September 2015 – Week 5 Edition

Gold rose another $5 last week.  First, gold dipped to $1123 in the middle of the week, but then it closed strong, including a one-hour rise from $1,130 to $1,150 on Thursday morning from 9:00 to 10:00 am Eastern time.  This week, gold opened lower at $1,132.  There is no clear trend yet, up or down, but gold remains comfortable above its $1,080 low from last July 24, while the stock market sharply declined (by 12%) from late May through late August.  Year-to-date, gold and silver are still narrowly beating stocks.

U.S. Mint Demand Continues to Soar, Causing Shortages and Delays

The U.S. Mint continues to sell more gold coins in the third quarter than in the entire first half. The September sales of American Eagle Gold coins (through September 25) totaled 113,500 gold ounces, up from 101,500 ounces for all 31 days in August.  Demand for gold and silver in the third quarter (which ends Wednesday, September 30) has been extremely strong, dwarfing the first half of the year.  Demand increased after the stock market collapsed, as investors sought gold as a safe haven in turbulent times.

The Mint limited Silver Eagle sales to 750,000 ounces last week, down from the previous week’s 809,500 ounce limit.  Authorized dealers ordered the entire week’s allotment by Tuesday in each week.  American Silver Eagle sales are now at 35,054,5000 ounces year-to-date, up 17.4% from the same time last year and on target to beat last year’s record 44 million ounces. August sales totaled 4,935,000 ounces; September sales through last Friday were 2.8 million ounces, down from August, but only because of rationed sales.

In addition, the specialty 2015 John F. Kennedy Coin and Chronicle set went on sale by the U.S. Mint at noon Eastern Time on September 16 and it nearly sold out on the first day.  The Mint sold 25,000 sets via its website in the first 10 minutes of sales,” according to Tom Jurkowsky, director of the U.S. Mint Office of Corporate Communications. “Of those orders, approximately 78% were via desktop computers, 16% via the Mint’s new mobile app and 6% via social media … After the first hour, sales totaled over 40,000 units. By the end of the first day, sales had climbed to 45,613, reaching 91.2% of the maximum 50,000.”

The U.S. Mint is not alone in scrambling to meet higher investment demand for bullion coins.  In Canada, the silver Maple Leaf coins are also subject to small weekly allocations. “Rationing” is the “new normal” around the world, as investors continually call dealers demanding more products, which often are not available immediately.

Gold ETF Holdings are still the “Tail Wags the Dog”

Usually, when supplies are rationed, prices tend to rise.  Gold is up from a $1080 low on July 24, but it hasn’t made a strong upward move yet because the leveraged “paper gold” market (futures and ETFs) is still declining (although at a slower pace than before), and gold derivatives are the tail that typically wags the dog.

ETF gold holdings are down 5.2% so far this year, and gold has fallen by a similar amount.  In fact, ETF holdings track the gold price fairly closely.  According to Frank Holmes, CEO of U.S. Global Investors (a mutual fund family specializing in gold and natural resources), the rate of withdrawals has slowed from a catastrophic 33% decline in 2013 and a moderate 9.33% decline in 2014 to a 5.2% decline so far this year.

The price of gold clearly parallels the sales of gold ETFs.  Gold’s recent rallies, as in early 2014 and early 2015 run parallel with a rise in gold ETF purchases. Based on past rallies, says Mr. Holmes, “ETF buying may pick up if gold prices start to climb.”  He thinks that the coming turnaround in gold could be caused by revived Chinese demand. “If Chinese investors fleeing from stocks decide that the historic value in gold is tempting, that could mean the next boom could come in gold.”

Holmes charted the rise in Chinese demand, adding: “So far this year, demand has been 36% higher than around the same time in 2014, and 13.5% higher than in 2013 — which was a record year.”  

The volume at the Shanghai Gold Exchange rose 14.2% in August vs. the August 2014 and are on pace to reach over 2,500 metric tons this year.  Also, demand in India typically rises in the fourth quarter. The World Gold Council estimates Indian demand will reach 230 metric tons in the fourth quarter. Indian gold demand generally peaks in the festival season, followed by the wedding season (starting in November).   Also, Russia added 32 metric tons of gold to its central bank vaults in August, the most in 11 months.

Mainstream Investment Banks are Warming up to Gold

Some major investment banks are warming up to gold recently;

UBS asked if it’s “Time to warm up to gold?” They think the price has gone too low in recent months, saying the “current weak sentiment and price expectations may also be overdone.” UBS said “the risk-reward of going short has deteriorated” and the current low price is “an opportunity, especially for long-term oriented participants looking to diversify portfolios, to rebuild positions at more attractive levels.”

Commerzbank added that “Increased gold demand in India and China should lend support to the gold price.”  Commerzbank also reported that “Switzerland exported 173.9 tons of gold in August, 8% more than in the previous month. Nearly 70% of this total was shipped to Asia…50% more gold was exported to China. They also expect “a strong festival season in India which could boost demand as much as 15%.”

New Book covers Safe Storage of Precious Metals

I have just read a new book which is wide-ranging in its scope. It is especially helpful to gold and silver investors who are seeking safe ways to transport and store their metals.  “Spy Secrets That Can Save Your Life” by Jason Hanson was just published last week.  The subhead to the book explains its purpose: “A Former CIA Officer Reveals Safety and Survival Techniques to Keep You and Your Family Protected.”

Jason Hanson is a former CIA officer, security specialist, and a recent successful contestant of ABC’s reality show Shark Tank. He has been interviewed by major media outlets, including, The Wall Street Journal, Fox News and The Huffington Post, for his security expertise. I highly recommend that you order your own personal copy.  It is available from Amazon.com or other leading book sales outlets.

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