Gold is trading near a one-year high. Bloomberg News reports that traders are pricing in only a 10% chance of an interest rate increase this month, and 50% odds of it happening by year end. As said last week, that is one of the most important drivers for gold, next to the anxiety that arose in markets in the last couple of months.

When it comes to negative interest rates, which gold is anticipating right now, we read a very interesting, and spot-on, observation from Jim Grant earlier this week. He said:

“If interest rates were reduced to less than zero and if large denomination bills were retired, what would one do with one’s money? This one reason why the gold market is on a ferocious tear to the upside because people are thinking: “Wait a second. If that’s what they want to do to my money, if they want to tax it for it being money, and if they want to restrict my freedom to move things outside the banking system, I’m going to get outside the banking system legally in a time-tested way, and lay some of my wealth apart in gold, which cannot be created through the swift tapping of computer keyboard as can be done with currencies.”

He added that this likely is a terrifically bullish moment for gold investors. “I think it’s a very sad moment for the institution of fiat money. But fiat money has never worked out well in the very long run. Maybe we’re in the very long run.”

Meantime, demand for gold in the GLD ETF has exploded. As it goes with “paper” gold products, the GLD ETF saw a huge hickup last week. BlackRock Inc., the issuer of GLD ETF, had to temporarily stop issuing new GDL shares as precious metal caught the world’s largest money manager off guard. Bloomberg writes that investors had piled into the fund so fast that “BlackRock didn’t register in time with the U.S. Securities and Exchange Commission to issue more shares. The suspension means that the share price of the fund may deviate from the price of its underlying assets — the physical gold — until issuance resumes, probably within two or three business days, according to a person familiar with the matter.”

As gold investors know, there are issues with gold ETFs. The most important warning of respected precious metal investors is to never (read: NEVER) invest in paper gold instruments. The problem with gold ETFs is that you never exactly know what is happening behind the scenes. In other words, the issuer is controling what’s happening with the ETF.

Our point of view is confirmed by Kara Stein, a U.S. Securities and Exchange Commissioner, who said on Bloomberg on Friday that “that the risk presented by some [ETFs] may not be fully understood by those who have invested in them. Even plain-vanilla, equity index ETFs may present risks that are not always anticipated or fully understood, as evidenced by the events of Aug. 24.”

The moral of the story? Do NOT (read: NEVER) invest in paper gold instruments. You should hold physical gold and miners.