July 2015 – Week 2 Edition

Gold dipped to a low of $1151 on Monday morning, July 13, but the entire decline (and more) came from a surge in the U.S. dollar.  Gold fell $11 due to the rising dollar, but it would have gained $2.40 in normal (currency-neutral) terms. The Dollar Index gained 1.2% from 3am to 11am Monday (EDT) after Europe made yet another announcement that they would restructure Greek debt if Greece would submit to greater austerity (that’s an OLD story!)  That caused the euro to collapse and the dollar to soar, hurting gold, but the price of gold in euro terms remained relatively stable at around 1050 euros per ounce, up 8% in 2015!

I will be at the Smithsonian’s Grand Opening of its “Value of Money” Exhibit on July 15

This week, I am one of a small group of numismatic luminaries invited to the unveiling of the new rare coin exhibit at the Smithsonian’s National Museum of American History. The new exhibit will be called “The Value of Money.”  At the Smithsonian, space is at a premium, since they have limited room to show the wide expanse of American history as our nation enters its 240^th year.  That’s why it’s so important that the Smithsonian more than tripled its previous square footage devoted to numismatics – expanding from 300 square feet (equivalent to a large room) to a 1,000 square feet exhibit (equivalent to a small house) to be renamed The Gallery of Numismatics.  Wednesday will be the Inaugural Exhibition of that gallery.

I will report on this week’s Inaugural Exhibit in next week’s Metals Market Report.

Silver American Eagle Coin Demand is Strong

One reflection of growing silver demand is that the U.S. Mint just announced a current sellout of its 2015 coins.

The Mint’s announcement said, “The significant increase in demand for American Eagle Silver Bullion Coins depleted our current inventories. The United States Mint facility at West Point, New York, continues to produce American Eagle Silver Bullion Coins and we anticipate resuming sales in approximately two weeks.” This is the second time the Mint has sold out of silver coins in the past nine months (it ran out of 2014-dated American Eagles in November of 2014).  The latest sellout comes just five weeks after the Mint ended an earlier allocation policy that rationed the sales of Eagles.

China’s Stocks are Crashing, but its Gold Influence is Growing

The domestic Chinese stock market has collapsed by 32% since June 12, but China has retained its #1 position as the world’s largest market for spot gold trading for the eighth year, according to the Shanghai Gold Exchange (SGE), which is growing in power and influence due to its link with overseas gold traders via Hong Kong’s bullion-trading centers. Bloomberg reported that “China is opening more of its gold market to Hong Kong investors, the latest step in its campaign to influence the price of bullion.”

China is in the midst of a long-term campaign to become the gold center of the world in the minds of most professional gold traders – replacing New York and the traditional European gold centers in Zurich and London.  As of last Friday, members of Hong Kong’s Chinese Gold & Silver Exchange Society will be able to use China’s currency (the yuan) to buy and sell gold on the SGE.  Long-term, China is also trying to take over the gold price-setting leadership that was formerly supplied by the London Gold Fix.

There is one cultural difference between Asian and European investors that is important to understand.  In Europe, gold has long been associated with conservative values – i.e., a currency or inflation hedge, noted for its long-term stability and security, a form of portfolio insurance, and a convenient form of wealth storage or transfer, as well as a source of beautiful jewelry.  In China, by contrast, investors tend to be more speculative, to the point of gambling.  Chinese real estate and stocks were bid up on leverage, and now they are collapsing.  When China turns its attention to gold with the same fervor that they recently poured into land and stocks, we may see some speculative mania (using leverage) in their gold market.

European Gold Demand Continues to Grow

Due to the ongoing Greek crisis, the euro is weak and gold is rising in euro terms.  At one point this year, gold was up 15% in euro terms.  Even after the latest decline, gold is still up 8% for 2015 in euro terms, from 973 euros per ounce at the end of 2014 to 1052 euros per ounce at the end of last week.   The Greek crisis has been going on for over five years.  It won’t end next week, next month of next year.  If Greece exits the euro-zone, that could set a precedent for other nations leaving, sending the euro down further.

Gold demand has been particularly strong in Germany, the richest nation in Europe and the nation that is the most insistent that Greece pays its debts. Degussa, a major German gold retailer, reported a 50% increase in gold sales during the first half of 2015 vs. the first half of 2014.  Degussa cited a major cause of gold demand as “the ongoing uncertainty of investors with respect to the fragile financial markets.” 

Also, Swiss exports of gold to Asia (mostly to China, India and Singapore) rose more than 10% in May over the same month in 2014.  This year could set a new record high for Swiss gold exports to Asia.

As for Greek investors, most banks are closed and that means that most Greek safe-deposit boxes are locked and inaccessible.  Many Greeks held their gold and cash in these “safe” places, which no longer seem so safe.  Smart Greeks already emptied out their cash and gold before the banks closed, but we are now likely to see a move toward an “off the books” economy in gold, silver and cash within Greece.

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