Give me the physical, not the paper

Ambrose Evans Pritchard over at the Telegraph has filed this report (hat tip Domus) on the recent surge in demand for gold bars by wealthy individuals.

No, the rich aren't asking their stockbroker to buy shares of one of the many gold ETFs or some commodity futures contract. They want gold bars - the physical, not the paper.

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.

"They are so worried they want a portable asset in their house. I never thought I would be getting calls from clients saying they want a box of krugerrands," he said.

Merrill predicted that gold would soon blast through its all time-high of $1,030 an ounce, and would hit $1,150 by June.

Mr. Dugan also seems to believe the deflation propaganda that is permeating the financial news these days, so take his views on gold with a grain of salt.

Despite the fact that prices for many consumer goods have been falling for many years, he notes, "It's very difficult to get the deflation psychology out of the human brain once prices start falling. People stop buying things because they think it will be cheaper if they wait."

Maybe in Germany they do, but elsewhere in the world, people have stopped buying stuff they don't need with money they don't have because it was a bad idea in the first place, something they are now just realizing, and the developments of the last five months have them scared to death.