June 2017 - Week 2 Edition

Gold Demand Soars in England

Gold finally had an off week after five straight rising weeks.  Last Tuesday, gold was trading as high as $1,298, seemingly on its way to $1,300, when a couple of widely anticipated events delivered different results than expected – first, the Wednesday testimony of former FBI director James Comey seemed to fall short of the “smoking gun” level required for impeachment.  Then, on Thursday, the unexpected rejection of the British Conservative majority brought the leadership of Theresa May into question. These results may postpone May’s “Brexit” agenda until a new leader or a new government emerges in Britain.

Even though gold corrected in dollar terms, gold shot higher in terms of the British pound, which sank further after the surprise election results.  Gold in pound sterling rose by over 2% from £985 to £1,007.52 an ounce, a seven-week high, on Thursday evening (June 8) after the surprise election results came in.

In anticipation of the British elections, Sharps Pixley, a leading British bullion dealer, reported that gold demand increases 252% in May (vs. May of 2016).  The company said that it ran out of some of its leading bullion products and had to fly in new supplies from Switzerland and Germany. After the election results, Sharps Pixley said that it is already on track to break all sales records. Apparently, British citizens “voted” for gold over any political candidate or any alternative investment. Ross Norman, CEO of Sharps Pixley, said that gold in pound sterling terms has now risen by 470% since 2000, or over 11% a year compounded: “That's about three times the average UK property over the last 16 years,” he said.

Scarce Gold Coin Market Warming Up

Many devoted gold coin collectors and investors are continually trying to complete high-grade sets, creating extra demand for the attractive and scarcer pieces we sometimes refer to as key coins or “hole fillers.”  Due to the competitive bids on scarce-to-rare gold coins, market prices are warming up.  While common-date $20 St. Gaudens gold coins are plentiful in many grades, the tougher-to-find gold coins like the 1908-S, 1909-S and 1912-S $5 Indians, 1908 No Motto, 1911-S and 1915-S $10 Indians, 1877-S to 1882-S $20 Liberties and scarcer Carson City Mint gold coins are on many customers’ want lists.  Attractive popular coins like the Gem Cameo Proof Morgan dollars are also being competitively sought.  When I am on buying trips, even offering 10% above the market often doesn’t shake as many scarce gold coins loose, as it did last year when I was on buying trips.   

A word of warning: My rejects and the rejects of many other recognized coin experts often linger on the market at discounted prices.  Make sure your coins are selected by a peer-recognized expert.

The Latest News from India and China is Bullish

China and India account for over half of global gold demand each year, but demand there was fairly slow in 2016.  This year promises increased demand in both giant nations – each with over one billion citizens living in the two fastest-growing economies on earth (India’s economy is growing 7%, China’s by 6.6%). 

Last week, a report from Bloomberg said that demand in China is rising by over 50% (vs. 2016) as the Chinese economy recovers and investors seek alternatives to currency risks, a flat property market and China’s extremely volatile stock market – which resembles a gambling casino. Haywood Cheung, president of a major Hong Kong gold exchange, said mainland China is on track to import 1,000 metric tons of gold in 2017, up 55% from the 647 tons imported in 2016.  In addition, the Chinese central bank currently holds 1,842.6 tons and may add to that total as insurance against their weak currency, the yuan.

In India, we finally have some closure to the government’s threatened “Goods and Services Tax” rate for the gold market.  Dealers had feared a high rate of 5% or even 10%, which would punish the official gold market and encourage black market trading.  Now it appears that the Indian government was listening to the economists warning them about the negative impact of higher rates. The tax rate will be 3%, effective on July 1.  This will be good for the gold market, since 3% is considered “absorbable” by both dealers and customers.  The World Gold Council said “the simplified taxation structure will make the gold supply chain more transparent and efficient. At 3%, the GST rate was lower than the industry had feared.”

Indian gold dealers expect higher demand than previously expected, due to the 3% (instead of 5%) added tax. In anticipation of this news, Indian gold imports were four-fold higher in April and May of 2017 vs. the same months in 2016. Unfortunately, the 10% import duty and 1% excise tax remain, but domestically fabricated gold avoids any import tax.  Even with all of these governmental impediments, the World Gold Council still expects Indian gold demand of around 700 tons in 2017, rising to 900 tons per year by 2020. 

Gold and Trump

In New York, at least one big investor bet against gold in U.S. dollar terms.  Specifically, when gold was near $1,300 last Wednesday – just minutes before James Comey’s testimony began – a big gold trader made a big bet that Comey’s testimony would not deliver enough ammunition to impeach Trump, so this unknown person or institution sold nearly $4 billion worth of gold futures.  

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