"It's Been Dismal" - Gold Coin Sales Slump As 'Bugs' Bounce To Bitcoin

Gold prices are rallying, but retail gold dealers and shops are struggling to survive.

As The Wall Street Journal reports, businesses that sell gold coins and other products made from the precious metal usually thrive during years like 2017.

Gold futures have gained more than 10%, boosted by a weaker dollar and by big investors looking for a haven during recent geopolitical tensions surrounding North Korea and Iran.

But despite higher bullion prices and solid demand from not-American-central banks, American Eagle Coin sales by the US Mint in October 2017 are down 87% YoY for gold and down 73% YoY for silver...

h/t @Gloeschi

The weak demand is taking a toll on gold dealers, some of whose sales have dropped as much as 70% compared with last year, according to Jeffrey Christian, managing partner at market-research firm CPM Group.

“It’s been absolutely dismal," said Peter Thomas, senior vice president of metals at Zaner Precious Metals, a Chicago precious-metals dealer.

 

“A lot of guys have been really hurting.”

And as WSJ notes, one reason for the declining business: A number of retail buyers are turning to cryptocurrencies like bitcoin to store money during periods of stress, some analysts say.

Bitcoin has “taken some of the dedicated interest in gold away from gold,” said Mohamed El-Erian, chief economic adviser at Allianz SE, who warned at a CME Group event in September that cryptocurrencies could pose a long-term threat to the precious metal.

 

While gold buyers historically have looked to the precious metal as a place to hide during a market selloff, some suggest that virtual currencies are a new “hedge against chaos.”

 

Mr. Thomas of Zaner Precious Metals said authorized gold purchasers who buy directly from the U.S. Mint have been getting hurt, too, because of waning dealer demand.

 

“They end up having to stockpile coins,” he said.

 

“You would expect gold to be rocking at the present time, but it’s not," said Ross Norman, head of London-based gold dealer Sharps Pixley.

Furthermore, small investors appear to be getting gold exposure though ETFs with more than $8.5 billion flowing into State Street’s gold ETF, the largest gold ETF, since the end of 2015, reversing three years of net outflows and marking the biggest period for inflows since 2009, according to FactSet.

Jim Rickards (and Goldman) recently opined on the Bitcoin vs Gold debate...

From my perspective, you might as well discuss gold versus watermelons or bicycles versus bitcoin. In other words, it’s a phony debate. I agree that gold and bitcoin are both forms of money, but they go their own ways.

There’s no natural relationship between the two (what traders call a “basis”).

The gold/bitcoin basis trade does not exist. But people love to discuss it, and I guess Goldman Sachs is no different.

Goldman Sachs has released a new research report that comes down squarely on the side of gold as a reliable store of wealth rather than bitcoin, which is untested in market turndowns.

Precious metals like gold are “neither a historic accident or a relic,” said the report.

It affirmed that gold is more durable than cryptocurrencies because cryptocurrencies are vulnerable to hacking, government regulation and infrastructure failure during a crisis.

Goldman also reminds us that gold holds its purchasing better than cryptocurrencies and has much less volatility. In dollar terms, bitcoin has had seven times the volatility of gold this year.

Since Goldman’s research department has not been notable as a friend to gold, the fact that they favor gold over bitcoin is highly revealing in more ways than one.

I don’t deny that bitcoin has made some people multimillionaires, but I also believe it’s a massive bubble right now.

I don’t own any bitcoin and I don’t recommend it. My reasons have to do with bubble dynamics, potential for fraud and the prospect of government intrusion.

So bitcoin evangelists seem to think I’m a technophobe. But I’ve read many bitcoin and blockchain technical papers. I “get it” when it comes to the technology.

I even worked with a team of experts and military commanders at U.S. Special Operations Command (USSOCOM) to find ways to interdict and disrupt ISIS’ use of cryptocurrencies to fund their terrorist activities.

I will say, however, that I believe in the power of the technology platforms on which the cryptocurrencies are based. These are usually called the “blockchain,” but a more descriptive term now in wide use is “distributed ledger technology,” or DLT.

So although I am a bitcoin skeptic, I believe there is a great future for the blockchain technology behind them.

I’m not telling anyone not to own cryptocurrencies, but you need to do your homework before you do.

*  *  *

Finally, this gentlement seems to sum up the general perspective...

“You can’t be parked in gold," said Casey Frazier, a government administrator in Woodstock, Conn., who used to hold nearly a third of his savings in gold.

He has moved some of his money into the booming stock market, and now his precious-metals allocation is down to 10%.

