In April, as gold bullion prices dropped in the futures market, or the “paper market” for gold, the United States Mint reported it sold 209,500 ounces of gold bullion coins, up 950% from the 20,000 ounces of gold bullion coins it sold in April 2012. (Source: United States Mint web site, last accessed May 1, 2013.)
While this shows that demand for gold bullion in the U.S. is strong; elsewhere in the world, investors are also rushing to buy more gold bullion.
In April, Britain’s Royal Mint sold more than three-times the number of gold bullion coins it did in April of last year. The director of bullion and commemorative coin at the Royal Mint, Shane Bisset, said, “…since the dip in the price of gold we have seen increased demand for our gold bullion coins from the major coin market, and this presently shows no sign of abating.” Bisset added, “…the Royal Mint continues to supply to its customers and is increasing production to accommodate the higher demand.” (Source: Kolesnikova, M., “U.K. Royal Mint Gold Coin Sales More Than Tripled in April,” Bloomberg, April 24, 2103.)
Major markets for gold bullion are showing robust demand. According to Standard Chartered PLC, on April 23, its gold bullion shipments to India doubled compared to the week before, and they were 20% higher from previous records.
On the other side of the world, in Australia, the situation is the same; gold bullion buying is increasing. In an interview, Ron Currie, Sales and Marketing Director at Perth Mint, said, “…we haven’t seen levels like this since the 2008 global financial crisis.” Without providing actual numbers, Currie added, “…compared to March sales, April sales have doubled or tripled.” (Source: Lloyd-Smith, J., “Perth Mint Works Through Weekend on Highest Demand Since `08,” Businessweek, April 30, 2013.)
The Perth Mint is working in overdrive to fill the orders of customers who are rushing to buy gold bullion. (Source: Ibid.)
As the price of gold bullion dropped, the demand for the metal by retail investors has increased. And central banks around the world, while they were net sellers of gold bullion in past, are now big buyers.
Central banks from Russia and Kazakhstan are continuously buying the yellow metal in an effort to diversify their foreign reserves. Other countries, like Turkey’s central bank, have started to use gold bullion as collateral.
All of this shouldn’t come as a surprise to Profit Confidential readers; I have been harping on about the “quiet” rising demand for gold bullion for some time now. Central banks will continue to buy gold bullion as their peers are busy printing more paper-based currency. In 2012, central banks bought the largest amount of gold bullion since 1964. This year, I expect them to buy even more.
The powers that be are focused on keeping gold bullion prices down. But with this blatant worldwide rush to buy gold bullion, manipulation in the futures market for gold can only go on for so long.
Michael’s Personal Notes:
The Chinese Purchasing Managers’ Index (PMI) fell to 50.6 in April, compared to 50.9 in March. (Source: Fung Business Intelligence Centre, April 30, 2013.) While it’s not a big decline, it’s important to note that any number below 50 represents contraction in the manufacturing sector of the Chinese economy. In April, output, new orders, new export orders, backlog orders, and stocks of finished goods in the manufacturing sector of the Chinese economy were all lower than the previous month’s.
The obvious fear is that the economic slowdown in the Chinese economy will eventually send ripple effects through the U.S. economy, as a significant number of U.S.-based companies operate in the Chinese economy.
Unfortunately, the economic slowdown in the Chinese economy is picking up speed.
YUM! Brands, Inc. (NYSE/YUM), the parent company of many fast food eateries, including Pizza Hut, Taco Bell, and Kentucky Fried Chicken (KFC), reported its profits plummeted 27% in the first quarter of 2013 compared to the same quarter of last year. One of the main reasons for the decline in the company’s profits was a significant decline in sales in the Chinese economy. (Source: MarketWatch, April 23, 2013.)
YUM! Brands is not the only company that operates in the Chinese economy. Wal-Mart Stores, Inc. (NYSE/WMT), the biggest retailer in the U.S. economy, has more than 380 stores in the Chinese economy. (Source: Wall Street Journal, April 1, 2013.)
Not only will the economic slowdown in the Chinese economy decrease the profits of U.S.-based companies, it will also drag their share prices lower. And I’m worried these companies will be forced to take measures to maintain their corporate earnings—cost-cutting in the form of staff reductions, which add more pressure to the U.S. economy.
I’m watching the economic slowdown in the Chinese economy closely, as I believe its implications are vast. Keep in mind that as the world’s second-biggest economy, the direction of the Chinese economy is a key indicator of the global economy.
What He Said:
“The Real Threat to the Economy: U.S. retail sales are falling, the producer price index is crashing, house prices, car prices are all falling—and no one is talking about deflation but me. Fed governors are still talking about inflation—they’ve got it wrong. There’s no need for me to get into the dangers of deflation as I’ve written about them (many times) before. Let’s just put it this way: Deflation is about the worst economic state a country will experience. The risks to the U.S. economy in 2007 are greater than I’ve seen in years.” Michael Lombardi in Profit Confidential, November 15, 2006. Michael was one of the first to warn of deflation. By late 2008, world economies were embedded in their worst state of deflation since the Great Depression.