Demand for gold coins shot up 63% to 241.6 metric tons in the first three quarters of 2013, according to the latest figures available from the World Gold Council.
Sales of Gold Maple Leaf coins by the Royal Canadian Mint
MNT.T +0.07% surged 82.5% to 876,000 ounces in the first three quarters of 2013
from the same period of 2012. The Perth Mint, Australia's national coin and bar
producer, saw sales rise 41% to 754,635 ounces last year, while the U.S. Mint
sold 14% more American Eagle gold coins than it did in 2012, along with a
record amount of silver coins. Coin buyers tend
"They're not under any pressure to get a yield or a return in a year," Mr. Melek said.
Gold-market participants of all stripes keep close tabs on
coin sales, which make up about 10% of global demand for the metal, according
to the World Gold Council. Because 90% of gold use comes from jewelry-making
and investment, it is up to buyers ranging from Indian brides to German coin
collectors and U.S. pension funds to absorb the roughly 4,500 metric tons
produced by miners each year.
Many traders and analysts believe a flurry of buying by
Asian coin and jewelry dealers, for example, helped halt a two-day, 13% slide
in the gold-futures market last April. Some think the continued strength of
physical gold buying will prevent prices from falling much further, as it
becomes clear that a core group of investors is sticking with the market, said
Jeffrey Christian, managing partner of research consultancy CPM Group LLC in
New York.
"The gold price is largely determined by physical supply and demand, with investment demand being the single most important determinant for gold prices," Mr. Christian said.
Gold prices tumbled last year amid speculation that the
Federal Reserve would soon wind down its stimulus efforts, which had weakened
the dollar, heightened inflation fears and drove many investors into gold. The
Fed said on Dec. 18 that it would begin reducing bond purchases in January. A
day later, gold futures hit a more-than three-year low of $1,195 an ounce.
On Thursday, futures ended up 1.9% at $1,225 an ounce.
Prices are still down 35% from their record high of $1,888.70 hit in August
2011. Since April, gold has been in a bear market, defined as a drop of 20% or
more from a recent high. Last year, gold posted its first annual loss since
2000. Many analysts believe the dollar, which rallied against many currencies
on Thursday, is likely to rise more, further denting the case for owning gold. But
concerns about inflation remain vital with gold coin buyers like 60-year old
Jimmy McClintock, of Rockwall, Texas, who added a gold American Buffalo coin
last week to a collection he has been building since the 1990s.
"It's obvious to me that at some point our dollar will see a downturn in its value," said Mr. McClintock, who runs a contract post office. "Gold is just a good comfort, it's a commodity that anybody in the world knows and you don't need to be an expert to understand."
Michael Barber, who owns the Arcade Coin & Stamp
Galleries in Toronto, said he scooped up "quite a few" 100-year old
Canadian coins offered by the Royal Canadian Mint after detecting a
"surprising" level of interest from buyers looking to hold them as an
investment. Mr. Barber said collectors' coins typically aren't a good
investment because too many are produced and mints tend to charge above the
market price for gold. But he said those factors haven't deterred buyers so
far.
"People buy them because of the marketing," he said. "As long as they're promoting it, there is a lot of hype and interest."
Still, the importance of gold coins has been eclipsed in
recent years by the rapid growth of exchange-traded funds, some analysts say. ETFs,
such as the SPDR Gold Trust, allow institutional investors to quickly buy or
sell large gold positions without having to handle the metal themselves. Total
gold ETF holdings fell by 27.94 million troy ounces last year to 56.67 million
ounces, according to TD Securities. Hedge
funds can also borrow money to accumulate futures contracts or options, while
coin buyers tend to pay cash, limiting the amount they can buy, said Mr. Melek,
the TD Securities analyst.
"Folks like hedge funds tend to overpower the impact of physical gold purchases," Mr. Melek said. "Relatively little money gets them an awful lot of market power."
Unlike hedge funds, who may leave when prices fall, many
coin buyers are in for the long haul.
After giving birth to twin girls two years ago, Nelam Molnar,
30, an attorney and real estate broker in Los Angeles, decided she would buy
two gold coins on their birthday each year until her girls turn 21. She said
she has faith that the coins will be worth more in 20 years, recalling how her
parents bought gold for $800 an ounce when she was in high school.
"Most people who buy physical gold aren't doing it for the same reason you'd purchase a stock," said Mike Getlin, vice president with Merit Financial, a bullion and coin dealership in Santa Monica, Calif. "They tend to have a much longer investment horizon. They tend to hold onto them forever and pride of ownership is a huge factor in that."
A similar trend has occurred in the silver market, where
coin sales by the U.S. Mint rocketed to a record high 42.675 million troy
ounces in 2013 from a year earlier even as prices slumped 36% to $19.339 a troy
ounce.