Comments

Bokkenrijder The_Juggernaut Wed, 11/01/2017 - 14:26 Permalink

Please let me start by saying that I'm absolutely no fan of Bitcoin, but it's been equally clear to me that many "gold stackers" or "gold bugs" have been incredibly naive BTFD and knife catching buyers.Much of the reason for these purchases of gold is that those gold bugs have been led on by fearmongering, something the usual gold pumping suspects (ZH, KWN, Turd Fergusson, etc) have IMHO unfortunately been part of.

In reply to by The_Juggernaut

The_merovingian pods Wed, 11/01/2017 - 13:53 Permalink

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Gold coin purchases have about zero impact on the price of gold. You need to look at the LBMA, where the big boys play to see what’s moving the market. Spoiler alert, CB’s are market participants.

In reply to by pods

38BWD22 tmosley Wed, 11/01/2017 - 14:44 Permalink

  tmosley and VD both raise an important point (inadvertently?): TAXATION.Better record your buying and selling (latter includes selling, trading, purchasing, etc.) with BTC to calculate your capital gains. tmos likes staying away from taxable transactions, that's good.VD first raised (IIRC) the whole IRS issue (capital gians) Stay out of trouble.  I have just about finished my 2015 and 2016 calculations, part way through 2017 (which ain't over, smile).

In reply to by tmosley

cro_maat 38BWD22 Wed, 11/01/2017 - 15:42 Permalink

I think you are being too conservative. Congress has not updated Title 26 regarding cryptocurrencies.In addition, I don't believe that the IRS has issued any new rules regarding crypto either (not that it matters since the Supreme Court said that the IRS rules are inadmissable in court. I know they have ruled it an asset so technically they can "Notice" you for Capital Gains when you buy FRNs but they won't send an actual bill.The only tax that should be paid in my opinion (I am not a tax accountant or lawyer - thank god) is a state excise / sales tax on crypto received by a business for their product or service.

In reply to by 38BWD22

ReturnOfDaMac tmosley Wed, 11/01/2017 - 15:24 Permalink

Looks like you were right.  Giving the world market an electronic currency that the thieving, printing, lying, prospertity killing banksters can't control is proving to be "priceless".  Well not priceless yet but so far it is priced at $6300 per coin and going higher every day.  Haven't found a way to naked short it like they do with shiny, proving to be a tough nut for the crooks to crack.

In reply to by tmosley

Mementoil 38BWD22 Wed, 11/01/2017 - 13:37 Permalink

This is just classic.The greatest bull markets are born out of absolute desperation and capitulation - and that's exactly what you have in gold nowadays.Ask yourselves - which asset class is "climbing a wall of worries"?Stocks? Bonds? Real estate? Bitcoin? No way. Gold is the only one.

In reply to by 38BWD22

tmosley Mementoil Wed, 11/01/2017 - 13:41 Permalink

The problem with money is that once its abandoned, you have to wait for whatever replaced it to collapse before the public is willing to try it again.A fiat collapse TODAY might benefit gold. But three years from now? You will have to wait for ALL cryptos to collapse. The last ledger based currency lasted for 700 years. 

In reply to by Mementoil

Mementoil tmosley Wed, 11/01/2017 - 15:50 Permalink

Gold was never abandoned.And the proof of that is that Central Banks are still holding it as their core asset till this very day (while they shove their worthless paper to the public).Old wealthy families hold quite a bit of it as well, and of course the people of China, India etc., were it is part of the culture to hold your savings in gold.All that is needed for gold to resume its ancient role is for inflation to pick up a little.

In reply to by tmosley

Jay Mementoil Wed, 11/01/2017 - 14:17 Permalink

I wouldn't say the PMs are "climbing a wall of worries". It's more like climbing a little and sliding a little. Gold has been bouncing between 1150 and 1350 for many years. If your inflation hedge isn't appreciating against your favorite state-sponsored currency, it's not a good store of value.

In reply to by Mementoil

KansasCrude Mementoil Wed, 11/01/2017 - 14:27 Permalink

Great point and besides why buy American Eagles?  Not 4 or 5 nines and overpriced vs the competition.  The same goes with Silver Eagles yes I have decent quantities of both purchased when I first started stacking.   I have purchased the American Buffalo .9999, but mostly Maples and other foreign coins that offer better value. Besides with the U.S. Central Bank screwing us stackers at every turn buying from the U.S. mint is like kicking yourself in the ass.  Only going to do it if they are selling at a discount not a freaking premium.  That everyone is using the Eagle as the proxy for people not buying PM's is a poorly constructed straw man IMHO.

In reply to by Mementoil