Gold Price Drop Triggers Buying|
May 14, 2013
Chicken Little isn’t the only one that has been saying that the sky is falling. Ask anyone who was investing in gold prior to mid-April, be it in coin or bullion form.
The spot price of gold dropped by a staggering 15 percent within only two days during the middle of April. While there has been much wailing and gnashing of teeth among commodity investors over the gold debacle, collectors and investors on the sidelines were licking their chops, waiting to rush in to pick up the pieces at the post-correction prices.
According to an April 17 Reuters news report, “Gold cash shrugged off weakening US bullion futures and jumped as much as one percent on Wednesday as buyers snapped up gold bars, coins, and nuggets after prices briefly hit their weakest levels in more than two years in the previous session.”
Instead of buying gold contracts, buyers were looking to buy physical gold following the price plunge. A shortage of gold ingots was reported in Hong Kong and Singapore within a day of the price correction.
GoldSilver Central (in Singapore) Managing Director Brian Lan said, “People are actually buying everything, gold bars, gold coins. People are rushing to get a hand on it. We have a problem meeting the demand because we are unable to get new supply. There’s a huge backlog. It’s the same for silver. So far sentiment seems to be improving. Even the price has more or less stabilized.”
The April 18 Wall Street Journal quoted Singapore-based Silver Bullion Pte. Ltd. Director Gregor Gregersen as saying, “The premium for coins is getting higher and higher. They’re harder to get hold of and, as people see that, some of them are going into a panic.”
The premium he spoke of is the amount above the spot price of gold or silver at which the coins are being priced to retail customers. The WSJ said the premium on gold coins has risen to about five percent above spot recently, compared to three percent at the beginning of the year. The typical premium on silver bullion coins was 15 percent at the beginning of 2013, but is now at about 18 percent.
The Wall Street Journal noted that about a fifth of the gold purchased by investors is in the form of coins.
Reuters quoted an unnamed gold merchant in Tokyo as saying, “In Tokyo, we are seeing good physical demand. People are buying physical gold, kilobars. Physical buyers are looking at this dip as a chance to buy.”
Reuters added, “In addition, demand remained very strong for gold Maple Leaf and silver Maple Leaf coins even after the gold’s drop, said Chris Carkner, Royal Canadian Mint’s managing director in sales.”
Merchants in Dubai and even the Perth Mint in Australia reported a surge in demand for gold coins following the spot price plunge. About the only major source that was mum on the situation was the Turkish State Mint, the leading mint in terms of gold coin production.
Despite the clamor for gold in some places the demand for the metal was down elsewhere, including where it really matters. The wedding season in India lasts through June. This and the upcoming Akshaya Tritiya celebration are times when it is fashionable to purchase gold to be given away as gifts.
Just prior to the decline in gold prices Indian merchants had been reporting a significant downturn in purchases. There was no immediate information indicating if this trend changed following the gold price decline. India, along with China and Turkey, is a major consumer of gold products.
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