Gold coins losing luster for investors

Sales have been falling for 3 straight years. High prices may be a factor, but a stabilizing economy is also tempering enthusiasm.

By Charley Blaine Jan 4, 2013 9:49AM
Image: Gold © Comstock Images/JupiterimagesUpdated: 12:34 p.m. ET, Friday

Despite what financial experts say about the benefits of owning gold, investors may not be taking that advice to heart.

Sales of gold coins by the U.S. Mint fell in 2012 for a third straight year. Sales of silver coins also were lower in 2012.

And we're not talking modest declines. Gold coin sales were off 24.7% from 2011 to 753,000 ounces, data from the Mint's site says. They're down by nearly half from 2009 when sales peaked at 1.44 million ounces.

Silver coin sales were off 11.3% to 33.74 million ounces from 2011's record 39.9 million ounces.

The declines came as the average price of gold climbed 6.3% to about $1,670 an ounce in 2012 while the average price of silver was $31.15 an ounce, down 11.3%.

So, what's going on? Probably some of the gold sales decline has to do with price. Gold is hardly cheap at Thursday's $1,674.60 an ounce. And, if prices aren't rising 25% or more each year, maybe some gold enthusiasts are looking elsewhere -- perhaps to silver, where prices jumped 38% in 2010 and 74% in 2011 before falling in 2012.
But there's a thought, offered by The Wall Street Journal on Thursday, that maybe a lot of individuals are eschewing the bother of holding onto and caring for gold coins and going to gold exchange-traded funds.

Here, too, there's a problem. The volume on the SPDR Gold ETF (GLD) fell 40% in 2012 after rising 8.4% in 2011. Volume fell 82% on the iShares Gold Trust ETF (IAU). And the ETFs rose not much more than gold itself.

Here are some  better explanations:
  • Gold coin sales appear to rise when the economy is under stress. There were big jumps in sales in 2002 after the Sept. 11, 2001, terror attacks and in 2008 and 2009 as the financial crisis erupted. The crises eased and so did sales.
  • Financial headlines in 2011 were dominated by the European debt crisis and then the debt ceiling fight between Democrats and Republicans in the United States.
  • Many gold investors may have been like other individual investors and recently tuned out markets.

There was a big volume spurt in the fourth quarter.

Sales of gold coins jumped from 41,000 ounces in November 2011 to 136,500 a year later -- an increase of 233%. In December, sales dropped back to 73,000 ounces, but that total was still a gain of 16% from the year before.

Many customers were freaked at President Obama's reelection and wanted gold coins as protection against the volatility of the fiscal cliff, says Terry Hanlon, president of Dillon Gage Metals, one of the largest dealers of gold coins.

The price of gold itself rose 4.7% between Nov. 2, the Friday before the election, and Nov. 23, from $1675.20 an ounce to 1,753.80.

That run-up seems to have run out of gas before the end of the year, and the selling worsened Thursday and Friday. Gold fell to as low as $1,626 an ounce Friday morning and was off $30 to $1,644 an ounce in the early afternoon.

Reason: Minutes from the December Federal Reserve meeting suggested half the members of the key Federal Open Market Committee want to end a bond-buying program this year.

That sounds esoteric, but the import of the thinking is not. It suggests the Fed may be closer to raising interest rates than thought -- although a rate increase isn't likely any time soon. Higher interest rates will drive commodity prices lower.

All this may not be good news for the U.S. Mint, which does its small part in trying to keep the federal deficit down. The Mint sold $1.35 billion in gold coins in fiscal 2012, down 29% from a year earlier. The business generated a profit of some $28 million.

Its silver business wasn't so strong: sales of $1.11 billion, down 29% from a year earlier, and a loss of about $5 million.

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