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...
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.
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.
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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%.