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March, Into the Future
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(March 5, 2009) After a short lull in January, gold bullion coin and bar demand has soared once again on a near-daily onslaught of news reports about our Recent Economic Unpleasantness, proposed and actual multi-trillion dollar solutions, and a general sense of mistrust of every investment haven under the sun. Worldwide, physical gold rules.
The World Gold Council, in its report on fourth quarter and full year 2008 gold demand, found the use of gold in jewelry shrinking, a not-surprising revelation in a recessionary economy. Investment demand, however, turned in one of its best years since 1981. US demand for gold was summed up in this paragraph from the WGC report of 2/18/09:

“In the United States, the deteriorating economic conditions produced a mix result for gold demand. Fourth quarter jewellery demand was down 35% as consumer spending plummeted. In stark contrast demand for gold bars and coins rocketed by 370% in Q4, representing 35 tonnes of gold.

Worldwide, gold demand was also strong, with investment demand near record level. Recent commentary by Lipper Fund Market Information (FMI) pointed out the increasing global diversification out of financials and into that ultimate hedge against inflation, gold. They report:

“The most striking trend has been the reawakening of investor interest in holding physical gold, with demand for bars and coins rising 87% last year according to the WGC. The most dramatic surge was in Europe, where bar and coin demand increased from just nine tonnes in the fourth quarter of 2007 to 114 tonnes in same quarter in 2008, a 1,170% increase.”

This was reinforced for us last week during a visit from Neil Vance, the Perth Mint’s traveling representative and spokesperson for the Australian mint’s worldwide gold bullion program.

Neil explained that in the EU countries, silver bars and ingots are subject to the VAT (Value Added Tax), whereas coins are not. This situation, along with rabid European demand for an alternative to both the dollar and the euro, caused bullion coin demand to soar in Europe during 2008. For the Perth Mint, their silver kilogram coins have sold like hotcakes in Europe, as they provide a way to invest in silver while avoiding the VAT applied to silver bullion.

We chatted with Neil about new issues coming out, and had a sneak preview of the 2010 Year of the Tiger design – a dramatic head-on portrait of a tiger will grace the third issue in the Series II Lunar bullion coins. We should have them in stock this fall.

We also learned about Perth’s current efforts to keep up with demand for the one-ounce gold bullion Kangaroos and Lunar Series II issues, and the truncated production of the fractional gold coins. For the 2008 Mouse, very few half-, quarter-, tenth-, and twentieth-ounce coins were produced due to the overwhelming demand for the one-ounce coins. Similarly, the 2009 Ox fractional gold coins have so far been produced in tiny numbers only.

Most interestingly for Lunar Series collectors and investors, Mr. Vance revealed that more than 22,000 of the 1-ounce gold Ox of this year have already been sold into the world gold market, and that most of them are going to European gold investors. With a mintage limit of 30,000 pieces total, the implications are clear.

We are down to a couple hundred of the Ox gold 1-ounce, and we hope to have more before they are all gone. As for the 2008 1-ounce gold Mouses, we have no word as to how many of those have been struck and sold so far. We do have nearly 300 Mouses on their way to us, and we will be offering those next week.

In general, gold bullion coins and bars in a strong demand pattern. Gold’s recent price correction of nearly 10% in about eight days stoked another intense round of strong public purchases of coins in the 1-ounce size, plus whatever could be obtained in fractional sizes, and larger bars just for their sheer economy of price.

The world’s mints and refiners have stepped up production to meet demand, usually successfully. Onlygold’s inventory is being constantly replenished - our staff now knows the local Brinks delivery crew by name from their almost daily visits.

As the World Gold Council points out, the demand for physical gold is growing worldwide at a pace far exceeding the production of the world’s mines. Eventually, something has got to give.

 

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