While the Wall Street Journal is cackling over the demise of gold (see “Let’s Get Real About Gold: It’s a Pet Rock,” which was a page 1 Business & Finance headline in the weekend edition of the Wall Street Journal, gold is still up about 5% for the year-to-date in terms of the euro, as well as the Canadian and Australian dollar.
Investors in those nations aren’t tearing their hair out over the gold price. Investors in Europe, Canada and Australia are seeing gold rise.
The New York paper-gold traders continue to push gold down through leveraged short sales in the futures and ETF markets.
According to Frank Holmes, CEO of the U.S. Global Investors funds, the largest gold futures investors, including many huge hedge funds, have sliced their bullish position by 55%, which is “more than 14 million ounces below levels hit in January this year, when gold reached its 2015 peak. The net long positioning is also the lowest since October 2006 when gold was worth less than $600 an ounce.”
Specifically, Marketwatch quoted a Sharps Pixley analyst who said that a large seller on the Commodity Exchange (Comex) had “dumped $1.4 billion of gold futures onto the market,” He went on to say that “We have a peculiar world where the physical market is seeing very strong buying, but a large leveraged speculator is selling at these prices.”
He added the sad fact that “our Asian colleagues will continue to acquire while the West continues to divest. Who is right we shall only know in the longer term.”
Long-term, gold is destined to come back in price since many mines are closing. An analyst at Lombardi Financial said that U.S. gold mine production declined 8% in 2014 vs. 2013, and 2015 gold production is running “much lower than the 2014 figures.”
Most mines can’t make any profits at $1200 gold, much less $1100, so with shrinking supplies and flat or rising demand, gold should eventually recover.
And if the dollar peaks and turns down, we could see a strong rally in gold, which could bring Wall Street back on board. Then the “pet rock” stories will suddenly morph into “golden profits” stories once again.
Meanwhile, there is a tremendous groundswell of physical buying. We have noticed some delays on delivery of bullion products from the U.S. Mint and other mints due to soaring demand, which often causes the premium over spot prices to rise.
The U.S. Mint said last week that there was a 253% rise in demand for American Gold Eagle coins in June vs. May. Also, in the first half of July, the U.S. Mint said it sold 71,000 ounces of Gold Eagles, which is just short of the phenomenal 76,000 ounces sold in June.
The same trend is happening in silver coins. The Mint ran out of American Silver Eagles in early July, just like they did in late 2014. The Mint sent out a press release saying that “the significant increase in demand for American Eagle Silver Bullion Coins depleted our current inventories.”
Previous to that, the Mint had instituted an “allocation” policy that rationed the sales of Eagles earlier this year, due to soaring demand.
In June, American Silver Eagle sales surpassed 4.8 million ounces, more than doubling May’s total. In the first week of July, 2.6 million more ounces were sold, putting July on a 10-million+ sales path vs. just two million in July of 2014, so those who say that the precious metals market might be dead are wrong!
About the Author: Mike Fuljenz
Mike Fuljenz is a member of the Newsmax Financial Brain Trust. Click Here to read more of his articles. Mike's books, media appearances and newsletters about gold and rare coins have won Best of the Year awards from the Numismatic Literary Guild and the Press Club of Southeast Texas, and he received the NLG's coveted top honor in 2013, "The Clemy Award."
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