Small Gold Coin, Bar Shortage Only Temporary

Following the sharp drop in prices in the gold market in mid-April, gold dealers have been surprised by an inundation of gold buyers. The demand has been so strong as to have been called a once in a half a century occurrence by gold dealers in China with traders in Hong Kong reporting two month wait times for delivery of bullion from the U.S. Mint.

Many dealers were caught off guard by the buying and had relatively limited supplies on hand as the demand began to surge. The resultant increase in premiums over both gold and silver spot prices is an effect of bullion dealers working to maintain stock. Reports out of Asia and the Middle East, where buyers have been lining up for seven and eight hours outside gold dealers, indicate bullion dealers are attempting to avoid running completely out of stock.

Demand has been strongest for small coins, which are easier for the unseasoned buyer to purchase with its lower price point. The U.S. Mint this week suspended sales of its one-tenth ounce American Gold Eagle Coin in the face of the historic demand. Forbes reports that the shortage of small coins is temporary with gold market sources placing it as a logistical problem rather than an issue of mine supply of gold.

Prices have rebounded over $100 per troy ounce following the April 16 low set at $1,321. The premiums paid on coins have risen dramatically across the board, reflecting intense investor demand.

U.S. Mint sales of gold bullion coins for the month of April so far are 196,500 ounces, the highest monthly total since December of 2009. The mint is currently replenishing inventories during the suspension of the one-tenth ounce bullion coin as it reports demand for the one-tenth ounce American Eagle is up 118 percent against the same period last year.

Erica Rannestad, commodity analyst at CPM Group, said what we’re seeing now with stocks low and premiums rising are classic supply and demand. She added this just reflects a lull in on-hand supplies and there’s no shortage of annual supply.

Rannestad also said CPM Group has forecast mine supply rise 6.4 percent this year with two large mines coming online.

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