Gold Coin Demand In H1 2012 Shows Fundamentals Driving Current Demand

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From GoldCore

Gold Coin Demand in H1 2012 Shows Fundamentals Driving Current Demand

Today's AM fix was USD 1608.50, EUR 1278.31 and GBP 1025.70 per ounce.
Yesterday’s AM fix was USD 1,596.25, EUR 1,263.26, and GBP 1,018.34 per ounce.

In New York yesterday, gold rose to $1602.14 in late morning New York trade, but it then came under selling pressure towards the close and ended with a loss of 0.02%.

Cross Currency Table – (Bloomberg)

Gold gradually ticked higher in Asia and rose to over $1,610/oz by the open in Europe and appears to be consolidating on those gains. Gold is also higher in sterling, euros and Swiss francs at 1,026.30 GBP/oz , 1,278.30 EUR/oz and 1,535.80 CHF/oz.

US markets will close early today (1300 EST) and remain closed on Wednesday in observance of Independence Day.

Gold is being supported by continuing robust demand – primarily from ETFs and central bank diversification. Far from falling this demand may increase further in the coming months and the economic crisis degenerates further.

Small coin and bar demand fell in H1 2012 from the very high levels seen in Q4 2011. However the US Mint data and other mints data shows that demand remains robust and may be consolidating at these levels.

Dr. Constantin Gurdgiev, a non Executive member of the GoldCore Investment Committee, has analysed the data of US Mint coin sales in H1 2012 and has looked at them in their important historical context:

Based on data from the US Mint we can now update H1 2012 figures for sales of the US-minted gold coins. As the background - new coins issued by the US Mint, in my opinion, represent a much more fundamentals-linked asset as the demand for these coins differs, if only subtly, from the demand for gold as an asset:

* Coins are purchased by long-hold collectors;

* Coins are easier to purchase and store than gold bars, attracting more demand from savers, rather than speculative investors; and

* Coins are used frequently to store inter-generational wealth and start family savings schemes.

All of this means that correlations between demand for coins and gold price should be less pronounced and that is exactly what we observe throughout the historical and current data:

So with that in mind, what should we expect from the gold coins sales. Price of gold has been trending side-ways with some correlation over the 20-day averages since April 2011 ranging between USD1505.5 low in June 2011 to the high of USD1813.5 in August 2011 and into USD1570 in June 2012. With this, we should expect some moderation in demand for gold coins coming from the reduced speculative demand. Since this speculative demand forms a smaller component of overall coins demand, we should expect moderation in demand for coins to bring us down toward historical averages for the crisis period.

At the same time, outside the euro area, global crisis has entered a stage of stabilization (not growth, yet), which means that demand for gold as safe haven (rather than a hedge) should be moderating as well. This can be expected to have a more modest impact on coins sales than on gold sales and especially ETFs-instrumented gold sales.

In other words, fundamentals (inflation expectations, longer-term savings and investment objectives) should be driving current demand for gold coins.

And, this is exactly what we are seeing. In June 2012, the US Mint sold 54,500oz of coinage gold, up on 53,000 in May 2012. Total for H1 2012, US Mint sales of gold coins in terms of total weight sold are down 41.3% on H1 2011 and it is down 49.8% on H1 2010 and 50.3% on H1 2009. Dramatic? Sure, when one disregards consideration of drivers for 2009-2011 demand for coins being coincident with extreme risks in other markets.

Total H1 2012 demand was at 338,000oz still well ahead of H1 average demand for 2000-2007 period when it was 165,679oz, but down on 531,750oz average for H1 2008-2011 crisis period.

Exactly the same picture - return to fundamentals - is seen in the number of coins sold.

Consistent with still robust demand drivers, H1 2012 average coin sold contained 0.60 oz, while H1 2000-2007 period average was 0.51oz and H1 2008-2011 period average was 0.76oz.

