Gold coin consumption, viewed by some as a market-fear gauge, tumbled in the second quarter to levels not seen since before the 2008 economic crisis, reflecting the metal’s failure to attract safe-haven bids despite lingering economic uncertainty.
Bullion coins produced by the U.S. Mint, Royal Canadian Mint and other major mints recently fell out of favor with retail investors, who had hitherto bought it to hedge against market uncertainty, and as they lost purchasing power due to central-bank money printing, among other reasons.
“Many investors who have been in the market are taking a break right now, looking for other investment opportunities, waiting for a lower level to get back in, or waiting for some type of economic or political event,” said Roy Friedman, executive VP of Texas-based Dillon Gage, one of a few dealers which buys directly from the U.S. Mint and acts as a wholesaler to other dealers and financial institutions.
Still, U.S. coin dealers expect gold coin sales to rebound in the second half of the year as investors seek refuge in physical bullion amid the European debt crisis and signs of sluggish economic growth in the United States and around the world.
Sales of U.S. Mint’s American Eagle gold coins fell more than 50 percent year-on-year to 127,500 ounces in the second quarter, its worst three months since the second quarter of 2008 – prior to the height of the global economic crisis, the Mint’s web site showed on Friday.
Intense competition from cheaper gold coins, including the Canadian Gold Maple Leaf, and other precious metal products such as platinum, also cut into sales of the popular U.S. gold coins, dealers said.
Meanwhile, a four-percent drop in the price of gold in the second quarter from the prior three months, its largest quarterly decline in 4 years, has curbed the interest of more speculative, momentum-driven individual investors.
The yellow metal is also at risk of posting its first annual loss this year, as prices have risen in each of the past 11 years.
Unlike in the last couple of years, investors have not been fleeing to bullion in droves despite signs of a worsening European debt crisis. EU leaders agreed on Friday to inject aid directly into stricken banks and intervene on bond markets to support troubled member states.
“Demand will almost instantly increase if the market goes into a sustainable rally,” Friedman said.
Spot gold rose 3 percent on Friday to around $1,600 an ounce as crude oil and Wall Street surged on the EU deal.
MAPLE LEAF VS AMERICAN EAGLE
Even though sales of all gold coins suffered broadly this year, Canadian Gold Maple Leaf (GML) coins are faring better and taking market share from the U.S. Mint and others thanks to their lower premiums.
Chris Carkner, Royal Canadian Mint’s director of sales, bullion and refinery services, told Reuters that sales of the Mint’s gold, silver and platinum bullion coins rose in the second quarter compared with the first.
Official sales data will not be available until later in the summer.
Meanwhile, U.S. Mint’s data showed American Eagle gold coins sales fell about 40 percent over the same period.
Last year, sales of Gold Maple Leaf totaled 1.15 million ounces, above the 1 million ounces of American Eagle gold coins.
Michael Kramer, president of MTB, another major coin dealer based in New York, said he expects sales of Gold Maple Leaf could beat Eagle in a close race.
Major coin dealers on Friday were quoting a $15 discount for each one-ounce Gold Maple Leaf below the price of an American Eagle gold coin. However, dealers also pay less to buy back the Canadian coins, they said.
Mints usually charge dealers a 3 percent premium over the price of spot gold.
In addition, a near-record $150 premium of gold above the more rare platinum prompted some investors to profit from the anomaly.
“We have a couple of customers with fairly nice positions have just been unloading gold and buying platinum. So, if he would lose out on one, he would gain on the other side,” Kramer said.
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