'Gold Rush' Bubble? US Gold Coin Sales Fall 25% In 2012

Friday’s U.S. nonfarm payrolls for December were 155K, 150K was expected and this was down from the previous data of 161K. The unemployment rate was still an elevated 7.8% suggesting a frail U.S. jobs market.

Gold edged up on Monday on the heels of uninspiring U.S. jobs data which supported market expectations for continued quantitative easing from the U.S. Federal Reserve.

In gold futures and options hedge funds and institutions increased the size of their net longs in gold in the week to Dec. 31, ending two weeks of declines, CFTC data showed.

The U.S. Mint's gold coin sales slid for a third consecutive year in 2012 showing how demand for gold bullion among the retail public remains lacklustre at best. Demand remains well below the record levels seen preceding the Y2K scare in 1999 and below the levels seen when the coins were first launched in 1987 and in the aftermath of the Wall Street Crash of October 1987.Falling demand for coins in the U.S. and elsewhere is likely due to the false perception that the worst of the global debt crisis has been seen. American Eagles are more popular in the U.S. but othergovernment mints such as the Perth Mint of Western Australia have said that they saw a fall in demand in 2012.

The U.S. Mint sold 753,000 troy ounces of American Eagle gold coins in 2012, according to data posted on its website, down 25% from a year earlier and the lowest full-year sales since 2007. 

US Mint Gold Coin sales(oz) & End-of-Month Price of Gold(USD) – (True Economics)Dr. Constantin Gurdgiev has analysed the data of US Mint coin sales in December 2012 and has looked at them in their important historical context going back to 1986. He is one of the few academics in the world to have researched and written academic papers about gold.

His analysis of demand for US minted gold coins was published on his excellent, must read blog – True Economics and can be read here:US Mint Gold Coins Sales: 1986-2012 Data

US Mint December 2012 SalesGoldCore believe that the fall in demand is due to renewed complacency regarding the global debt crisis. It is also likely due to the fact that traditional buyers of gold coins and bars have secured their allocation to store of wealth gold bullion in recent years. It may also be because there are only a few new retail buyers coming into the bullion market in western countries - unlike in Asian countries and particularly China.

U.S. Mint data does not support the view of a dramatic, reckless,  greedy buying of gold by the fabled speculatively crazed retail buyer or the fabled 'gold rush' that some headline writers and media commentators have claimed is taking place.

Three consecutive years of falling demand for gold coins and the lowest demand for U.S. gold coins since 2007 shows how  those still calling gold a bubble, for very simplistic reasons, remain illinformed.

Bubbles are of course characterised by mass participation by the public and surging demand to record levels.

Annual sales: US Mint Gold coins Sales – (True Economics)The general public 'Joe and Josephine sixpack' or the public in most western countriesremain far from the gold market. Media tech darlings such as Apple and Facebook shares are far more appealing to today's shoeshine boys and girls. Indeed, property, despite the bursting of bubbles in some countries, remains the investment of choice for the retail public in many countries.

Despite, the risk of becoming massively indebted, the significant risk of sharp prices falls in many property markets -particularly London and the UK - and of subsequently being in negative equity and possibly even losing the family home.

Many frightened citizens have also piled into cash in the false belief that 'cash is king.' This is particularly the case in many European countries where bank deposits now have a "government guarantee". The public has yet to realise that the state guarantee comes from a state that's solvency is far from guaranteed in the coming months and years.

The man and woman in the street in most western countries continues to be a more of a seller of gold (jewellery for cash) than a buyer of gold as seen in the western world phenomenon that is ‘cash for gold.’

The shoeshine boys and girls of today continue to be sellers of gold in the international phenomenon that is 'cash for gold'. In fact, the general public, 'Joe Public', is selling gold jewellery in order to raise cash rather than buying gold bullion in order to protect and grow wealth.

Germany, Austria and Switzerland are the exceptions in western retail markets as there is increased retail demand for gold bullion in these countries. This is due to the German and Austrian understanding of the risk of inflation and currency devaluation from historical experienceand due to the Swiss understanding of how physical gold bullion stored in Swiss vaults has been used to protect and preserve wealth throughout history.

It is also important to remember that demand for gold bullion coins and bars is not a good contrarian indicator of retail demand and the typical mass mania or greedy buying that accompanies most market tops and most bubbles.

Buyers of gold coins and bars are store of wealth financial insurance long term gold owners. In many cases the buyers do not intend ever selling their gold unless they are forced to by economiccircumstances. They are not speculative buyers motivated by greed or simply to make a profit. The final stages of a bull market is characterised by reckless buying by more speculative buyers whose sole motivation is to make a capital gain. Thus, more speculative types of gold ownership such as gold futures, CFDs, mining, junior mining and exploration shares are and will be the preferred vehicles for such buyers.

Therefore, a far better indicator of animal spirits and whether there is "irrational exuberance" in the gold market is COMEX data and the price movement of companies involved in the gold mining sector. Such vehicles are for investors and speculators and cater for the less risk averse stock trading and investing public and are a proper benchmark of retail exuberance for gold.

The Commitment of Traders (COT) data from the COMEX and data from the global gold market and the increasingly important gold spot and futures markets in Dubai (DMCC) and Shanghai (SGE) should be monitored to gauge whether the animal spirits of a bubble are developing.

COT data from the COMEX remains below the record levels seen in recent years and sentiment remains lukewarm today.

Gold ETF holdings are at record highs but SEC data shows that the majority of the buyers of ETFs remain hedge funds and other institutions.

Indeed, a large part of the recent increase in demand for gold has come from hedge funds, pension funds and central banks. They are allocating into gold for safe haven diversification reasons.

More speculative gold mining stocks have had a torrid time and have massively underperformed the gold market. The XAU or the Philadelphia Gold and Silver Index is one of the most watched gold indices on the market.

Today it is trading at 162.53. In September 1987 it was trading at 154.25. It has risen just over 5% in over 25 years and is not far above its long term average of the last 29 years (since January 1984).

A gold bubble is likely to see gold mining companies becoming house hold names and the more popular gold mining companies being owned by more speculative stock picking retail buyers internationally.

The data strongly suggests that there is little in the way of ‘animal spirits’ associated with investment bubbles in the physical gold bullion market or in the wider gold market.

There are no signs of a gold mania or ‘gold rush’ whatsoever and prudent people should continue to have an allocation to safe haven gold.

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