As Gold Prices Fell, Gold Suppliers Ran Out of Coins and Bars
Hong Kong-based Chow Tai Fook, the world’s largest jeweler by market capitalization, reports some of its stores are completely sold out of gold bullion bars. The company said it has not seen demand like this for gold bullion since the 1980s. (Source: Financial Times, April 22, 2013.)
The Hong Kong Gold & Silver Exchange Society says it has run out of the majority of its holdings, as the society’s members are struggling to meet the demand for gold bullion from retail customers.
Meanwhile, volume on the Shanghai Gold Exchange reached a record high on April 22, when 43.2 metric tonnes of gold bullion changed hands. That’s a 42% increase in trading volume from April 19. (Source: Shanghai Gold Exchange web site, last accessed April 23, 2013.) China is the second-largest gold bullion purchaser in the world after India.
Similarly, sales of gold bullion at the United States Mint are nothing but robust. So far in the month of April, the U.S. Mint has sold 175,000 ounces of gold bullion in coins. In April of 2012, the Mint only sold 20,000 ounces of gold bullion in coins. Demand for gold bullion coins has increased 775% from the same period a year ago. (Source: United States Mint web site, last accessed April 23, 2013.)
And yesterday, the U.S. Mint reported it ran out of small American Gold Eagle coins. Sales of coins weighing one-tenth of an ounce were stopped due to strong demand.
Moreover, the demand for the other precious metal, silver, is very strong too. Demand for silver, according to the U.S. Mint, is up 100% so far from this time last April. The Mint has already sold almost 3.07 million ounces of silver in coins in April, compared to only 1.5 million ounces in April of 2012.
Texas Precious Metals, a precious metals dealer, reported on April 22 that in just two weeks, the company sold over 350,000 ounces of silver and 11,000 ounces of gold bullion. In its inventory updates, Texas Precious Metals advised its customers that it is completely sold out of silver. (Source: Texas Precious Metals web site, last accessed April 23, 2013.)
Dear reader, history has shown us that when a bubble bursts, investors flee very quickly. But after precious metals prices fell sharply early last week, investors did the opposite; they rapidly increased their buying.
Precious metals are not in a bubble; rather, we are witnessing the complete opposite. Individuals are actually running toward precious metals, buying more and taking advantage of lower prices. All of this even makes me more bullish on gold bullion and silver prices.
The co-principal of Title Capital Management LLC, a private real estate firm specializing in distressed properties in Florida, was recently quoted as saying, “I don’t know whether things are as good as they seem to be. A lot of properties are being occupied by institutional investors, not the end-user.” (Source: “Wall Street betting billion on single-family homes in distressed markets,” Washington Post April 21, 2013.)
Institutional investors are buying up homes at a very fast pace. In some Florida housing markets, purchases by institutional investors account for as much as 70% of all purchases.
It isn’t a hidden fact anymore; institutional investors have become major home buyers, and they are running toward the housing market because elsewhere, returns are not very attractive. Institutional investors are operating on the notion of buy homes, fix homes, and then rent homes out.
As I have been harping on about in these pages for some time now, for there to be a recovery in the U.S. housing market, first-time home buyers must be present in the market. Unfortunately, the March existing homes sales revealed some disturbing numbers about first-time home buyers. To say the least, they are shying away from the housing market. First-time home buyers accounted for just 30% of all the sales in March, compared to 33% in March of 2012—a decline of nine percent. (Source: National Association of Realtors, April 22, 2013.)
I beg to ask the question: why aren’t first-time home buyers running toward the housing market when the mortgage rates are so low compared to last year, and the home affordability index shows they are more than able to own a home?
The answer to this is very simple: millions of Americans are suffering financially, and I highly doubt buying a home is near the top of their priority list.
The real recovery in the U.S. housing market will occur once those who actually buy a house to live in it start buying more homes. Institutional investors buying a significant amount of homes could run into trouble ahead if demand from actual home buyers doesn’t improve.
What He Said:
“I see the coming recession being deep and difficult because U.S. consumers do not have the savings to spend their way out of the recession. The same thing happened in Japan. The Japan example proved that when consumer confidence is shattered, even zero percent interest won’t spur consumer spending. The same thing could happen here.” Michael Lombardi in Profit Confidential, August 23, 2006. Michael started talking about and predicting the financial catastrophe we started experiencing in 2008 long before anyone else.