The sales of US Silver Eagles, as reported by the US Mint, have skyrocketed in the month of January. The chart below shows the monthly sales figures since 2008. Truly, the spike is exceptional for silver, but there is a significant difference with the Gold coin sales. The question is obviously why silver sales have gone up exceptionally compared to gold coins. We do not pretend to have the answer, and we will avoid any guess. We believe that the public awareness about the destruction of the currency and the real benefits of precious metals is rising steadily. Instead of looking for other explanations, we would like to put these figures into perspective, in order to add some value to this news event.
Detailed sales figures were reported by the Mint on January 29th, the one but last trading day of the month of January:
- Gold coin sales: 150,000 (troy) ounces. That equals approximately 4,665 kg or 4.6 tonnes.
- Silver coin sales: 7,420,000 (troy) ounces. That equals approximately 230,000 kg or 230 tonnes of gold.
Now to put these figures into perspective, we have collected some recent data from earlier articles on Gold Silver Worlds:
- Hong Kong exported 90.7 tonnes of gold to China in November 2012. Total net gold flow in the first 11 months of 2012 was 462.7 tonnes and 2011 totaled 379.5 tonnes. (source)
- GoldCore wrote that Iraq quadrupled its gold holdings to 31.07 tonnes between August and October 2012. (source)
- Silver global silver production in 2011 equaled roughly 24,000 tonnes. (source)
- Global gold production in 2011 equaled roughly 2,500 tonnes. (source)
- Total global above the ground gold is roughly 165,000 tonnes. (source)
It is also interesting to compare these figures with total central bank gold holdings. Suppose the January gold coin sales would remain steady throughout the whole year (just an assumption), then the total sales would equal 45 tonnes.
We asked for opinions from people in the field. Claudio Grass, managing director at Global Gold in Switzerland told us the following:
Physical demand is increasing heavily. However, the gold and silver price remain stable. This might create uncertainty for this kind of buyers who don’t understand well enough monetary history and therefore lack the knowledge that gold has been money for more than 3000 years. Johann Wolfgang von Goethe used to say “It is easier to perceive error than to find the truth, for the former lies on the surface and is easily seen while the latter lies in the depth, where few are willing to search for it.”
An intuitive reaction of most people is to link these sales spikes with higher prices. While it could be that higher coin sales figure result in higher prices, it is not necessarily the case. Why? The most important characteristic of precious metals, compared with all other commodities, is that almost all stock is above the ground. The additional yearly mined supply is some 1 to 1.5% of the existing stock. So almost all precious metals sales imply a shift from one holder to another one. Robert Blumen, precious metals analyst and one of the contributors of this website wrote the following about the latest US Mint sales:
This report demonstrates a common misunderstanding of the gold market, or really, of any asset market. If the numbers reported are correct, then demand for Silver Eagles by the customers of the US Mint has increased compared to January 2011. In order for the mint to meet this demand, supply had to increase by exactly the same amount. The figures can equally imply that “a massive 7.4 million silver eagles were sold by the US Mint” and that “supply once again surged”.
The sale of a record number of gold ounces in January is reported to mean that people are rotating from paper to physical. But where did that gold come from? Someone must have sold it out of their own portfolio. It is wrong to ignore the equal and opposite sale of 150,000 ounces of gold, which by the same logic should be taken to mean that people are shifting from physical to paper.
The sale of 150,000 or any other quantity of gold does not by itself indicate that people are shifting either from physical to paper, or the opposite. It indicates that some individuals are shifting in one direction and some others are shifting in the opposite direction. The volume alone tells us nothing about the price. This same type of thinking shows that if a trade occurs on the stock market for 150,000 shares of a stock, that buyers are rotating into this stock, which is true only if we ignore the seller who is rotating out of the stock. Any asset with a fixed or slowly changing supply is traded around the market at some price, but the volume of trading does not set the price.