Physical Gold Trumps Paper Gold
It was a harsh April for gold investors. The precious metal plunged $200 over the course of only two days, and finished the month nearly 8 percent in the red, its worst single-month performance since December 2011. Gold is officially in bear-market territory, but many investors are seeing the correction as a buying opportunity for gold coins.
There has been a significant increase in bullion demand. The U.S. Mint sold 209,500 ounces of gold product in April, up from 62,000 ounces in March, according to online data from the mint. This is the highest monthly haul since December 2009, when 231,500 ounces of gold were sold. In fact, more gold was sold in April than the previous two months combined. Meanwhile, almost 4.1 million ounces of silver were sold by the U.S. Mint in April, compared to 3.4 million ounces a month earlier.
Due to heavy demand, the U.S. Mint halted sales of the one-tenth ounce American Gold Eagle, its smallest-denomination gold bullion coin, in late April. This is the first time the Mint stopped selling a gold product since November 2009, according to dealers and Reuters.
“While the one ounce gold bullion coins remain the most popular, demand for the one-tenth ounce coins has remained strong too, with year-to-date demand for these coins up over 118 percent compared to the same period last year,” the U.S. Mint said in a memo to authorized participants. “Accordingly, the United States Mint has temporarily suspended sales of its one-tenth ounce gold bullion coins while inventories can be replenished.”
In addition to the one-tenth ounce American Eagle, the U.S. Mint sells a one-quarter ounce, one-half ounce, and a one ounce American Eagle. Last year, only 20,000 ounces of gold product were sold in April.
Other mints around the world are also seeing strong demand. Britain’s Royal Mint sold more than three times as many gold coins in April than the same period last year, according to Bloomberg Businessweek. Month-over-month, sales are up more than 150 percent. Sales at Australia’s Perth Mint are at five-year highs, and has employees working weekends to satisfy orders.
Even though there are several exchange-traded products for gold, investors are adhering to the ‘If you don’t hold it, you don’t own it’ strategy. Terry Duffy, president and executive chairman of the CME Group, tells Bloomberg, “What’s interesting about gold, when we had that big break about two weeks ago we saw all the gold stocks trade down significantly, we saw all the gold products trade down significantly, but one thing that did not trade down, was gold coins, tangible real gold. That’s going to show you, people don’t want certificates, they don’t want anything else. They want the real product.”
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Disclosure: Long EXK, AG, HL, PHYS