Feb. U.S. Mint Coin Sales Weak; Dishoarding, Premiums Behind Decline
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(Kitco News) -February U.S. Mintsales of American Eagle gold coins were the lowest in more than a decade,analysts report.
This is acontinuation of a trend that has been in place for more than a year now, withmany North American investors opting to sell their backdated coins instead,observers said. This in turn has meant that dealers who buy these coinscan then resell them at a premium far below those on 2018-dated coins.
Bottom line - themarket is soft, although not as soft as the Mint data may suggest since somebuying and selling of backdated coins continues.
Data on the U.S.Mint website show only 5,500 ounces of American Eagle gold coins were sold in February.That is down sharply from 58,500 in January and from 27,500 in February 2016.
“It’s been a trendsince the beginning of 2017,” said PeterHug, global trading director of Kitco Metals. “There has been a massive amountof dishoarding metal in the North American market.”
Commerzbankanalysts pointed out that the U.S. Mint sales last month were the lowestFebruary figure in 11 years.
“Thus, thereis no sign as yet of any recovery following the very weak previous year,” theysaid in a Thursday research note.
Mint sales ofAmerican Eagle silver coins were likewise soft last month. The total of 942,500ounces was down from 3.24 million in January and 1.22 million ounces inFebruary 2016.
Hug outlined indetail the picture in the coin market, beginning with the heavy salesback in 2008 through 2011, when the economy was on the skidsafter the financial crisis, and spot gold prices ran to a recordhigh around $1,921 an ounce. Prices subsequently fell back sharply, eventuallybottoming just below $1,050 in 2015.
In the last threeyears, a market trend developed that discouraged many potential buyers, Hugexplained. Gold prices would rally from December into the first months of a newyear, prompting some investors to “jump on the train,” only to see prices fallback again.
“So now they’rebacking away,” Hug said.
Then, with thevolatility in outside markets, many investors sold their metal last month tomeet margin calls in equities and bitcoin, Hug continued.
Normally, heexplained, retail investors are on the buy side of the market. Dealertransactions are typically 90% sales and 10% purchases. But in the currentenvironment, the purchases are roughly matching the sales, sometimes evenexceeding them by a 60%-40% margin, he said.
As a result, coin dealers have beenbuilding inventory in American Eagle coins. Thus, when dealers are contacted bypotential buyers, dealers can now sell backdated coins at a far lower premiumthan on brand-new U.S. Mint coins. There is almost no difference between coinsof different years other than the date, so those who simply want bullion as aninvestment can buy a 2016 or 2017 coin far cheaper than a 2018.
For instance,Hug said the premium on a 2018 American Eagle gold coin is roughly$60, with most of this the result of the Mint’s 3% premium charged to dealers.Meanwhile, Kitco has been selling backdated coinsat a premium of $23.99. This $36 difference per ounce can add up, with somebodybuying 10 ounces thus saving $360.
Hug said hehas been in the metals business since 1974 and has never seen the currentsituation before, especially in silver, where prices are within $1 of theirlowest level in the last few years, yet liquidation continues.
“The reason isbecause investors - especially since 2011 - have been discouraged in themarket.”
Hug figures themetals either need to fall farther to encourage a pick-up in buying -often referred to as “bargain hunting” - or break through certainupside price levels to convince investors a rally is more sustainable thistime. Specifically, Hug said, gold below $1,200 an ounce and silver below $15may encourage buying. Likewise, gold above recent highs of $1,365 may spurfresh buying, as well as silver over $18.
Shortly before 10a.m. EST, spot gold was trading around $1,309 an ounce and spot silver was at$16.21.
By Allen SykoraFor Kitco News
Follow @AllenSykora
asykora@kitco.com Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.