Gold vs Gold (Paper vs Physical) pt5

This is yet another update of the Gold vs Gold (Paper vs Physical) series, which I started in September 2008 and you can read the previous posts here:

1. Gold vs Gold (Paper vs Physical) pt1 2008-09-12
2. Gold vs Gold (Paper vs Physical) pt2 2008-10-10
   
3. Gold vs Gold (Paper vs Physical) pt3 2008-10-15
4. Gold vs Gold (Paper vs Physical) pt4 2008-11-03

The Telegraph reports:

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.

"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.

This confirms one more time the disconnect between physical bars/coins and paper. While paper gold took a big hit this week, it is amazing that inventories are still very low among bullion merchants and even worth: the premium on physical products over paper assets is getting bigger and bigger, to reach as much as 40% on a silver 1oz coin (above paper).