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Gold Coin Sales Drop as Investors See Better Returns From Stocks

Thursday, 24 Oct 2013 01:22 PM

 

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Mints saw sales of gold coins like the American Eagle drop in the third quarter as retail investors lost faith in the metal's recovery and turned to assets promising better returns, such as buoyant equities.

A $200 an ounce plunge in gold prices in just two days in April had sent gold consumers scrambling to pick up gold jewelry, coins and bars at rock-bottom prices.

While a recovery from the second quarter's three-year lows curbed further bargain-hunting, gold's repeated failures to deliver a sustained rally hurt expectations it could offer buyers a good return.

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"There are three reasons why retail investors buy gold. One, because they think it's a good investment for their portfolio; two, because they think prices should go up; three, because they think prices are cheap," Bank of America Merrill Lynch analyst Michael Widmer said.

"The question is, which of those will come back into the market now? I don't think we'll see another big leg down, so the third investor won't buy. You still see steady demand from people who want to add gold to their portfolios, but I'm not sure whether you have many who think we will see another rally. So you're missing two big legs to the market."

Gold prices are currently at around $1,350 an ounce, having fallen to a three-year low of $1,180.71 in June. They remain some 30 percent below their all-time high of $1,920.30 an ounce, hit in September 2011.

Sales of gold American Eagle and American Buffalo coins from the U.S. Mint fell by nearly three-quarters in the third quarter to 113,500 ounces, a six-year low, after spiking to their highest in three years in the second quarter at 403,000 ounces.

Analysts say a reluctance to make further purchases was in part due to the growing appeal of other assets like stocks, which could offer investors a better return. The S&P 500 hit a series of record highs in the third quarter.

"With retail investors, if you gave them two choices between equities and gold, they would favor equities right now, so the demand for gold isn't has high as before," HSBC analyst Howard Wen said.

Other mints also reported a drop in sales. In Australia, the Perth Mint said its sales fell 23 percent in the third quarter to 124,067 ounces from 160,695 ounces in April to June.

EUROPEAN INVESTORS AWAIT PRICE MOVE

Data from Europe's biggest selling mint, in Austria, showed sales of its one-ounce bullion coins totaled 136,200 ounces in the third quarter — strong by historic standards but down 38 percent from 219,800 ounces in the April to June period.

The Austrian Mint's sales in April, at 116.6 ounces, were more than triple its monthly average over the previous year.

Buyers in Europe are waiting to see whether gold is likely to resume its 12-year bull run before investing, dealers said.

"The European market is very much an investment market. If the market doesn't continue to go higher, people will pull out," Afshin Nabavi, head of trading at Switzerland's MKS, said.

"The market at the moment is directionless. If there is any hint that we're heading up or down, we will see more demand," he said. "If gold proves it can go up, to $1,500 or so, we will see more confidence coming back into the market, and people will go in."

Signs are emerging that sales are picking up in October after the third quarter drop. The Austrian Mint's gold coin sales stood at 55,000 ounces as of Oct. 22, well above levels seen in the preceding two months.

American Eagle and Buffalo sales from the U.S. Mint totaled 42,000 ounces for the same period, up from 23,000 in September.

However, those sales are well below those made in April, when prices were nearly $180 an ounce higher.

Editor's Note: Get Tom Luongo's Gold Stock Adviser — Click Here Now!

© 2014 Thomson/Reuters. All rights reserved.

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