There’s a Gold Rush Happening and It Could Spike Gold Prices
You will not hear about this in the mainstream financial press: there’s a gold rush happening at the moment, and it’s getting bigger. It makes a strong case for much higher gold prices.
Understand that gold prices move based on demand and supply. If demand is increasing, price tends to move higher.
Right now, there’s a perfect storm brewing even with the precious metal prices near their all-time highs—demand is surging.
Want proof? Just look at mint sales around the world to get some idea of what’s happening.
Consider the U.S. Mint for example. Year-to-date, until around mid-October 2020, the U.S. Mint sold 678,000 ounces of gold in American Eagle coins. (Source: “Bullion Sales,” U.S. Mint, last accessed October 15, 2020.)
How significant is this? In the entire year of 2019, the U.S. Mint sold just 152,000 ounce of gold in American Eagle coins. In other words: gold demand is running 346% higher this year than last year.
Here’s more: the last time the U.S. Mint sold higher than 678,000 ounces of gold in American Eagle coins was back in 2016.
But, don’t just look at what’s happening at the U.S. Mint. There’s a global gold rush happening.
In August, the Perth Mint of Australia reported sales of gold coins and gold bars of 67,462 ounces. This was 20.2% higher than July and up 209.9% year-over-year. (Source: “Perth Mint Gold Bullion Sales Hit 4-Month High in August,” CoinNews.net, September 11, 2020.)
Year-to-date, in the first eight months of 2020, the Perth Mint has sold 516,829 ounces of gold in coins and bars. This is 192% higher year-over-year.
Is This Why Buffett Bought a Gold Miner Rather Than Gold Itself?
Dear reader, I could go on and list other mints around the world and talk about how they are selling a lot of gold, and how hard it has become to get your hands on the physical metal without paying extreme premiums on it. But that’s not my point.
I suggest assessing what this surge in gold demand is telling us. At the very least, I believe, it says there’s a great deal of interest in gold.
If demand continues to be robust, as I said earlier, it’s making a case for higher gold prices. How so? Basic economics: if demand increases and supply remains the same, prices shoot higher.
Here’s a statement that may be bold, but I will still make it: I see a time when there could be a massive divergence between physical gold and paper gold. Meaning, you might get completely different gold prices when you go buy physical gold bars or coins versus when you buy gold futures and options. It’s already happening in some cases. Investors are paying very high premiums.
I will end with this: if we see physical gold prices surge higher, you must look at those that produce gold—the miners. They could be hands down the biggest beneficiary of this divergence. They could make a lot of money in this gold rush.
I wonder if that’s why Warren Buffett’s company bought a gold miner rather than gold itself: because the miners look more lucrative.