INDIVIDUAL PURCHASING AT HIGH LEVELS
U.S. gold coin demand suggests Asian-style physical metal hoarding spreading to the West
The problems the U.S.Mint has had in servicing demand for the popular one ounce Gold Eagle coins suggest that physical gold is again becoming a key store of value for the man in the street in Western economies too.
Author: Lawrence Williams
Posted: Wednesday , 27 Aug 2008
LONDON -
Gold has long been considered a "safe haven" insurance policy by individual investors - and some institutional ones - against rising inflation and non-controllable political, natural and fiscal disasters. In Asian and Middle Eastern cultures this is especially the case with gold and other precious metals being kept against unpredictable needs - and, as a consequence, gold and silver are also used as wedding and festival gifts - indeed in some societies, particularly in India, such gifts are de rigueur in such ceremonies.
In Asia and Middle East, private gold hoarding of this type is mostly in the form of jewellery which is usually sold by weight and without the kind of fabrication mark-ups seen in the West, which is one of the reasons jewellery demand is such an important factor in precious metals supply and demand and why a country like India is so important in global demand figures. However, because of big fabrication mark-ups gold and silver jewellery in the West does not carry the same ‘investment' handle and thus is primarily used for decoration, so is perhaps less likely to find its way back on the market in times of need. Therefore much more tradable gold, and silver, coins, with much tinier fabrication premiums, have become the private individual's preferred store of value in many cases, although this has been overtaken to a significant extent by paper holdings like Exchange Traded Funds (ETFs) where physical gold is held in vaults to match the paper holdings.
It is thus significant that what the U.S. Mint describes as ‘unprecedented' demand is leading to slow deliveries from gold coin dealers who can't keep up with burgeoning demand and, even more significantly the recent halt in deliveries of U.S. one ounce Gold Eagles by the Mint because it has run out of the blanks necessary to mint the coins. According to Richard Smith of coin dealers CSG Inc. in Phoenix writing here a few days ago - Another gold conspiracy unveiled! - the first two weeks of August saw 60,000 coins sold in the U.S. - around ten times the volume recorded in 2007 when sales were at around 12,000 a month.
If anything should make the investment community sit up and take notice, this highly publicised temporary shortfall in supply will. Perhaps private sector demand is relatively irrelevant in relation to the volumes of paper and physical gold traded by major funds and banks, which in reality sets the price of the metal, but the pent up gold coin demand on dips in the gold price has to have a psychological impact on those within institutional investment firms and hedge funds who take the decisions on gold investment.
It is also perhaps significant that the gold in the ETFs is currently more firmly held, at least at this time, than the recent market fluctuations in the metal price would suggest. Gold has been tracking the oil price very closely indeed, but there are signs in the past few days that there is some divergence between the two - almost certainly buoyed by the strong physical investor demand. Overall though, gold is likely to continue moving counter to the value of the U.S. dollar where the recent uptick has been stuttering.
With markets uncertain, the dollar still in trouble, the credit crunch firmly in place and some worrying political strife around the world, gold looks as though it should remain a decent store of value, even if the high price rises anticipated by many at the beginning of this year do not yet materialise. |
