1/12/15: US Mint Gold Coins Sales: November

Following October fall-off, sales of U.S. Mint gold coins rose strongly in November to 135,000 oz by weight (+86.2% y/y) and 237,500 units (+95.5% y/y). These figures include sales of both Eagles and Buffalo coins. Average weight of coin sold also rose strongly to 0.5684 oz compared to 0.4709 oz in October and close to 0.5967 oz/coin in November 2014.

As noted in my note covering October sals, October decline was a correction reflective of volatile demand and also significant uplift in sales in previous months. As chart above shows, sales by weight are now well above period average and above peak period average. In 11 months of 2014, US Mint sold 679,500 oz of gold coins; over the same period of 2015 sales totalled 1,020,000 oz. November 2015 also marked 20th consecutive month of gold sales/price correlations (12mo running) being negative, suggesting strong and entrenched demand from buyers pursuing long hold strategy and taking advantage of improving cost of holding gold. 

20/5/2014: Q1 2014 Gold Demand Report

Q1 2014 Gold demand report is out today. Highlights are:

1. Jewellery demand grew 3% year-on-year to reach 571 tonnes, the largest Q1 volume since 2005, as consumers responded positively to lower average gold prices. Geographically, demand was wide-spread; however it was China that posted the largest volume increase, rising by 18 tonnes from Q1 2013.
2. Shifts in the components of investment cancel out: net investment demand little changed, down 2%. Q1 investment demand of 282 tonnes was just 6 tonnes below Q1 2013. Bar and coin demand was down 39% from last year's elevated levels, while outflows from ETFs slowed to a virtual halt compared with outflows of 177 tonnes in Q1 last year.
3. All segments of technology saw a 4% decline in the first quarter, resulting in overall demand for the sector of 99 tonnes. The fall was primarily driven by continuing substitution to cheaper alternatives as manufacturers remained under pressure to reduce costs.
4. First quarter demand from central banks once again topped the 100 tonnes level, reaching 122 tonnes, and marked the 13th consecutive quarter of net purchases. The desire to diversify holdings in an uncertain global environment continues to underpin this source of demand.
5. The supply of gold in Q1 2014 saw a marginal year-on-year increase of 1%. Increased mine production was offset by a fall in recycled gold coming onto the market, leading to a total supply figure of 1,048 tonnes.
6. Total demand was down at 1,074.5 tonnes in Q1 2014 compared to 1,077.2 tonnes in Q1 2013

Summary chart:

Report is here.

Compared to 5 year averages:

• Jewellery demand was up at 570.7 tonnes against 5 year average of 512.0 tonnes
• Technology demand was down at 99.0 tonnes against 5 year average of 108.3 tonnes
• Total Investment demand was down at 282.3 tonnes against 5 year average of 367.6 tonnes. Of this, Bar & Coin demand was down to 282.5 tonnes relative to 5 year average of 338.2 tonnes; ETFs and similar products demand was net -0.2 tonnes compared to 5 year average of +29.5 tonnes
• Central Banks net purchases demand was up at 122.4 tonnes against 5 year average of 72.7 tonnes
• Overall demand was up at 1,074.5 tonnes against 5 year average of 1,060.5 tonnes

Top 10 official reserves:

20/2/2014: Gold Demand 2013: US Mint Sales

I recently posted on the 2013 demand for gold:

• http://trueeconomics.blogspot.com/2014/02/1822014-gold-demand-trends-2013.html started with highlights of the World Gold Council report and was followed up with 
• http://trueeconomics.blogspot.com/2014/02/1822014-demand-for-gold-netting-out.html covering demand for gold stripping out changes in ETFs holdings.

To complete this analysis, let's take a look at another area of demand.

Sales of gold coins by the US Mint are usually seen as representing more stable, long-only and non-instrumented demand for gold. US Mint coins are first and foremost used by investors interested in a store of value and secondly as long term savings. These are principally non-speculative in nature and do not rely heavily on shorter term volatility in prices (as some o the statistics discussed below show).

The series covered here include American Eagles and American Buffalos. The data we have for both series goes back to the start of 2006.

We shall focus in this post on annual values.

In 2013,

• US Mint sold 1,095,500 oz of gold in the form of coins, marking the third largest demand in the series history. The demand in terms of total weight was up 29.8% y/y, reversing previous 3 consecutive years of annual declines.
• US Mint sold total of 1,697,500 gold coins in 2013, marking the third highest year of sales by coinage, and up 39.1% y/y.
• Average weight of coin sold in 2013 was 0.645oz/coin, down on 0.692oz/coin in 2012. Overall, this was the third lowest annual average oz/coin sold performance.

