Following the entire "developing" world (where faith in paper money "backed" by $1 quadrillion in derivatives is at times questioned, and instead the people, for some inexplicable reason, fall back to hard currency equivalents) scrambling out to their local precious metal dealers to find "out of gold" signs virtually everywhere, yesterday it was the US Mint's turn to announce [9]it had halted shipments of the popular one-tenth ounce gold American Eagle coin as it had run out, following a surge in demand (we expect this shortage will soon spread widely to traditional one-ounce denominations shortly).
Things in the US have gotten so bad, not only are most online dealers backlogged weeks and months in advance for most PMs (as the CEO of Texas Precious Metals explained in detail [10]), but respected bullion vaults are also now on the verge of running out of inventory. As Reuters described [11], "Michael Kramer, president of Manfra, Tordella & Brookes (MTB), a major U.S. coin dealer in New York, has been inundated by orders from existing and new wholesale and retail customers. "It's panic. This is one of the busiest times in quite a while. People think gold's at the lows and they want to take advantage."
It was only a matter of time before the last bastion of paper money, London, also succumbed to the soaring demand for physical, and sure enough moments ago Bloomberg reported [12]that the "Britain’s Royal Mint, established in the 13th century, sold more than three times more gold coins this month than a year earlier as prices declined."
Sales are more than 150 percent higher than last month, according to Shane Bissett, director of bullion and commemorative coin at the Royal Mint.
“Since the dip in the price of gold we have seen increased demand for our gold bullion coins from the major coin markets, and this presently shows no sign of abating,” Bissett said by e-mail in response to questions from Bloomberg. “The Royal Mint continues to supply to its customers and is increasing production to accommodate the higher demand.”
Its not only the UK Mint, but a pervasive global "panic" to get as much gold as possible while prices are as low as they are, courtesy of the recent takedown in spot.
Standard Chartered Plc said yesterday its gold shipments to India last week exceeded the previous record by 20 percent and were double the total of the week before.
“The concern is really how long it can last,” said Dan Smith, an analyst at Standard Chartered Plc. “A lot of people surge in on the low prices and then they are likely to back away a bit as prices rally and they’ve restocked.”
Don't worry, Dan: for now the surge is going on, and on, and on, and so on. We will be sure to inform you, however, when physical demand is finally satisfied. Until then, we have several months of backlogged demand to catch up on, and possibly the default of one or two depositories in the meantime.
Finally, for all those confused by the non-linear relationship between paper gold (selling via ETFs and other), and physical gold (buying via retail and corporate channels), here is Bank of America with a quick and dirty summary of how to think about the relationship:
With prices now below $1,500/oz, we expect a pick-up in jewellery demand in the medium term and see considerable pain for miners should prices dip below $1,200/oz. As such, we believe the downside to gold prices may be limited to an additional $150/oz. In fact, we estimate that jewellery demand may become so pronounced by 2016 that prices could trade above $1,500/oz even if investors remain net sellers. Looking at sensitivities from a different angle, investors would need to buy merely 600t of gold to sustain prices at $2,000/oz by 2016, compared to non-commercial purchases of 1,798t in 2012.
So yes - physical demand can and will offset even virtually unlimited paper selling, assuming of course demand for physical persists at the recent pace.