December 2015 – Week 1 Edition

Gold fell to a six-year low of $1052 in the middle of last week before opening this week (November 30) at $1065.  Gold seems headed for its third straight down year after 12 straight rising years from 2001 to 2012.  The chief culprit is a strong dollar after the fall of the euro in advance of this week’s meeting of the European Central Bank (ECB), which is expected to lower interest rates further below zero, while the U.S. Fed is expected to raise rates in mid-December.  This draws more investors to the dollar. But we should also point out that gold is rising in terms of most other currencies this year.  Although gold is down 11% to the dollar through November 30, 2015, gold is up for the year in terms of the Australian, New Zealand and Canadian dollars, the South African rand, the euro (and most of the other independent European currencies) and in terms of nearly all of the Latin American currencies.

Physical Demand Soars

Precious metals funds posted their biggest net outflows last week in four months as investors pulled $1.0 billion out of the funds in the four trading days leading to Tuesday, November 24, when the dollar was rising to its strongest level in the last seven months.  Gold fell, but bonds and stocks seemed out of favor, too, as investors seem to favor low-yielding cash.  Bond funds suffered a $3.3 billion outflow last week, for the third straight week of net redemptions.  Stock funds only managed inflows of about $400 million.

Meanwhile, physical demand for American Eagle (both silver and gold) coins is soaring.  The U.S. Mint’s 2014 record annual sales of 44,006,000 silver ounces will likely be surpassed by the end of November (the final figures aren’t out yet).  At the close of sales last Monday, November 23, cumulative silver sales reached 43,663,000 ounces, 363,000 ounces short of the record.  In most weeks, sales approach or exceed one million ounces, so it is almost certain that the 2014 annual record will be broken as of November 30.

Gold American Eagle sales are growing at an even faster pace than silver.  The Mint announced that it has run out of the one-ounce Gold Eagles, after selling out all the 1/10^th ounce and ¼ ounce gold coins earlier. Sales of the one-ounce gold Eagle totaled 80,500 ounces in November, a 209.6% gain over October sales. Through the end of November, American Gold Eagle sales totaled 801,000 ounces, or 52.7% above the 524,500 ounces delivered in all of 2014.  For the next six weeks, all the gold that remains in the Mint’s inventory is the half-ounce American Eagle and the one-ounce Buffalo coins. The Mint said that it will now focus on 2016-dated gold coins, which will be made available to their dealer network on January 11. 

The Mint also said that it will stop producing 2015-dated silver American Eagles after December 7, 2015, and it will make its last dealer allocation (rationing) of this year in the week ending December 14.  So there is great demand – and rationing – of physical gold and silver while Wall Street sells their “paper gold” ETFs. A shortage of physical metals amid rising physical demand cannot last forever.  The law of supply and demand says that gold and silver bullion coin prices will likely escalate in the face of supply shortages next year.

Asian Buyers Will Likely Buy More Gold at these Low Prices

Some mainstream analysts are still clinging to gold. James Steel, chief precious metals analyst at HSBC Securities said, “We remain mildly bullish on gold prices, but the bounce has taken longer than we had anticipated,” but “we believe that 2016 could see a more decisive recovery” since “emerging market demand has already set a floor for gold prices, and we think buying from India and China is likely to increase in 2016.  (Emerging market) buyers and sellers are highly price sensitive: prices below $1100 per ounce attract buyers, but they shy away from purchases when gold is near $1300 per ounce.”

Even though gold has risen for the year in terms of most currencies, it is still down in terms of the dollar and most Asian currencies, including the Indian rupee, Chinese yuan and Japanese yen, so we can expect more buying there while prices are down, since they are savvy investors who tend to buy when prices fall. 

Gold imports into India could set a new record high surpassing 1,000 metric tons this year, according to the All India Gems and Jewelry Trade Federation, whose director explained that “more imports are being undertaken taking advantage of a significant fall in global prices.” Through the first nine months of 2015, India imported 850 metric tons of gold vs, just 650 metric tons for the first nine months of 2014. 

The closing quarter often brings the most demand, due to a series holidays plus seasonal weddings.  Last year’s gold imports in the fourth quarter were 250 metric tons, bringing the 2014 import total to 900 tons.  If India merely matches last year’s fourth quarter imports, the 2015 total will reach a record 1100 tons.

There is also great central bank demand, especially in Russia, China and some other Asian nations, so there is hope that the currently-low prices in terms of the dollar and Asian currencies will spur demand.

A well-deserved shout out to C.S. who provides important information to us. 

Overstock.com Plans to Pay its Employees in Gold (and Food)

The popular Website “Overstock.com” helps shoppers find bargains from overstocked inventory.  They have recently created a stockpile in gold and silver – about $10 million in gold and silver including smaller denominations, according to one report – but that’s not because they want to sell gold to their customers – although that would be a good idea, considering the Mint’s low quantities of some popular bullion coins.  Instead, the company plans to pay its employees in gold if America enters into another serious banking catastrophe, such as the 1930s banking crisis, or in times of financial uncertainty, such as the world suffered as recently as 2008.

The CEO of Overstock.com, Patrick Byrne, said that there could be a future crisis that “could last for two days or two weeks or who knows how long, and we wanted to be in a position where we could continue to operate during any such crisis.” Of course they want to own the real thing – gold itself, not paper ETFs, which could be nearly as worthless as any other fiat paper currency in a time of crisis.  On a practical level, Overstock.com has also stockpiled three months’ worth of canned food to pay their employees in food.

The company’s former president, Jonathan Johnson, is also a candidate for governor of Utah, which will give him a platform for promoting gold as history’s primary form of money and a practical alternative means of exchange in times of crisis.

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