U.S. Mint Sales of Gold Coins Jump to Highest in Three Years

Sales of gold coins by the U.S. Mint rose to the highest since December 2009 after the price of the metal in April fell the most in 16 months.

Last month, sales totaled 209,500 ounces, up from 62,000 ounces in March, data on the mint’s website show. The amount for December 2009 was 231,500 ounces. Silver-coin sales rose to 4.2 million ounces from 3.36 million in March.

May 1 (Bloomberg) — David Lennox, a resource analyst at Fat Prophets in Sydney, talks about the outlook for commodities including oil and gold. He also discusses Federal Reserve and European Central Bank monetary policies with Zeb Eckert on Bloomberg Television’s “On the Move.” (Source: Bloomberg)

Demand surged at mints from Australia to the U.K. and the U.S. after futures slumped 13 percent in two days through April 15. Gold futures tumbled 7.8 percent last month and dropped into a bear market as some investors lost faith in the metal as a store of value. Perth Mint, which refines almost all of the nation’s bullion, said that demand jumped to the highest in five years after prices plunged, with the factory kept open through the weekend to meet orders.

“People are flocking to buy physical gold,” Todd Dutkevitch, a senior account executive at Los Angeles-based American Bullion Inc., said in a phone interview. “The price drop has made it possible for many retail buyers to add gold.”

Futures for June delivery rose 0.1 percent to $1,473.30 an ounce on the Comex in New York today. The metal is down 12 percent this year, even after advancing 11 percent from a 26- month low of $1,321.50 on April 16.

The U.S. mint said April 23 it suspended sales of coins weighing a 10th of an ounce after demand more than doubled from a year earlier.

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The mint sells 22-karat American Eagles of 1 ounce at a 3 percent premium to London “p.m. fixing” prices. A half-ounce coin is set at 5 percent above, a quarter-ounce coin is 7 percent above, and one weighing a 10th of an ounce fetches a 9 percent premium, according to Michael White, a Mint spokesman.

“The 1-ounce gold bullion coins are the most popular,” White said last week.

In Australia, buyers were waiting in lines half a kilometer (0.3 mile) long to get minted coins, and jewelry shops in India and China ran out of gold in a single day, Jason Toussaint, the managing director of investments at the London-based World Gold Council, said in an interview. India and China are the world’s largest consumers of bullion.

Surging demand from Dubai to Istanbul has pushed physical premiums in the region to levels not seen in years as the biggest price slump in three decades lures consumers, according to MKS (Switzerland) SA.

Shanghai Trading

Trading for the benchmark contract on the Shanghai Gold Exchange surged to a record last week, while premiums to secure supplies in India jumped to five times the level before the slump. China and India are the world’s largest buyers.

Consumers in Singapore and Hong Kong are paying premiums of about $3 an ounce, compared with about $2 just after the rout, according to Ng Cheng Thye, the head of precious metals at Standard Merchant Bank (Asia) Ltd.

Still, holdings in exchange-traded products backed by the precious metal tumbled 174 metric tons in April, a record drop, according to data compiled by Bloomberg.

“This drop has made physical gold much more attractive than paper gold,” Dutkevitch said.

Source: http://www.bloomberg.com/news/2013-04-30/u-s-mint-sales-of-gold-coins-at-three-year-high-on-price-drop.html

Sprott: Why SocGen Is Wrong About Gold’s Imminent ‘Demise’

A Retort to SocGen’s Latest Gold Report

Société Générale (“SocGen”) recently published a special report entitled “The end of the gold era” that garnered far more attention than we think it deserved.  The majority of the report focused on SocGen’s “crash scenario” for gold wherein they suggest that gold could fall well below their 2013 target of US$1,375/oz. It also included a classic criticism that we’ve heard so many times before: that the gold price is in “bubble territory”. We have problems with both suggestions.

To begin, the report’s authors appear to view gold as a commodity, rather than as a currency. This is a common misconception that continues to plague most gold market analysis. Gold doesn’t really work as a commodity because it doesn’t get consumed like one. The vast majority of gold mined throughout history remains in existence today, and the total global gold stockpile grows in small increments every year through additional mine supply. This is also precisely why gold works so well as a currency. Total gold supply can only grow marginally, while fiat money supply can grow exponentially through printing programs. This is why gold’s monetary value is so important – it’s the only “currency” in play that is immune to government devaluation.

