By Investment U
In an interview in January 2012, I took some flak from a number of people in the local gold industry.
I said of gold, “Now it’s like any other commodity and is subject to speculation… When you have more speculating taking place, what’s really driving the price becomes murkier, and you get into the situation where there’s a possibility for bubbles… It’s no longer a safe haven…”
I told the reporter: Watch the outflows of precious metals exchange-traded funds (ETFs). When the liquidating begins en masse, there starts to be nothing left propping up the price of precious metals. That means investor demand is waning.
I said this is the first of many red flags.
This was rejected by other “experts.” Gold is only going to go higher and higher, they claimed…
Thirteen months later, the price of gold is down 10.96% since the end of January 2012 and 16.83% from its peak in August 2011.
Investor demand for gold has fallen 10%.
In February, gold ETFs liquidated a record 109.5 tonnes. This represented 4.2% of their holdings, and the largest single-month percentage liquidation since April 2008.
In the fourth quarter of 2012, gold demand from ETFs – which have represented 9% of total gold demand over the last five years and 17.3% of investor demand over the last four years – fell by 16.3 tonnes.
And it’s an international phenomenon, not just limited to the United States.
When ETFs are selling gold – not buying – it’s a bearish signal.
But there’s a divergence taking place…
The pullback in precious metals prices, combined with uncertain sentiment about the economy, is sparking a buying spree in one investment instrument for precious metals…
Coins.
In fact, demand is so enormous that in mid-January, the U.S. Mint actually had to briefly suspend sales of American Eagle silver coins because it ran out.
And sales of gold coins surged to levels not seen since July 2010.
The past two Januarys for the U.S. Mint have been record-shattering. In January 2012, sales of silver coins hit an all-time high of 6.1 million ounces. The record was short-lived though, as the mint sold 7.1 million ounces in January 2013.
An increase of 16.39% from January to January.
What’s surprising is that the majority of sales are in the form of the box of 500 one-ounce silver coins the mint offers. Investors can’t get their hands on enough of them. And it smells of stockpiling, either for the apocalypse or financial collapse.
It’s part of an interesting trend we’ve seen the last couple of years.
In 2012, sales of silver coins popped in January and then fell sharply and flattened out for much of the year. The pace picked up in the fall but eventually hit a roadblock in December… The mint ran out of its stock and announced there would be no more coins minted until 2013.
This led to a build-up in demand that took shape with January’s record-breaking results. And it carried over into February, where sales of both gold and silver coins – though about half of their January totals – were double what they were in February 2012.
And silver has been the metal of choice for a good stretch.
Before a decline in 2012 of 15.37%, the U.S. Mint set four consecutive years of record-breaking silver coin sales. As you can see from the chart above, the increase in sales is pretty astronomical.
On the other hand, the sale of gold coins continues its trend downward, falling every year since its last peak in 2009.
Sales of gold coins from the U.S. Mint tumbled 24.70% in 2012.
One of the attractive things about minted coins is they have collector value, not just precious metals value… Though with sales of coins from the U.S. Mint at such high levels, it’s hard to imagine those coins appreciating much in the near-term.
Value on those types of items come from scarcity, quality and limited supply.
Good Investing,
Matthew
Article By Investment U
Source: American Silver Eagles: Demand So High the Mint Ran Out