The Michael Fuljenz Metals Market Report: March 2013, Week 4 Edition
Gold shot back over $1600 when the euro-zone mandated steep taxes on bank accounts in Cyprus as part of a bailout plan for that nation’s rising debts. Imagine being taxed 6.75% on your bank accounts under $130,000 (100,000 euros) and even more (9.9%) on your larger accounts. No wonder so many Europeans took cash out of their banks and used part of it to buy gold. The Cyprus Parliament rejected the plan, but this seems to be a case of inter-governmental agencies (like the IMF or ECB) punishing people who merely want to save their money in banks. All of a sudden, banks don’t seem as safe as they once did.
The "Wealth Effect" (More Millionaires) is Good for Gold and Rare Coin Demand
The first wave of gold demand in the current bull market came during a time of rising asset values, from 2002 to 2007, when real estate soared and the stock market reached new highs. Rising wealth is good for gold demand, since it makes average Americans feel like they can afford luxuries and investment hedges like gold and rare coins. Then, in 2008 and 2009, we had a financial crisis that sent investors to gold out of fear for their assets in other areas, like housing, bonds, cash and stock. Gold reached its all-time high during the panic over the funding of the U.S. government in the summer of 2011, but the next surge in gold and rare gold coins may come from the rising affluence of Americans.
We now have over nine million U.S. families worth over $1 million, excluding their primary residence. At the end of 2012, according to Spectrem Group, there were 8.99 million millionaire families in America, a rise of 400,000 in 2012 alone. In the first quarter of 2013, with the rising stock market and rising real estate values, the nine million mark is surely surpassed by now. We have to wait for the official tally for this quarter, but we might surpass the 9.2 million peak of millionaire households, set in 2007.
Physical Demand for Gold is Strong so Far in 2013
Due, in part, to a fear over the safety of bank savings and the fact the world now has more millionaires with more disposable income, the demand for physical gold and rare coin is soaring in the New Year. According to the U.S. Mint, sales of American Eagle gold coins reached 80,500 ounces in February, up 283% from the 21,000 ounces sold in February of 2012. In the first two months of 2013, the Mint sold 230,500 ounces of the gold bullion coins, up 56% from the same two months in 2012, despite the price of gold being down.
Silver coin purchases were so overwhelming that the Mint ran out of coins and had to suspend the sales of silver coins during part of January. Even with that suspension, January sales of American Eagle silver coins hit an all-time high of 7.5 million ounces. February demand was less, at 3.4 million ounces, but that was up 126% from February, 2012. The cumulative silver coin demand at the Mint in the first two months of 2013 hit 10.87 million ounces, a rate which would double last year’s total sales, if the trend continues.
Overseas, February was also a strong month in China. During the Chinese New Year and Spring Festival, sales of gold bars doubled. Chinese retailers said their sales of gold coins and jewelry rose 20% to 30%.
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