Chart A illustrates the relationship between the growth of central bank balance sheets in the US, EU, UK and Japan and the price of gold. This relationship has an extremely high correlation with an R2 of about 95%. As central banks increase the size of their balance sheets through ‘open market operations’ to buy bonds, mortgage-backed securities (“MBS”) and the like, they inject more fiat dollars into their respective banking systems. As gold has a relatively stable supply, if there are more dollars available, the price of gold should rise in dollar terms. It’s really a very simple and intuitive relationship – as it should be.

Global -Central -Bank -Assets -vs -Gold

Source: Bloomberg and Sprott Asset Management LP

This relationship between central bank printing and gold has existed since the beginning of the gold bull market in 2000. In fact, this relationship shows that for every US$1 trillion increase in the collective central banks’ balance sheets, the price of gold has generally appreciated by an average of US$210/oz.

Somewhat surprisingly, it turns out that the collective central bank balance sheets have actually shrunk over the past three months – by approximately US$415 billion. The biggest drop was seen in the ECB’s balance sheet, which shrunk by the equivalent of US$370 billion, while other central banks also experienced small declines. Based on our simple model above, a decrease of US$415 billion should produce a gold price decline of roughly US$87/oz. And as it turns out, gold fell by US$76/oz over the first quarter of 2013. Does this sound like a bubble to you? It certainly doesn’t appear to be. Gold is performing almost exactly as it should – by acting as a currency barometer for the amount of money being injected into or withdrawn from the economy… which leads us to Japan.

Japan’s recent QE announcement is a thing of wonder. It represents an absolutely massive injection of yen relative to the size of the Japanese economy. The Bank of Japan’s US$75 billion equivalent per month of yen printing, coupled with the US Federal Reserve’s $85 billion per month (through its current QE program) will addUS$1.97 trillionto the collective central bank balance sheets over the next 12 months. Given Japan’s considerable contribution, we seriously question how SocGen believes gold can drop to US$1,375/oz by the end of the year. For that to happen, we would need to see a collective balance sheet decline of roughly 15%. Does SocGen seriously believe the US Fed (or any other central bank for that matter) is going to reverse its QE accumulation and then start aggressively selling balance sheet assets over the next year?

The only gold ‘crash scenario’ that makes sense to us at Sprott is if governments begin to balance their budgets and return to sound money practices. There is no question that gold could lose its utility if western governments made a concerted effort to fix their fiscal imbalances, but who honestly believes that’s going to happen any time soon? We certainly don’t – especially in the US. While US deficit spending may diminish in scale, it will remain well above $1 trillion per year after factoring in unfunded obligations. We don’t know of any creditable forecaster who believes otherwise.

We also don’t see a chance of the US Federal Reserve ending its QE programs, despite the continual jaw-boning by various Fed officials of a planned QE exit strategy. There is simply too much risk to the US bond market for the Fed to cut the US$85 billion in monthly Treasury and MBS purchases that the current program employs. After all – remember that those purchases are what keep interest rates close to zero today. If the Fed were to remove that flow of capital, the free market would once again dictate US bond yields and stock prices. There’s not a chance the Fed will take the risk of finding out what US bonds or stocks are worth to the market without a perpetual government-induced backstop. Why take the risk?  Especially since the cumulative QE programs to date have not caused a drastic increase in inflation expectations.

While we expect the Fed to continue to threaten to lower its monthly QE purchases, we believe the chances of even a mild decrease to its current US$85 billion per month rate are negligible. Four years into it this grand QE experiment, money printing has become the backbone of the US bond market, and the unsung driver of the US equity market. In our view, gold cannot become irrelevant for the precise reason that QE is here to stay… and the collective central bank balance sheets will continue to increase over time. We would question any pundit who believes otherwise – unless they can clearly articulate how the Fed can exit QE without causing irreparable harm to the very financial markets the QE programs were designed to assuage.

We believe gold is nowhere close to ‘bubble territory’ today. It is acting exactly as a currency should. Under its current stewardship, we expect the Federal Reserve’s balance sheet to continue to expand along with Japan’s. SocGen’s “crash” scenario would require a complete reversal of this trend, which we do not believe is even remotely possible at this point.

