November 2022 - Week 2 Edition
Gold and Silver Now Moving Upward, Again
Gold’s latest big move began last Friday, November 4, when gold rose $50 from $1,630 to $1,680 (+3%) before settling down in the mid-$1,670s. Silver made an even bigger percentage move, rising from $19.55 to $20.80 (+6.4%) in the same 16 hours. In fact, silver was up 9.34% last week, mostly on the expectation that China will soon fire up its manufacturing on several levels. Both metals held on to those gains over the weekend and on Monday. In just two hours on Tuesday morning, gold shot up another $40 (+2.4%), from $1,675 to $1,715. Silver followed gold, rising $0.80 (+3.8%), from $20.80 to $21.60 before settling back. At the same time, bitcoin fell 12% to $18,000 as gold retained its role as the #1 currency alternative.
The metals rose on (1) a weaker dollar – as the U.S. Dollar Index fell 3.5%, from 113 last Thursday to 109 on Tuesday, (2) the expected election results this week, since “gridlock” (split power in DC) is better for most markets, and (3) massive central bank buying, revealed in the latest World Gold Council report.
World Gold Council Cites Strong Third-Quarter Demand (+28%) vs. Flat (+1%) Supply Growth
According to the latest World Gold Council quarterly report, released last week, central banks bought a record of nearly 400 metric tons of gold last quarter, bringing total central bank gold buying for 2022 (through three quarters) to the highest level since 1967, when the dollar was still backed by gold.
Demand in India also reached (and may exceed) pre-pandemic levels, rising 14% in the third quarter of 2022 (reaching 191.7 metric tons) vs. the same quarter in 2021 (168 metric tons). * Silver consumption in India is also rebounding, since demand last year was about 4,500 tons and may exceed 8,000 tons this year, according to Bloomberg. (*A metric ton equals 1,000 kilograms, or 2,205 pounds, or 32,150 Troy ounces.)
Total gold demand last quarter, according to the WGC’s latest “Gold Demand Trends” report, is up 28% over the same quarter in 2021, reaching 1,181 metric tons. This rise came despite a drop in investment demand as the strong dollar pushed speculators out of the futures market, hurting gold’s performance this year. Gold bar and coin investment, however, was up 36%, year over year, with the strongest demand coming from Turkey and Germany – nations close to the Ukraine war and hurt by weak currencies.
Basically, private investors upped their gold investments in the face of inflation and weak currencies, while institutional investors sold gold, based on the false narrative that rising interest rates are bad for gold.
Jewelry demand was also back to pre-pandemic levels, reaching 523 tons, up 10% over the same three months in 2021. India’s jewelry buying was up 17% as their gold-friendly consumers bought 146 tons of gold jewelry last quarter. Middle Eastern wealth was also on display, as Saudi Arabian jewelry demand was up 20% over Q3 of 2021 and United Arab Emirates demand was up 30% for jewelry last quarter.
In the face of all this rising demand, supply growth was very small: Mine production (net of hedging) was up just 2% versus the third quarter of 2021, but recycling was 6% lower, as investors and those who held jewelry and gold at home kept their gold in the face of rising inflation and a possible recession. As a result, total supply growth was up only 1%, year-over-year, vs. 28% growth in gold demand last quarter.
Bullion Red Alert! Beware High Premiums on GOLD as Well as Silver Bullion Coins
For two years, we have been warning you against the high premiums and long delays for delivery of Silver American Eagle bullion coins. That unfortunate condition continues, as the Treasury and the Mint seem to be unable to live up to their statutory mandate to deliver these popular bullion products to meet demand. The Mint only sells to Authorized Purchasers (APs) at about $3 over the spot silver price, who then sell to us, so that we can sell to you. The APs are charging about $14 over the spot price to dealers who deal with the public.
The U.S. Mint blames its decrease in production on the inability of their silver blank providers to supply them with sufficient blanks. They are only receiving about 60% of the blanks provided in previous years.
On the gold side, Gold American Eagles and Buffaloes have also risen from their long-time 3% to 4% premium that AP dealers charged us. We now have to pay about 10 percent over gold spot price for a one-ounce Eagle or Buffalo. For the popular $5 one-tenth-ounce gold Eagle, premiums are up from 10% over spot price to a ridiculous 33% over spot gold price. Bars and rounds don’t cost as much in premiums as minted coins but the premiums on them are also rising. So are premiums on some foreign bullion coins, like the Canadian Maple Leaf or the Britannia coin, due to the popularity of the now-deceased Queen causing extra demand.
A bigger problem with bars is that counterfeiting is more difficult to detect with bars, especially if you deal with dealers who do not have the expertise to spot counterfeit products the way we do. I wrote the Consumer Alert for the Attorney General of Texas on counterfeits. When dealing with others, always ask if your dealer has been recognized for their business accomplishments. I was named the American Numismatic Association “Dealer of the Year” in 2021 and my dedicated staff contributed greatly to all of my achievements and accolades.
Although bullion coins have become harder to acquire and their premiums have also made them less desirable at the present time, I am constantly looking for rare, numismatic gold coins, such as those in our 20/20 Program. These are select coins that I have personally inspected for quality and they have outperformed bullion coins over time due to their popularity and lower capitalization (population times price). I highly recommend giving your account representative a call today to find out more information on how we can help you choose the best coins for your portfolio.
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