The manipulative smash on the gold price on Sunday night has once again led to a surge of buying of gold coins and bars across the globe. Both the Wall Street Journal and Reuters report on how bullion dealers are seeing a spike in demand for gold coins and bars in India and China and indeed Europe, Australia and the U.S.
The U.S. Mint – which ran out of Silver Eagles earlier in the month due to unexpectedly high demand – has sold 110,000 Gold Eagle one ounce coins so far this month according to Reuters. This compares with a mere 21,500 ounces sold in May and 76,000 in June. It represents the highest level of monthly demand in over two years – with more than a week to go till the end of the month.
In India, July is typically a quiet month for gold sales as farmers, who make up the bulk of the population, allocate their cash towards cultivation, according to the WSJ. However, the unusually low price has led to a surge of buying.
“Gold’s plunge to five-year lows this week has prompted a swift rise in demand from jewelry retailers in China and India, the world’s top consumers of gold, leading to a doubling of premiums paid on physical gold,” reports the WSJ via Marketwatch.
The article goes on to quote an Indian jeweler:
“Until now, the gold demand was very low because of the season. Demand has picked up noticeably as the common man thinks prices have bottomed out.”
Meanwhile, Chinese investors have been allocating money to gold following the bursting of China’s equity bubble.
Interest in gold “had waned in recent months as investors flocked to the soaring stock market.” The surge in demand has caused a doubling in the premiums paid for gold. Demand for investment type “gold biscuits” has “shot up” this week according to a Hong Kong based jeweler. “Our sales are up by 20% to 30% compared to average sales in previous months.”
The Perth Mint in Australia has also seen a sharp rise in demand for gold coins. In June, sales were up 37% on the same month last year with the mint clearing 21,962 ounces.
“Sales in July already matched that level earlier this week and appear to be gaining momentum,” said Ron Currie, sales and marketing director.
The Perth Mint sells coins and bars internationally and is seeing strong demand in the U.S. and EU.
With the price of gold being determined by paper contracts – often regardless of the supply and demand fundamentals of the actual metal itself – spot gold prices today are no longer a barometer of perceived risk in the system.
However, It is clear that many investors in the East and West are accumulating physical gold, the main benefit of which is financial insurance. This would suggest that a great many more people are cautious about the health of the financial system and indeed the global economy than the gold price may indicate.
The experience of the Greek people in not being able to access bank accounts and even cash in safety deposit boxes is also making nervous and leading to gold buying and diversification.
The risks posed by the gargantuan unpayable debt choking the financial system and the economies of the world along with simmering geopolitical tensions remain. We advise clients to hope for the best while planning for the worst by owning physical gold – history’s and today’s store of value.