Gold is the base currency with which to compare the value of all government-sponsored money. Investors can incorporate it into their portfolios as ‘central bank insurance’, or ignore it entirely. Either way, we believe gold will continue to track the total aggregate of the central bank balance sheets of the US, UK, Eurozone and Japan. If SocGen believes the aggregate central bank balance sheet will continue to shrink as it did in Q1, then gold should continue its decline. We strongly suspect that shrinkage is over, however. Given Japan’s recent QE decision, we would expect the aggregate to grow a lot bigger, and fast. If there was ever a time for gold to be a relevant currency alternative – it’s now.

Article Source: Zerohedge

QB Projects Shadow Gold Price To Be $15,000 In One Year!

Today the man whose firm is well known for its $10,000 gold call told King World News he now believes that the price of gold should be substantially higher based on what has transpired with central banks.  Here is what Paul Brodsky, co-founder of QB Asset Management, had to say in this stunning interview:  “Clearly this week was just confirmation that the Fed cannot withdraw, and if anything they are probably going to increase their quantitive easing.  I don’t think people should be expecting any surprises, the trend is your friend here.”

Paul Brodsky continues:

“The Fed can’t end QE, unless they want to see deterioration of credit in the banking system.  This would feed through to a deterioration of debt in the broader economy.  The Fed, ECB, and the Bank of Japan, they cannot stop creating new base money.

I think the rhetoric that comes out of the Fed and other central banks should be viewed as jawboning….

“They (central banks) want to present confidence to the markets.  Where we as a firm come down is that the economy is shrinking in real terms.  The amount of leverage that is in the system and the amount of money creation that still has to come is incredible.

Ultimately, where the risk lies for monetary policymakers is in the value of the debt on bank balance sheets, and the value of the debt across the broader economy.  This debt is being held at par.  Interest rates should be much higher.  All of this has led to interest rates that don’t reflect true inflation.  PPI inflation won’t show up until it’s time for central banks to produce inflation in goods and services, and there will be a time for that.”

Brodsky also added:  “At $2.7 trillion in base money, our call was for $10,000 gold.  As base money is now rising, from additional QE, the shadow gold price should rise to about $15,000 in roughly one year’s time.

That’s not necessarily a call.  Gold could be worth much more than that, or it may never get there.  That simply takes the Bretton Woods system and applies it to where gold would be trading today.  As to the timing, there are some recent developments I find very interesting that may lead to an advance in precious metals prices in the near-term.

The pain of holding our ground has no doubt been intense.  The good news is that we believe for the first time there are important macroeconomic signs that a fundamental shift in the global monetary system is approaching and that it should be very supportive to precious metals and precious metal miners.

For example, late last year, Japanese Prime Minister Shinzo Abe began preparing the market for inflation targeting in 2013.  General consensus was that the BOJ would begin aggressive QE until the Japanese annual inflation rate reached 2%.

Sure enough the news hit the tape on January 21 – the Bank of Japan would target a 2% rate by purchasing Japanese government notes and bills, but it would begin in January 2014.  The yen, which had been weakening against the dollar traded stronger on the day but the strength didn’t last.  How could it?  Japanese debt levels are so high and the domestic Japanese economy is so weak that output would contract meaningfully without increased exports from a weakening yen.  The only way to get that is to keep weakening the yen.

Source: Bloomberg

“The Yen trade shows two fundamentally critical points related to the global monetary system. The first is timing. Japan was the first major economy to blow itself up on credit beyond all sane recognition and it was the first to take gas. Since the nineties it has been the  weakest of the three established major global economies. Benchmark Japanese interest rates were dropped to literally 0% in 1999 and Japan was the first to begin QE in the 2001. This was far in advance of the US and the Eurozone. But Japan was able to survive from 2000 to 2007 because US and Eurozone consumption of Japanese exports increased. Of course the increased consumption was  fueled by increasing US and European consumer debt assumption. In fact, consumption of Japanese exports also increased across the globe, to places like China and elsewhere, (which, when you think about it was also ultimately fueled by increasing leverage of Western consumers). The point is Japan was able to muddle through as long as importers were willing to borrow to consume their products. That came to a screeching halt in 2007.”

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