Last week, a major U.S. newspaper reported “Gold, silver and other precious metals poured into the U.S. as purchases of other overseas items dropped.” At a time when imports were down due to COVID-19, purchases of gold and silver coins and other precious metals products increased dramatically.
USA Today stated, “The value of precious metals pouring into the country hit a 19-year high last year, a $55 billion influx that doubled the volume of 2019. Analysts and traders say the trend reflects rising demand among purchasers that range from Wall Street investment funds to ordinary people buying up bullion.”
They quoted dealers whose daily call volume had doubled. Back in August of 2020, I was the only dealer interviewed by USA Today for a similar article. We can verify that, as many people have called us who had not called for years and many more new customers have also contacted us. The coins of most interest are bullion coins like American Eagle gold and silver coins from the U.S. Mint.
In the first three months after the lockdown began, the U.S. imported $23 billion in precious metals, a total that surpassed all of 2019. At the same time, many gold and silver mines were closing, limiting the new supply of bullion. Last May, $8.8 billion of nonmonetary gold shipped to the U.S. from the rest of the world, more than 10 times the monthly average for 2019, according to census data. In the first five months of 2020, Switzerland alone shipped about 286 tons of gold to the U.S. – more volume of gold than it had shipped in all of the preceding 10 years combined, according to Standard Chartered Bank.
This kind of demand for bullion products invariably leads to interest in rare coins by many of those new bullion customers within one to two years, and we are already seeing a scarcity of rare coins on the market.
American Eagle Gold & Silver Bullion Coin Sales Continue to Soar in 2021
American Eagle Gold coin sales are up a phenomenal 416% in the first two months of 2021 vs. the same two months in 2020, while American Eagle Silver coin sales are up a respectable 77% in the same two months. In addition, the American Buffalo Gold bullion coins were up by a robust 252% so far in 2021.
February was by far a more powerful month for U.S. Mint sales than January, which is traditionally the more popular month for buying newly-dated coins for the new year. This shows a new wave of investment demand beginning in February, unlike February of last year, when demand was very low. This is true in our business, too.
When Interest Rates Go Up, Gold Often Goes UP, Not Down
The pundits keep getting this wrong and saying (in press reports) that “gold goes down when interest rates go up” because “gold pays no interest and therefore it can’t compete with interest income,” but in nearly all the historical instances of rising interest rates, gold went UP, not down.
- In gold’s greatest bull market, from 1976 to 1980, interest rates soared to their highest levels in U.S. history, with the prime rate reaching 20% in 1980. Rare coins soared in value, as well.
- In gold’s second greatest bull market, from 2001 to 2011, interest rates rose rapidly from 2003 to 2007, at a time when gold had its greatest price increase.
- From 1973 to 1974, when gold was rising rapidly, interest rates were rising too, and when gold fell in 1975-76, interest rates were falling too.
The way to understand this anomaly is that higher interest rates anticipate higher inflation, which will lift gold at a faster rate than either inflation or interest rates can match, and once a few investors realize that fact, the gold market will begin to take off. The gold market is much narrower than stocks, bonds or global currencies, so a small amount of buying in the gold market can move gold far more than it can move stocks, bonds or currencies. Historically, gold and the dollar have moved in opposite directions, but that has been a shaky correlation over the last year due to COVID-19 putting a damper on the “velocity” of money – how fast it is spent. Consumers and investors have tended to sit on their stimulus money rather than spend it, so inflation has not erupted except in the stock market, real estate and Bitcoin.
We’re about to face reality with inflation. Fed Chair Jerome Powell said there is virtually no inflation and that any inflation we may face will be “transitory,” but President Biden plans to do away with fossil fuels and concentrate on underwriting inefficient forms of fuels that must be underwritten by taxpayer funding.
As a result, since the start of the year, fossil-based fuels have risen in price by more than 25%.
In Texas, the average retail price for regular unleaded gas was $1.89 per gallon on January 4 and as of March 8 that had increased to $2.48 per gallon, according to the U.S. Energy Information Administration in Washington D.C. The agency shows that two days before President Joe Biden’s inauguration, regular gas prices in Texas were $2.08 per gallon and they have increased by 40-cents per gallon since then. In fairness, Texas refineries were affected by below freezing temperatures for about a week and people will begin driving more as restrictions caused by the COVID-19 pandemic are eased. This creates a stronger demand for petroleum products.
This week, we will see the increases in Consumer (March 10) and Producer (March 12) Price Indexes. Economists are predicting 0.5% monthly increases (6% annualized). With many states opening up in the spring, we may see much higher inflation rates by the end of the year, which could send gold up to $2,400 or more per ounce this year, regardless of interest rates rising by a point or two along the way.