By Jon Swyers of Asset Strategies International
If demand is high and supplies are low, why are you seeing depressed gold and silver prices? How is this possible?
I’ll explain below what is going on with gold and silver supply and demand. At ASI, we don’t believe in fighting low precious metals prices, we believe in taking advantage of them.
Supply and demand and their relationship to prices is a predictable phenomenon, but right now, this is not the case with regards to silver and gold American Eagles. Under normal circumstances, the market will increase the price of an item when there is high demand and supplies are low.
Recently, with silver and gold American Eagles, the reverse has been true. That is, we are in a low price environment despite high demand.
Minted by the U.S. government, these silver and gold bullion coins are currently undergoing a nearly unprecedented increase in demand.
The demand statistics for silver and gold American Eagle bullion coins are dramatic. In February, the United States Mint reported 12,500 1-ounce gold American Eagles sold. Sales increased to 35,000 1-ounce gold eagles in March, and 144,500 1-ounce gold eagles in July. That’s a total demand increase of over 400%.
Similar demand increases occurred during the same period for silver American Eagles. The February demand was 3.2 million ounces, 3.5 million ounces in March, and 5.5 million ounces in July. This is the highest increase in sales since 2010 and represents a 6-month demand jump of nearly 63%.
The prices of silver and gold American Eagles are poised for an increase. Demand pressure has been escalating all year and has proceeded without a price rise for that entire period. Only recently have we seen a slight price increase. This price behavior, in light of growing demand, is not supported by basic laws of supply and demand.
What is keeping the prices down? The answer lies in influences outside of supply and demand factors.
The main cause of this supply and demand price anomaly is public sentiment. Fueled by an unprecedented press barrage against precious metals (from both the professional financial and popular journalism communities), the public perception of precious metals is at a significant low point. As a result, prices have failed to move upward.
This has generated bargain hunting. Hence, we’ve seen a rise in demand over the last nine months without an accompanying price jump.
This cannot last for long.
The negative public perception of precious metals will soon ebb. ASI has written extensively about the consequences of the anticipated October action of the International Monetary Fund to designate the Chinese yuan as a reserve currency.
Also in October, we may see the Federal Reserve increase interest rates. The expected result of this will be downward pressure on the U.S. dollar and a run from equities, which in turn will produce upward price movement on gold, silver and other precious metals. Add this to historical data proving the fall months show the largest price increases and demand for precious metals, and you get a number of factors that will send prices higher.
Our readers have been paying attention to the market and savvy investors are preparing for the fall, by taking advantage of the buying opportunity.
The window of low prices may be closing.
Increased demand must eventually cause a price increase. If that price appreciation does not occur, and demand stays strong, the wholesale market will cause an upward move in premiums. Dealers will scramble to cover orders from a short-term minted product supply crunch.
While there is not yet a shortage of gold or silver, there are increasing shortages of MINTED gold and silver coins. This means availability will be limited, and premiums will ultimately increase.
The time is now – while prices are low and premiums are steady – to allocate to precious metals.
Currently, silver and gold American Eagle coins are a bargain.
Please email us at [email protected] in the first instance and we will have Jon help organize you to diversify, or establish your core portfolio with American Eagles and help Keep What’s Yours!