Would Friedrich Nietzsche Be Bullish on Gold?

Friedrich Nietzsche Be Bullish on GoldIn 2012, the U.S. Mint sold 753,000 ounces of gold bullion in coins. So far this year, until November 6, the Mint has sold 761,000 ounces of gold bullion in coins—and we have two more months to go in 2013. (Source: U.S. Mint web site, last accessed November 6, 2013.)

If we assume U.S. Mint sales of gold bullion coins will be the same for the months of November and December as last year’s (136,500 and 76,000, respectively), the demand at the U.S. Mint will be 28% higher this year than last year.

But it’s not just the U.S. Mint that is experiencing strong demand for gold coins.

The Perth Mint in Australia is one of the biggest mints in the global economy. The Mint’s sales and marketing director, Rob Currie, said, “We’re desperately trying to keep up with production.” (Source: “Perth Mint Mulls Expansion as Gold Coin Sales Rebound,” Wall Street Journal, November 6, 2013.)

And I haven’t even gotten into strong demand from India and China for gold bullion! So gold bullion demand is as strong as ever, but prices are still low?

Let’s move to the supply side of the equation…

As I recently reported in these pages, according to the U.S. Geological Survey, production from U.S. gold mines declined in the first seven months of this year compared to the same period a year ago. Production is declining because, as gold prices dropped, producers cut back on production at mines where producing at a cost of $1,300 to $1,400 per ounce of gold bullion doesn’t make economic sense.

Consider AngloGold Ashanti Limited (NYSE/AU). In its third-quarter corporate earnings announcement, the company said that its exploration costs declined 30% and capital spending decreased by 19% in the third quarter from the second quarter of this year. (Source: AngloGold Ashanti Limited, November 6, 2013.)

With demand rising, supply declining, and prices remaining stressed for gold bullion, I can’t help but agree with Friedrich Nietzsche, the 19th Century German existentialist philosopher. He said, “In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule.” (Source: Brainy Quote, last accessed November 6, 2013.)

Irrationality prevails in the gold bullion market. I say this because the basic fundamentals of the price don’t really matter these days as the precious metal is becoming a constant victim of manipulation…but that can only go on for so long.

Smart investors are those who are building up their positions in the gold sector now by looking for deals. The price pullbacks we saw in April and again in June of this year have provided a great buying opportunity for investors to jump back into the gold bullion market.