Gold and silver, the assets of choice for investors who value their privacy, seek powerful wealth preservation, as well as protection from Wall St., are having a stunning 2016.
In fact, sales of gold coins this year are blowing away records like we haven’t seen in years. In 2015 the U.S. Mint sold an aggregate 464,500 Gold Eagles in the first four months of the year. So far in 2016 the total for the same time period is 722,000 and we’re only three weeks into April! That’s a year over year increase of 64% and we still have a week to go. If sales continue at the same pace we’re looking at a year over year increase of somewhere between seventy and eighty percent—in one year.
Moreover, those are just the Gold Eagle numbers, which ignores Gold Buffalos and other specialty products. If the demand is actually gold and not just collectible coins, then we should see the same trend in the 24 karat Gold Buffalos, and indeed we do. In the first four months of 2015 the Mint sold 66,000 24K Gold Buffalos. In the same time period in 2016 the total is 76,000, an increase of thirteen percent, again noting we’re short a week in April, so call it an even twenty percent. The numbers are just as startling for silver.
An Asset Like No Other
Gold and silver are interesting investments. Precious metals in general are a different breed because of their history of serving as both investment and currency over the centuries. With any other type of investment, whether it’s stocks, bonds or cash, there’s a financial institution somewhere that has your birthday and social security number on file, people and machines that know exactly how much you own of each asset. Those institutions provide roll up reports for government and analysts, so we can tell exactly how many shares of company X are outstanding and how many belong to insiders, institutional investors, like insurance companies and pension funds, and how many are held by mutual funds, ETFs and retail investors. That’s how earnings are translated into share prices, which change moment to moment.
None of that works for gold coins. There is no individual reporting of gold ownership or sales. Only your gold and silver dealer knows how much you have or, to be precise, they know how much they’ve sold to you, and gold vendors are notoriously tight-lipped about customer purchases. If you paid cash, it’s likely no one else knows and there’s no trail on the transaction.
That background is significant when trying to project the price of gold and silver in the future. With stocks we can look at the number of shares outstanding and weigh that against the quarterly sales numbers to come up with a fairly accurate price per share. But with gold there’s none of that; the only thing we have to go by are aggregate sales of bullion producers like the U.S. Mint, which produces some of the most coveted and high quality gold and silver coins in the world.
As with any product, the laws of supply and demand come into play, therefore looking at bullion sales can give us an idea where gold is headed, though do be aware the picture is incomplete. There’s no way to tell the difference between one person buying a thousand gold coins and a thousand people each buying one gold coin. The distribution of buyers makes a difference when projecting prices and we can’t always tell how that plays out in the precious metals market. All we know is how many dealers are buying, and the numbers are staggering.
This trend isn’t limited to the U.S.; investors all over the world are flocking to gold coins, particularly in India and China. In Japan, investors are stocking up to avoid negative interest rates. There are just too many good reasons to hold gold in the modern economy, and the demand curve could be bumpy but positive for years to come.
The last time gold went on a bender, prices approached the $1,800 an ounce mark. In those days we had few of the demand markers we’re seeing in the market today. We could not only see prices match previous highs but surpass them over the next couple years. That means $2,000 an ounce is not out of reach, particularly with China, a huge holder of gold, now pushing prices higher with its own exchange.
What’s certain is that the numbers to which we do have access point to higher prices for a long time to come.