertainty surrounding the ongoing financial crisis. So they want to own gold and find GoldMoney a convenient, economical and most importantly, a safe way of doing that. There is over $1 billion of customer assets in GoldMoney.
Which countries do your clients come from?
We have customers mostly from the English speaking countries. But we have also customers from most of continental Europe and Asia. Last year we began our German language website and customer support. You know some countries have exchange restrictions, for example in South Africa, but other than that, we have customers from all over the globe.
Which precious metals are the clients able to buy and sell with GoldMoney.com?
The most common precious metal is gold. Gold is international global money. When people move to the precious metals, the first metal that we recommend is gold. We also recommend silver. But the problem with silver is that the prices are more volatile than gold prices. If you are willing to take that risk in silver, we recommend putting two thirds of your portfolio into gold and one third into silver. We follow the gold-silver-price-ratio quite closely. Right now the ratio is around 64 ounces of silver to equal one ounce of gold. Historically the relationship was around 15-to-17. So I think that the ratio will fall in the future. Silver will better perform than gold. We also have platinum, but platinum you know is so small, it is not a major market. But people like it for the diversification.
But why did gold rise in the last 2-3 years from $400 to $1,200, meanwhile the silver prices didn't change that much?
If you look again the ratio, the silver-gold-price-ratio in the last 7 years was between 46 and 84. For example in 2008 before the Lehman Brothers collapse the ratio was around 48. One month after the collapse the ratio reversed up to 84. This shows how volatile silver is. Now we are back down at 64. My thinking is that within the next few years we will see the ratio at around 40. Maybe in 5 years it will go back to 20.
Can you tell me more about the concept of GoldMoney.com? As I understand it your clients open an account; and you will hedge the account with precious metals.
Oh, we call it Holding. The reason why we use that term is that we don't want people to think that we are a bank. The difference between a bank and GoldMoney.com is that the precious metal in your Holding is yours; you have it in your name. We simply store it for you and give you 24/7 access through the Internet. But if you put money into a bank, the bank will lend it out where ever they want.
The second thing is with GoldMoney.com you own the gold. There is no liability from us. When you put your money into a bank then the bank has a liability to you. That means the bank must pay back the money to you whenever you want but if a lot of people ask for their money at the same time, the bank must first collect that money from whomever they loaned it. That's a fundamental difference between us and a bank. So if you are customer of GoldMoney.com you have a Holding in which you own physical gold, silver and/or platinum that is safely stored for you.
Where are the precious metals storage vaults?
Well, the precious metals are stored in three different locations at the choice of the client. The vaults are owned and operated by VIA MAT International, a company in Switzerland. They are a specialist in bullion vaulting. Their vaults are located in London, Zurich and Hong Kong.
The idea is to avoid risks. And one of the risks is the political risk. You can go back into history to see some of these risks. For example, for a US citizen it was illegal to own gold from 1933 until 1974. The way to avoid political risks is to have a geographic diversification because US citizens could own gold outside the US. Only gold in the US was confiscated in 1933.
Ah I understand. Your customers don't have the gold at home. So for example in Germany where they might introduce some restrictions for people to hold gold, then it would be better to own gold outside Germany.
Exactly, if you buy physical gold there are two ways. You can store the gold by yourself, or someone else can store it for you, which is what GoldMoney.com does. But each alternative has advantages and disadvantages. For example, if you store gold by yourself, you have it always at hand. But how much gold are you going to store in your house? If someone else stores the gold for you, you don't have the gold immediately at your hand, but your gold will be stored in a bullion vault, and it will be insured. Also, with GoldMoney you have the evidence that the gold really exists, and you have 24/7 access to it. You easily change your gold into any currency you want and send your money to any country where ever your bank account is located. So you have to weigh the advantages and the disadvantages. If you choose the second alternative, make sure that you have the certainty and the integrity that your gold is safe, which is always our primary aim in GoldMoney. It is I think the most important reason explaining why we have grown so rapidly. Our customers have the assurances of integrity that their gold and silver are safe.
Tell me more about the possibility for clients to transfer money directly from their precious metals Holding.
If the client wants to transfer money to another holder, he can do that very easily. For example, you owe 5,000 in Hong Kong Dollars; you can go to your bank and make the wire transfer. In a few days it will arrive in the payee's bank account.
Or you can ask him, if he is willing to accept gold as payment. If he does, you can go online and transfer the amount you have to pay, in that example 5,000 HKD, from your Holding to the other person's Holding. GoldMoney.com calculates exactly at that moment how much gold you need to transfer for the payment of 5,000 HKD and both you and your client have all the details of the payment, which is made immediately. The interesting thing is that you can do that even with an IPhone. You don't need to be in front of a computer.
Wow, that is very exciting. Do you charge some fees for the payments inside GoldMoney.com?
Yes, we charge 1 percent of the amount of the transfer up to a maximum of 1/10th of a gold gram, which is presently less than $4. That is much less than an international wire transfer, which can easily cost you around $20 or more. Plus GoldMoney is so much more convenient.
