Greysheet: GOLD BULLION PREMIUMS FALL ON WEAK DEMAND

A major topic of discussion in the market lately has been bullion and generic gold. Multiple market participants have commented to us that premiums for the commonly traded world gold coins: Sovereigns, Roosters, Swiss Vrenelis (20 fr), etc – have fallen to historically low levels because of a supply glut versus demand. As a result, we have fully revised pricing in this section to current market levels (including platinum). We encourage you to review.

It is somewhat surprising that premiums for struck coins are falling despite the fact that gold spot has performed well so far in 2016. Gold is up over $250 year to date, and has moved in two primary stages. First from mid-January to mid-February the gold price climbed into the $1,225 range, then another spike occurred from late May through early July to take the spot price to the $1,365 level. The problem for the past three months is that gold has been trading in a tight range, causing demand to wane. It goes without saying that buying and/or selling activity is sparked when gold is trending up or down, so that traders have at least a feeling of which way the market is headed. This is not surprising in an election year, as markets take a “wait and see” approach.

This has also impacted U.S. generic gold coinage. Circulated eagles and double eagles are trading virtually at melt, sometimes even back of melt, and premiums for mint state coins are near historic lows. We have also heard rumors of an enormous hoard of physical gold coins in Europe, consisting of US and European coins, that is weighing heavily on (over)supply. We are told that many commonly-traded European issues like the Sovereigns and Roosters are being melted to gold bars. If this glut continues, there is risk that circulated 19th and 20th Century U.S. gold coins could end up with the same fate.