No matter which way you slice it, safe haven demand for precious metals has been especially strong so far in 2016. Many traders and investors prefer to focus on the paper markets for gold and silver, specifically ETFs and futures contracts. While it is true that these investment vehicles have a profound impact on the way that precious metals prices move, the heart of the bullion market is still grounded in the buying and selling of physical metals.
Looking at the recent trends in the physical gold and silver markets reveals that demand remains very strong for these tangible assets. While most bullion buyers are motivated by a desire for a safe haven from the vicissitudes of stocks and bonds, there is also quite a bit of momentum in favor of the precious metals.
Gold Coins Dominate
Through the first two months of the year, purchases for gold coins have been absolutely on fire. January was one of the strongest monthly performances for the U.S. Mint's gold bullion program in recent memory. Between the flagship American Gold Eagle coin and the American Gold Buffalo coin, 124,000 ounces of gold were sold in January alone. That's nearly 4 metric tonnes of the yellow metal!
February represented a modest dip from January's highs, but this invariably happens with government-issued bullion coins. Even in normal years, the mint typically runs short of coins after the initial buying wave, so investors must wait until production catches up to buy more in February. Nonetheless, between the two months, total gold coins sales were a whopping 236% higher year-on-year.
While both the AGE and AGB coins each contain the same 1 troy ounce of gold weight, the difference lies in their purity: the AGE is made from a more durable 22-karat gold, while AGB coins are struck from extra-pure .9999 fine gold.
Even as economic indicators in the U.S. have improved over an abysmal January, there is plenty of reason to believe gold coin demand will continue to be strong. “Buying begets buying,” said George Gero, vice president of RBC Capital Markets. “Now that gold has attracted the attention of retail investors, I think demand is going to remain strong.”
Silver Not Far Behind
As the chart above demonstrates, January was one of the strongest months of silver coin sales on record going back to 2013. As is commonplace when gold is rallying, investors diversify their bullion holdings with silver as a cheaper alternative. While February usually sees a seasonal drop in silver sales due to the same production backlog mentioned earlier, American Silver Eagle coins were still being bought at a rapid pace during the month, far outpacing sales totals from the previous three years. With an impressive 4.8 million troy ounces of Silver Eagles scooped up during the month, February's ASE sales were a full 58% higher than the next-highest February performance in 2014.
The momentum purchases of silver were not restricted to the U.S. Mint's offerings, either. In India, which has blossomed into the world's largest market for silver in addition to gold, sales of silver bars in January doubled year-on-year according to the Gems and Jewellery Export Promotion Council (GJEPC). In terms of dollars, the $3 million worth of silver bar imports were 124% higher than the same month the year before. Interestingly enough, imports of silver jewelry into India actually fell, indicating that buyers are turning more toward investment than jewelry consumption. Since the vast majority of precious metal purchases in India are for some type of jewelry, this is a significant shift indeed.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.