Can you tell me how the precious metals market changed in the last 2 or 3 years?
Yes, I have been bullish on precious metals this decade because of my study of monetary history. We have these repeating booms and busts. For example in the 1950s and the 1960s we had a boom and the stock markets soared. In the late 1960s and through the 1970s we had a bust. During that bust gold was doing very well by preserving wealth as national currencies lost purchasing power from inflation. In the 1980s and 1990s we had another boom in the stock markets. Right now we are in a bust that began in 2000, and gold is again doing very well.
During the boom banks lent too much money; their balance sheets became over-leveraged. Borrowers borrow too much and their ability to repay these loans becomes strained at the height of the boom. During the bust, the debts need to be paid back to bring balance sheets back to sustainable levels, but some loans cannot be repaid and there are defaults. Essentially, at the end of the bust, balance sheets come back to a level that is sustainable in terms of the amount of debts. So, where are we now? We are still in the middle of the bust. Banks and governments and many private borrowers are still over-leveraged. There are still too many debts relative to the amount of available capital. In the bust people move away from financial assets in order to avoid country and credit risks. In that environment gold and silver can do very well as we are now seeing.
Last December when I did my annual outlook on what I expect in the year ahead, I wrote that in 2010 gold will go up, probably to 1,800 USD and silver to 30 USD because of the credit crisis. Whether I am right or wrong, is not the important point. Focus on the trend, which for gold and silver is still bullish. Even though gold and silver did well this decade and their price have risen, they are still undervalued.
What is your opinion about the European debt crisis and how does it affect your precious metals business in the nearer future?
First of all, to address the debt crisis in Europe, we need to recognize that Greece broke the rules. As a consequence, they should have been kicked out of the euro zone. But the reality is that most of the countries in Europe are breaking the rules. But Greece was by far the worst example.
I don't know how many times Trichet said that the ECB will not buy any government bonds. But the fact that the ECB after a crisis meeting declared that they will start now buying government bonds destroyed all their credibility. It shows that the ECB is not like the Bundesbank. We can only conclude that the ECB is under the control of politicians. Now they have around 25 billion euros of Greek paper; and they are buying around 2 billion euros a day of Greek debts. Therefore, the ECB is undermining confidence in the euro, and gold is rising as a consequence.
In Germany and in Holland they understand if you take government debts and turn it into currency, you are destroying the value of your currency. They understand now that the ECB is not like the Bundesbank. So their promise to manage the ECB like the Bundesbank has been broken.
The bottom line is that I think that precious metal prices will rise much higher. People in Europe who understand money, are now selling euros and buying gold.
And Gold made a new all time high last month in euros. If the ECB is now buying more and more government paper and creating an artificial inflation, the gold price will go even higher.
I agree completely. What should have happened in my opinion is, that in the year 2008 when Lehman Brothers collapsed, they should have let the market clean itself of all the excessive debt. They should have allowed the collapse, rather than trying to support all of these dead-men-walking with huge bailouts using taxpayer money. You know, these banks that had all this bad paper. The politicians should have just allowed the weak ones to collapse. That would have been the end of the bust. We would now already be in good economic growth, because balance sheets would have been brought back to a sustainable level had the collapse been allowed to drive out the weak banks that had too much debt and bad loans.
But the governments are still continuing to ignore the signals of the markets. And the world's financial system still has too much debt. Governments are trying to solve the debt crisis with more debt, and that of course is impossible. What I think will happen in the end is that there will be a rethinking of those bad economics principles being followed today. What we have followed in the last few decades was the Keynesian theory of the markets, which asserts that by just making more debt results in economic growth. What has been ignored is that there is a limit to how much debt can be absorbed by the financial system.
Do you think there is no way to come out of the crisis?
Only if governments go back to the classical gold standard. When a currency collapses like in Argentina or Serbia in the 1990s or in Zimbabwe a few years ago, you can recognize that there is always another currency that people in those countries can use. You remember, in Serbia the people bought the Deutsche mark to protect themselves. In Argentina they bought the US dollar; and in Zimbabwe they are buying the South African rand or the US dollar. But what if the US dollar or the euro collapses? There will be only the one alternative: gold. This is what we can see now in Germany, for example. People understand that the US dollar is not better than the euro, so Germans are sell euros and buying physical gold.
The UK and the US are in similar dire straits; both are not that far away from Greece when considering the high level of state debts. We are seeing with the crisis in the euro zone that people ask themselves, where to go? Some of them are buying the US dollar, but it is not a safe haven. So they buy gold instead, and its price in euros keeps rising.
The bullish momentum for gold is still going on, so we will see the gold price going much higher in the months and years ahead. With GoldMoney.com, we give our customers the opportunity to save money by accumulating precious metals. Gold is the best safe haven, and the best way to protect their wealth from the debasement of the US dollar and other paper currencies. Gold offers safety and liquidity, which is what money is supposed to do. And we are doing that in GoldMoney in a way that uses today's technology. Thank you for the opportunity to explain GoldMoney to your readers.