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Demand for Physical Gold is Collapsing

by Simon Black, Sovereign Man:

I serve on the Board of Directors of a large Singapore-based company that’s in the gold and silver business.

And, last night during our quarterly conference call, the management team gave me a lot of intriguing information.

Sales of physical gold and silver are collapsing across the entire industry.

At the US Mint, for example, sales of US Eagle gold coins fell by 67% between February 2016 versus February 2017.

And sales of US Eagle silver coins are down 75% over the same period.

The World Gold Council’s data also shows a substantial decline in physical precious metal demand in 2016, particularly with bars, coins, and jewelry.

Suppliers and refiners in the precious metals business are echoing these numbers, lamenting that sales are extremely slow and margins are falling.

For our Singapore company, this decline is irrelevant.

They have their own proprietary, state-of-the-art storage facility and a number of cutting-edge service like bullion-backed peer-to-peer loans, so business is great.

But I would expect that a number of other bullion dealers will probably go bust if this downturn lasts much longer.

The one conundrum is that this trend does NOT correlate with the price of gold.

In US dollar terms, the gold price is up 16% since the beginning of 2016.

So it would be reasonable to conclude that sales of physical bars and coins are up as well.

But they’re not.

The reason is because there’s a HUGE difference between physical gold and “paper” gold.

When people talk about the gold price, they’re really quoting the price of gold contracts at exchanges around the world in London, Shanghai, Chicago, etc.

Traders aren’t actually buying and selling physical gold.

These gold contracts are merely paper financial instruments, like stocks and bonds, that traders use for speculation.

When some conflict breaks out in Africa, the knee-jerk reaction is for traders to buy gold contracts.

And when central bankers announce that the economy is totally awesome, traders dutifully dump their gold contracts.

But they’re really just buying and selling highly leveraged paper assets. Nothing physical changes hands.

It’s the same with gold ETFs; these are merely financial instruments to gamble on the paper price of gold.

Investors who truly understand the benefits of owning gold, and don’t simply want to speculate on the price, buy physical bars and coins from a dealer.

And quite often there’s a massive difference in fundamentals between the demand for physical coins and the paper price.

During the 2008 financial meltdown, the paper price of gold and silver plunged.

Speculators and traders were hit by margin calls and forced to sell their contracts.

But demand for physical coins was incredibly strong; savvy investors were looking for a safe haven.

There was a total disconnect between the paper price and physical demand.

That’s now happening again, but in reverse. The paper price is rising, but physical demand is falling.

Management told me last night that they’ve been invited to speak at several investment conferences attended by family offices and high net worth individuals.

But they told me that there’s very little interest in owning physical precious metals among these wealthy investors.

Everyone seems to want to dump all of their money in US stocks or real estate, expecting that they’ll easily make 20% despite both markets being at all-time highs.

This strikes me as total madness. Few people ever prospered buying what was popular and expensive.

There seems to be no fear in the market… no regard for sense or safety.

And my contrarian instincts tell me that this complacency is a great reason to own physical gold and silver right now.

Remember that gold is primarily a form of savings.

You could hold your savings in a bank account, denominated in paper currency like dollars or euros or renminbi.

Or you could hold savings in physical cash. You could even own government bonds.

Each of these is a form of savings.

Read More @ SovereignMan.com

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11 comments to Demand for Physical Gold is Collapsing

  • SNLhasntbeenfunnysince'88

    Except in India, where February #’s just came in, with India buying TRIPLE 96.4 tons compared to Feb ’16 (27.4)…

    Dear SGT, Im not pro PM one way or the other, but this guy comes in here making a huge claim, then lists Gold and Silver Eagle sales (which both slap a 2$ premium per ounce just to put a stupid bird imprint on it) and numbers from World Gold Council to back up his claim….Yes the World Gold Council…..

    Please dont let fools like this contribute to your website….Otherwise I will have to start sending you articles written by my analysts Big Bird and Snuffaluffagus with data aqcuired by the Sesame Street World Council….

  • willygroper

    Rob Kirby differs.

  • glitter 1

    Yes, US Mint sales for GSE & ASE are weak for the last month,but so what,wait till the fear/inflation factor kicks back in.The Lemmings always chase when the prices are going up,it’s the same whether it’s gold,silver,stocks,whatever.The calm before the storm maybe?

    Remember what Andrew McQuire and Web Bot said for the time about 2-3 months from now,we’ll see.

  • Eric

    “China alone consumed approximately 2,000 metric tons in 2016, or roughly 60 percent of all the new gold that was mined during the year, according to veteran mining commentator Lawrie Williams, who based his estimates on calculations made by BullionStar’s Koos Jansen. The 2,000 metric tons is a much higher figure than what analysts and the media have been telling us, but I’ve always suspected China’s annual consumption to run higher than “official” numbers.”

    http://www.silverdoctors.com/headlines/world-news/gold-to-rise-inflation-rising-real-chinese-gold-demand-higher-than-official/

  • Trespass Unwanted

    The gold and silver eagles are the only legal gold and silver money recognized in the United States, no foreign coins, so I guess people who stack what is only accepted for private exchange but never for public if it’s not made in the USA, they can be upset about premiums.

    I know some don’t care where it comes from, even if they can’t verify the quality. At least at a premimum, anyone seeing an eagle will know it’s the real deal

    31 U.S. Code § 5103 – Legal tender

    United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues. Foreign gold or silver coins are not legal tender for debts.

    This guy say rich people don’t “preserve their wealth” by buying gold or silver when they had all those Drunkenmeyer and other people like Overstock.com and Rush Limbaugh pushing it as a store of wealth for who knows how long.

    Gold will always be around, 5,000 years, 10,000 years, and for all that time, societies have looked for other things to trade instead of gold and silver. sticks, tulips, paper, and even digits.

    No one wonders why, they just buy and buy and buy never asking why, all those civilizations know the value but do not stay with it for trade in their societies.

    I am not responding further. It’s all opinion.

  • MarcS

    Honestly,

    The real reason that gold and silver sales for American eagles is due to the fact that it was an election year.

    All of the Deplorables were busy traveling to Russia, and voting electronically to sway the elections, right?

    By the way, is killary dead yet? The witch looked absolutely on death’s bed during the election process.

  • Thomas

    Simon’s numbers are anecdotal at best. I have 20 times more gold bullion bars than American gold eagles. Lower premium per ounce! How many out there buy foreign gold coins like Canadian maple leafs (24K)?

    Is he counting Perth Mint Lunar kilo gold coins? http://www.apmex.com/search?q=kilo%20gold%20lunar

    I could go on and on, but you get the point.

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