Sales of gold and silver bullion coins made by the U.S. Mint more than doubled from August to September.
The U.S. Mint sold 58,000 one-ounce American Eagle gold bullion coins in September, compared with 25,000 coins in August. In addition, 4.1 million one-ounce American Eagle silver bullion coins were sold in September, compared with 2 million in August.
Precious metal bullion coin sales have been selling at a pace somewhere between the record highs and pre-2007 financial crisis levels in the United States for most of 2014. Domestic interest in gold and silver has waned due to a strong U.S. dollar and lack of inflation.
While mixed economic data shows modest but fragile economic growth in the United States, the U.S. economy is strong relative to the rest of the world. Japan is struggling with deflation, the European Union is teetering on a second recession and the soft landing forecast for China's slowing economy will be harder than expected.
The main drivers of this renewed interest in precious metal bullion coins are individual investors and the sheer volume of geopolitical risk.
The U.S. Mint is the largest producer of precious metal bullion coins in the world, and the United States is the largest market for those coins. When institutional investors invest in physical gold, the form is usually the world standard 400 ounce "good delivery" gold bars instead of 400 one ounce gold bullion coins. Few individual investors can afford that investment and government-made bullion coins are more accessible.
Also individual investors do not have the access to Federal Reserve stimulus money or to the esoteric financial derivatives to mitigate risk like institutional investors. To protect their paper assets from inflation and risk, individuals rely on the 5,000-year proven strategy of precious metals.
In addition, there has been an unexpected increase in the already plentiful geopolitical hotspots around the world: the military campaign against ISIS, Boko Haram in Africa, the pro-democracy movement in Hong Kong, the spread of Ebola, Russia's invasion of Ukraine and Iran's nuclear ambitions, to name a few. Any one of these could easily spiral into a broader conflict that would have significant negative ramifications on the world economy.
Institutional investors are shrugging off this expansion of geopolitical risk while many individual investors have increased their portfolio's precious metals allocation. This explains why gold and silver bullion coins sales are going up while gold exchange-traded fund holdings dwindle.
It is worth noting that the existing supply of gold and silver bullion coins in the United States is not sufficient to satisfy current demand. That is why bullion retailers have increased their inventory with these newly made U.S. Mint precious metal bullion coins. If the world becomes more unstable, expect the U.S. Mint to make and sell more gold and silver bullion coins.
About the Author: Edmund C. Moy
Edmund C. Moy
is the Chief Strategist of Fortress Gold Group
and was the 38th Director of the United States Mint (2006-2011). He can be followed on Twitter @EdmundCMoy.
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