Correlation between price and weight of gold sold was 0.349, and between price and coins sold 0.450, while correlation between price of gold and oz/coin average weight was 0.137.

Monthly series confirm that there is little sustained correlation between prices and gold sales via US Mint coins:

Looking at longer-range series:

• Average sales of coins by total weight in 2005-2009 was 874,250 oz per annum, against 1,092,250 oz per annum for 2010-2013 period.
• Average sales of coins by total number in 2005-2009 was 1,174,625 coins per annum, against 1,548,625 coins per annum for 2010-2013 period.
• Average sales of coins by average weight per coin sold in 2005-2009 was 0.705 oz/coin, against 0.703 oz/coin for 2010-2013 period.

In conclusion: US Mint sales of gold coins suggest healthy demand for gold, strengthening in 2013 on foot of both - improved affordability and rebounding in the underlying demand toward the 2010-2013 average levels.

21/5/2012: Gold Demand: Q1 2012

Q1 2012 global gold demand figures were published last week and, surprise, surprise, there has been some decline in investment components of demand. Predictably. What is surprising, however, are the dynamics. For some time now we've been hearing about the gold bubble and about recent price moderations being the sign of the proverbial 'hard landing'. Sorry to disappoint you, not yet.

Let's chart some data and discuss:

• Jewellery demand increased from 476 tons in Q4 2011 to 520 tons in Q1 2012 - a rise of 9.24% q/q, but a drop of 6.3% y/y. This contrasts price movements (see below). More significantly, peak Q1 jewellery demand was in Q1 2007 and Q1 2012 demand is only 8.1% below the peak level. Not the fall-off you'd expect were jewellery buyers exercising their option to stay away from higher priced gold.
• Technology-related demand came in at 108 tons in Q1 2012, up on 104 tons in Q4 2011 (+3.8%), but down 6.1% y/y/ Peak Q1 demand for technology gold was in Q1 2008 and Q1 2012 demand came in 11.5% below that. Again, no serious drama here - some substitution away from higher priced gold, but also much of the effect due to global slowdown in production of white goods and electronics, plus price moderation in substitutes on the back of a global economic slowdown and crises.
• Bar & Coin Investors' demand (more longer-term physical investment demand) was down from 356 tons in Q4 2011 to 338 tons in Q1 2012, a fall off of 5.06% q/q and 16.75% y/y - virtually in line with price movements, but in the opposite direction. Substitution and other factors (see below) suspected. Incidentally, Q1 2011 was also the peak quarter in total demand for Bar & Coin investors.
• ETFs - more volatile demand source - reduced their demand for gold to 51 tons in Q1 2012, down from 95 tons in Q4 2011. These funds tend to have exceptionally volatile net demand, including negative readings in some quarters.

Here's a handy table comparing demand levels by investment/use type as follows:

1. First I compute Q1 average demand for 2006-2011
2. Second I report by how many tons Q1 2012 demand was different from the above average:

Source: Author calculations based on Gold Council data (same for charts below)

Conclusion out of the table: no drama. As expected - physical demand is still ahead of average, but moderating gradually. Jewellery demand is above average - a massive surprise for those who use this demand component to argue that decline in jewellery demand shows that gold is a bubble driven solely by investment objectives. Within investment gold: ETFs are becoming less relevant (more speculative component) while gold bars and coins (less speculative, more 'long-hold' component, especially on coins side) becoming more important.

To show decline in Jewellery and Technology (non-investment) gold relative role, here's a chart:

In Q1 2012, non-investment gold demand accounted for 61.8% of all demand (excluding Central Banks) - Q1 2006-2011 average share is 67.3%, which is above the current share. However, the current share is the highest since Q1 2011.

Now, end-of-quarter prices in USD: Q1 2012 ended with gold priced at USD1,662.5/oz - the highest quarter-end price on record and up 8.6% on Q4 2011 and 15.53% on Q1 2011.

