Higher Gold, Silver Prices Drag Coin Sales Down To 14-Month Lows
(Kitco News) - Surging gold prices since the start of the year created significant weakness in the physical market, with bullion coin demand falling to its lowest levels in 14 months, according to the latest sales data from the U.S. Mint.
The U.S. Mint’s records show that it sold 27,500 ounces of gold in various denominations of American Eagle gold coins, its lowest sales record since December 2015, when the Mint sold 500 ounces of bullion. Gold coin sales fell 67% compared to sales seen in February 2016.
Comex April gold futures settled February at $1,253.90 an ounce, up 9% since the start of the year. Going forward, higher gold prices, growing market uncertainty and higher market volatility will continue to weigh on demand, according to some analysts.
Phillip Streible, senior market analyst at RJO Futures, said that he is not surprised that coin sales were weak last month. He added that expectations that the Fed will raise interest rates three times this year could continue to keep bullion demand muted.
“It is a lot of money to put up for a one-ounce coin. As interest rates rise, investors might be thinking that it is more attractive to that money and invest it in a yield-baring asset,” he said.
Simona Gambarini, commodity economist at Capital Economics, said that weak bullion demand is not just a North American phenomenon as higher prices and market regulation take their toll on demand in India and China.
“In India, we expect the effects of demonetization and efforts to increase transparency in the gold market to curtail demand. For China, a slowdown in economic growth and a change in consumer preferences away from gold will likely weigh on consumption of the yellow metal,” she said in a recent report.
She added that in current market conditions, investors are probably looking for more liquid assets than gold coins.
“In times of high volatility and market uncertainty, I think investors will turn more to gold exchange-traded products as they are more flexible than bullion,” she said.
Weak bullion demand is one of the reasons, Capital Economics remains bearish on gold, expecting prices to fall to $1,050 an ounce this year.
Silver demand was also weak last month, with sales of American Eagle Silver bullion coins also falling to their lowest levels since December 2015.
Last month the U.S. mint sold 1.215 million one-ounce silver coins, down more than 74.5% compared to sales seen last year.