Money

“Paper Gold” Demand is Now Rising (while New Gold Supplies are Falling)

paper-goldBy Mike Fuljenz

Physical gold demand doubled at the U.S. Mint and the Shanghai Gold Exchange (SGE) in July, but gold demand for ETFs and gold futures contracted in July.  That trend has changed in August. The best source for gold futures demand trends comes from the weekly Commitment of Traders (COT) report, published by the Commodity Futures Trading Commission (CFTC).  For the week ending August 5, the COT said that large speculators added 5,435 net bullish contracts for gold that week, the first net rise in six weeks.   That trend continued the next week, with traders adding a net 2,500 more “long” (bullish) contracts in gold.

We also learned that gold supply is shrinking. New gold supplies from mining operations fell by 4% in the second quarter (vs. the second quarter of 2014), according a new report released by the World Gold Council (“Q2 2015 Gold Demand Trends”).  With rising demand for both physical and paper gold, combined with a decline in new supplies (due to the low gold price and the high cost of mining gold), gold will likely make a positive move back above $1200 by the end of this calendar year.

The financial press has failed to report this rising demand for paper gold, so we are forced to conclude that the mainstream financial press tends to quote bearish Wall Street views on gold, but they tend to ignore bullish views.

We have to turn to Canada for some press coverage of rising demand and supply disruptions. Canada’s CNA Finance reported on Tuesday that “the U.S. Mint and the Royal Canadian Mint continue to run into serious issues keeping up with retail silver coin demand. After selling out in early July, the U.S. Mint resumed deliveries of Silver American Eagles, but it has since been rationing them out.  And this week brings word of new silver supply-chain problems. Mint officials let it be known they are cutting further back on Silver Eagle shipments, reducing them as much as 20% below already insufficient levels.”

Silver demand soared in July, when prices were down, causing Mints to run short of supply. The Royal Canadian Mint cited “significant problems with sourcing silver blanks for production of the Silver Maple Leaf.”  The 1-2 punch of U.S. Mint and RCM rationing and production breakdowns promises to keep buy premiums elevated and cause shipping delays on most government-minted silver coins for the foreseeable future.

Private mints are also running short on supply. Delivery delays have lengthened as suppliers and retailers struggle to fill orders.

This combination of increased demand and delayed deliveries has created extra calls to dealers.

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Mike
5 years ago

Thanks to all who commented, especially the regular readers. Your insights are appreciated. Warning: For beginning readers, the unusually high demand at this time for many physical bullion products (including coins and bars) has created higher premiums over precious metals prices and often delayed deliveries for many products. Delayed delivery in normal times is a warning sign that a vendor may not be reputable. Be sure and check out any vendor you transact with for their reputation in the industry. I have written about this in past articles that are archived here. You may want to discuss with your vendor… Read more »

Ron
5 years ago

The commentary above was very informative. After Friday’s 530 point drop in the Dow, seniors noticed that the prices for silver and gold pretty much held constant; lending credence to the mind numbing number of Radio and TV ads regarding asset protection. The value of stocks went down. The value of gold and silver did not. Neither did bonds or “cash sitting on the sidelines”. But, my experience has been that the market will eventually return to previous levels and stocks purchased at serious discounts (with the excess cash) will most likely provide better returns, in the short term, than… Read more »

Ivan Berry
5 years ago

Grania, and yes, you sound “above average” in your understanding. Paper gold is also, as PAULE stated, an instrument for futures contracts and does not represent actual metals unless and until it is delivered (which is the exception). Metals IRAs (another paper) are not only at risk because of possible shortages in storage, but also the possible “wealth tax” that could hit all IRAs should the government change the rules (no Congress is tied to past Congressional legislation). Collectables, rare coins, antiques, etc. do not maintain premium value during economic crisis, so no, they are not valuable as hedge instruments.… Read more »

Bob L.
5 years ago

Paper ‘assets’, even paper gold is just that, paper and can become just as worthless.
If you want gold or silver as insurance, get the real thing in your hand.

Larry Yates
5 years ago

Thanks Paule. You sumed up my concern very well.

PaulE
5 years ago

May I suggest you really need to provide some broader financial market and global macro economic context to explain to the average AMAC member, who is neither a professional futures commodities trader, financial analyst nor a professional coin dealer, why the various precious metals topics you’re discussing should or should not be of importance to them. Otherwise, I fear a large segment of the people reading your article won’t be able to connect the various dots you’re laying out for them about gold and other precious metals. I understand the primary intent of these articles is to attract customers for… Read more »

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