Next two charts plot relationship between price and volume demanded by specific category:

Notice the following:

1. There is a strong positive relationship between gold price and demand by gold bar & coin investors. Perverse? Not if you know that gold is an inflation / USD hedge.
2. Basically zero relationship to ETFs demand. Surprising? Not really - these are actively managed and not exactly risk-hedging entities (see below).
3. Weak negative relationship for physical non-investment demand (jewellery & technology) - suggesting some substitution effect, but not much of one. Which, in turn, implies that there is some other driver here - perhaps shorter term changes in demand for goods produced using gold and longer term technological change (think dental demand - when was the last time you fitted a gold tooth?)
4. Weak positive relationship between price and overall demand for gold. Funny thing is - if there's a bubble, you'd expect a much stronger relationship, don't you? After all, there would be hype of rapidly rising demand as prices rise? 

So what is happening on the demand side of gold markets, then? Here are my views:

1. Dollar strengthening and oil price moderation are both signaling that gold price moderation should be impacting USD price more than other currencies-denominated prices. This is true, when you compare changes in USD price and Euro price;
2. ETFs are clearly suggesting a signal that some of the gold demand (primarily speculative component) is being drawn down during the 'risk-off' periods, like the one we are currently going through. Speculative demand is moderating significantly, which is good medium-term;
3. Tax changes on gold bullion in India had significant impact, including on jewellery-related gold demand from there;
4. Central banks demand pushes price-demand relationship out toward flatter slope and reduces price-elasticity of global demand.

Disclaimer:
1) I am a non-executive member of the GoldCore Investment Committee.
2) I am a Director and Head of Research with St.Columbanus AG, where we do not invest in any individual commodity.
3) I am long gold in fixed amount over at least the last 5 years with my allocation being extremely modest. I hold no assets linked to gold mining or processing companies.
4) I have done and am continuing doing academic work on gold as an asset class, but also on other asset classes. You can see my research on my ssrn page the link to which is provided on this blog's front page.

5) I receive no compensation for research appearing on this blog. Everything your read here is my own personal opinion and not the opinion of any of my employers, current, past or future.

6) None of my research - including that on gold - should be considered as an investment advice or an advise to buy or invest in any asset or asset class.

25/02/2012: Some interesting recent points on Gold

GoldCore guys have an excellent visualisation of some core facts about gold as a vehicle for store of value - a short video certainly worth watching.

You know I am a fan of good visualization as a tool to deliver information. And you know my position that gold is a unique diversifier of some core financial risks (based on my academic work available on my ssrn.com page) when held not for speculative or capital gains purposes and accumulated over time allowing for price-peaks averaging.

You can find much more detailed data on gold demand at the World Gold Council site (here), but it's worth posting few charts that illustrate higher frequency data supportive of the aforementioned trends and also trends highlighted in the video link. All are from Q4 2011 World Gold Council report:

First chart to show the relationship between spot price and volatility for gold - while volatility of gold prices is relatively high, it is clearly consistent with changes in fundamentals (news flows and global liquidity shifts, that largely are indicative of future inflation expectations changes):

The 'China' v 'India' effects are strongly pronounced, with the recent economic growth slowdown in India and the talk of hiking import duties on physical gold there clearly leading to slower demand. What is remarkable, in my view, is that both China and India demand appears to have largely converged in Q3-Q4 2011 to the average levels ahead of 2009, but below the peaks. This, in my view, can lead to further moderation in the volatility of the global gold prices, while providing support for gold price levels.

The third chart illustrates the dramatic turnaround in the Central Banks' and Treasuries' propensity to hold gold since Q1 2011. And the dramatic tie-in between the official sector demand for gold and the news flow. They wouldn't tell us this much directly, but it does appear that Governments around the world are hedging against the Euro crisis risks by going into gold.

Lastly, an interesting chart on private sector demand drivers for gold as investment vehicle. Good news ETFs are buying less (though bad news here is that this means more ETFs out in the markets are now synthetic gold holders - see a note here on the dangers of that asset class). Other good news is that OTC gold instruments are on a shallow decline (suggesting no derivatives panic, but some welcome reduction in derivatives risks exposure for gold, with core risk of sudden position reversals).

As a disclosure - I am on GoldCore's Investment Committee as a non-executive member. In this role I do not contribute to public communications by the firm or to the GoldCore's marketing. I receive no compensation for this or any other post on my blog and, as you can see, my blog bears no advertising (although the latter can change at some point in time, the former will not). I am also long gold in long-term, non-speculative stable allocation that remains unchanged over a number of years. I hold no other gold-related assets, ETFs or gold-related stocks. Furthermore, my posting of this link should not be considered as an endorsement of any product or investment vehicle, as per usual.