Here's a summary of H1 changes and a chart highlighting dynamics:

All three parameters (coins sold, oz total sold and oz/coin) are showing that H1 2012 was continuing moderation in demand away from short-term safe haven considerations toward fundamentals-driven consideration and basics of long-term hold demand. All three also show that current demand dynamics for gold coins remain ahead of historical averages. There is neither a panic buying, nor a panic selling and should demand stabilize at around 10% upside to the historical average ex-1999 spike, and recall that this is NEW demand, we will be in the comfortable longer term range that can take us well into global economic growth cycle once it resumes.

PS: This continues to confirm my long-term view on gold coins as more fundamentals-driven and fundamentals-reverting instrument.

Dr Gurdgiev remains one of the few economists in the world today to look at and analyse the data, facts and fundamentals of the gold market and his economics blog, True Economics, is a must read for all interested in markets, finance and economics today.

Dr Gurdgiev’s research note can be read here.

NEWSWIRE
(Bloomberg) -- Silver Futures May Rise 25% on Double Bottom: Technical Analysis
Silver prices, which slumped for four straight months, may rebound 25 percent after hitting a “double bottom,” according to technical analysis by Steel Vine Investments LLC.

Silver futures for September delivery may climb to $34.50 an ounce this quarter after falling to $26.33 on Sept. 26 and $26.105 on June 28, this year’s low, said Spencer Patton, the Chicago-based chief investment officer for Steel Vine. Prices jumped 5 percent on June 29, the most since Jan. 3.

A double bottom is a chart pattern showing a drop in price, followed by a rebound and then another decline to near the same level, usually indicating support.

“We have jumped back from the inflection point telling us that prices are now headed higher,” Patton said. The first “psychological” level the market will test is $30, he said. (Bloomberg) -- Silver prices, which slumped for four straight months, may rebound 25 percent after hitting a “double bottom,” according to technical analysis by Steel Vine Investments LLC.

Silver futures for September delivery may climb to $34.50 an ounce this quarter after falling to $26.33 on Sept. 26 and $26.105 on June 28, this year’s low, said Spencer Patton, the Chicago-based chief investment officer for Steel Vine. Prices jumped 5 percent on June 29, the most since Jan. 3.

A double bottom is a chart pattern showing a drop in price, followed by a rebound and then another decline to near the same level, usually indicating support.

“We have jumped back from the inflection point telling us that prices are now headed higher,” Patton said. The first “psychological” level the market will test is $30, he said.

(Bloomberg) -- South Africa Should Classify Gold, Platinum, Diamonds Strategic
South Africa should classify gold, platinum, and diamonds as strategic minerals, Abiel Mngomezulu, the chief executive officer of the Council for Mineral Technology, or Mintek, said.

The country should also classify coal, iron ore and vanadium strategic minerals, Mngomezulu, who is also a nonexecutive director of the state mining company, African Exploration Mining and Finance Co. said in a speech in Johannesburg today.

He defined strategic minerals as those that South Africa depends on and those in which it has a competitive advantage. The country should form companies like Sasol Ltd. to beneficiate minerals, he said.

(Bloomberg) -- Deutsche Bank Sees Gold Above $2,000 an Ounce Next Year
Gold will climb above $2,000 an ounce next year, Deutsche Bank AG said in a report e-mailed today.

“The potential for policy action could increase significantly; and as the market anticipates this, gold has the potential to move beyond $1,700” later this year, it said.

For breaking news and commentary on financial markets and gold, follow us on Twitter.

NEWS

Gold Climbs Above $1,600 as Economic Data Lift Easing Prospects - Bloomberg

Gold gains on stimulus hopes after bleak data - Reuters

Gold edges up on European policy cut hopes - MarketWatch

Deputy governor of BOE - Tucker to be asked if he gave all-clear to falsify data - The Independent

COMMENTARY

CNBC Host States Silver Manipulation is a Fact, Not a Conspiracy - Silver Doctors

The Great LIBOR Bank Heist of 2008? - Azizonomics

As US Closes June With $15,856,367,214,324.44 In Federal Debt, US Debt/GDP Hits Post WWII High Of 101.5% - Zero Hedge

LIBORgate: Diamond v Tucker at Treasury Select Committee - Guido Fawkes' Blog