While the prices of gold stocks have pulled back significantly this year, demand for physical gold bullion has jumped. The U.S. Mint even had to halt the sales of its 1/10-ounce gold bullion coin. The Perth Mint in Australia and the British Mint have also been working overtime to fulfill gold coin purchases.
By Michael Lombardi
Tuesday May 21, 2013
This doesn’t make it easy to understand for investors who bought gold stocks and have now seen them go down in price…
But while the prices of gold stocks have pulled back significantly this year, demand for physical gold bullion has gone through the proverbial roof.
The U.S. Mint had to halt the sales of its most-sold 1/10-ounce gold bullion coin. In Australia, the Perth Mint is working in overdrive to fill rising orders. The British Mint reports British consumers’ buying of gold has accelerated as well.
In the first quarter of 2013, total demand for gold bullion from China amounted to 294 tonnes, as jewelry demand in the country increased by 19% from the same period last year. Bar and coin investment demand rose by 22% from the first quarter of 2012. (Source: World Gold Council, May 16, 2013.)
In India, demand for gold bullion came in at 257 tonnes in the first quarter, up 27% from the first quarter of 2012. Retail investments in gold bullion edged up by 52%, and demand for jewelry was up 15% in the first quarter.
Likewise, demand for gold bars and coins in the U.S. were up by 43% in the first quarter of 2013 compared to the first quarter of 2012.
And that’s not all! The biggest driver of gold bullion prices in my opinion, central banks, bought more gold.
The first quarter of 2013 marked the seventh straight quarter when central banks accumulatively added more than 100 tonnes of gold bullion to their reserves. But we still have central banks, such as the Bank of China and the Russian central bank, whose gold bullion reserves are nowhere close to the ones of the U.S. or Germany.
In total, in the first quarter of 2013, overall demand for gold bullion was 963 tonnes.
While the gold bears argue economic conditions in the U.S. are getting better and, thus, the luster of gold bullion has dissipated, the reality is that the global economy is slowing as growth rates become stagnant. At the same time, central banks around the world still think paper money printing will drive their economies toward economic growth.
What holds true, regardless of the bearish pressures for gold bullion prices now, is that fundamental demand is still strong, while the long-term technical uptrend has yet to be broken.
I am still bullish on gold bullion. In the long term, the paper currency will lose its fight against inflation. Just look at the U.S. dollar as an example. In a matter of 100 years, what you could have bought for $1.00 in 1913 now costs you close to $23.50. (Source: Bureau of Labor Statistics web site, last accessed May 17, 2013.)
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