Are Goldbugs Getting More Physical?

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By Eric McWhinnie | January 8, 2014 7:47 AM EST

Wall St. Cheat Sheet

Gold

Since hitting all-time nominal highs more than two years ago, gold has become one of the most hated asset classes in the market. The precious metal suffered an ugly correction last year and posted its worst annual decline in over three decades. However, many gold investors are still buying the precious metal in physical form.

Bargain hunters are coming out of the woodwork. Last year, Australia’s Perth Mint sold 754,635 ounces of gold coins and bars, up 41 percent from 533,333 ounces a year earlier. Even silver sales jumped 33 percent to 8.6 million ounces from 6.5 million ounces. Meanwhile, the Royal Canadian Mint recently reported record sales for coins in the third quarter of 2013.

“The quarter’s sharp increase in revenue in a few of the business lines is due to the steadily growing demand for the Mint’s products in Canada, Europe, the United States and Asia,” said Ian E. Bennett, president and chief executive officer of the Royal Canadian Mint. The Mint issued 54 new numismatic coins during the quarter, which resulted in 16 sell-outs.

In 2013, the U.S. Mint sold 856,500 ounces of its latest American Gold Eagle coins, representing a 14 percent increase from the 753,000 ounces sold in 2012. In fact, the U.S. Mint sold a record breaking 42.675 million ounces of American Silver Eagle coins. That is the biggest haul of silver coins sold in a single year since the U.S. Mint started producing the series in 1986.

Due to heavy demand, the U.S. Mint halted sales of the one-tenth ounce American Gold Eagle in April, its smallest-denomination gold bullion coin. It was the first time the U.S. Mint stopped selling a gold product since November 2009. The move came just a few months after the U.S. Mint had to suspend American Silver Eagle sales in order to replenish inventory levels.

Around the world, consumer demand for gold jewelry, bars, and coins totaled a record 2,896.5 tonnes for the first nine months of 2013, according to the latest data from the World Gold Council. Demand in China alone totaled 163.7 tonnes in the third-quarter, while global jewelry demand was 486.7 tonnes, the highest third-quarter haul since 2010. Demand from eastern markets outweighed the west by an impressive multiple of 5.4, compared to the five-year average of only 3.7.

In addition to eastern markets, central banks continued to purchase gold. In the third-quarter, central banks added 93.4 tonnes of gold to their holdings, up from 79.3 tonnes in the second-quarter. During the first three quarters of 2013, central banks purchased almost 300 tonnes of gold.

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Disclosure: Long EXK, HL, PHYS

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