Gold Goes Up, Down and Sideways|
July 19, 2013
Gold bullion closed the year 2012 with a new year-end record price of $1,675 an ounce. For all the world, the U.S. Mint sold over $2.4 billion in gold bullion coinage, down from $3.4 billion the year before, but still leaving the Mint as the world’s largest producer of gold and silver coins.
It also left collectors and investors confused today with gold some $400 lower, and no one quite sure which direction it will move from here.
If Santayana’s quote that those who ignore history are condemned to repeat it, it might be worthwhile to look at U.S. Mint minting statistics for gold and silver American Eagles (one ouncers), and see what they were last year and this year.
For 2013, the Mint has sold during the first half of the year some 564,000 one-ounce bullion pieces (In all of 2012, some 667,000 one-ounce gold coins were produced at the West Point Mint. (That means the Mint is producing at an 84 percent rate already this year).
For silver Eagles, with 33 million one- ounce pieces sold, the comparison point is 26 million in mid July ( 78 percent of the whole).
On Jan. 1, 2013, the price of precious metals included these snippets (which are compared with July 12, 2013, and the percentage change):
So gold, which was almost $1,700 an ounce (and above platinum in an unusual interface) is down by almost a quarter and silver has taken an even bigger hit. As usual, however, a six-month look is just one aspect of the story and that analysis by itself would be incomplete in reviewing how it impacts collectors and investors.
First, gold remains an asset of last resort (but less and less among everyday folk who see a rush towards silver as unlikely and seem to look at these numbers as a long-overdue correction. That also means that you have to take gold in an historical context, and its price over the long term – at least 40 to 50 years.
A 50-year overview of gold brings you back to 1963, when private gold ownership in the United States was illegal; where the open market price for it abroad was showing a fixed rate of $35 an ounce, and where the Bank of Nova Scotia was routinely (in its Sept. 10, 1963, price list, quoting for Aug. 13, 1963 price – the prices were so non-volatile that the prior list was for March 1963 – and U.S. double eagles (Liberty or Saint-Gaudens design) were being sold at $43.75 (buying same at $41.75).
By the way, British sovereigns were being sold by the bank at $10.10 (Bank of Nova Scotia routinely bought (U.S. permissible dates, which were prior to 1959. Old sovereigns were the same price. French 20 francs at $9.25 sell, $6.53 buy reflect the period as I remember it.
By 1968, gold had split into a two-tiered system – a prelude for today – and so it stayed. On Jan. 16, 1970, the officials saw the price of gold decline to $34.90 an ounce below the official price), but since then, it has not been necessary to look back.
It is more convenient to start a look back at 1978 because what is in-between is mostly official actions: gold’s price is raised first to $38 an ounce from $35 (an 8.5 percent devaluation of the dollar, and then another change to $42.22 per troy ounce, a de facto 11 percent devaluation. What is the relevance of this?
It remains the way the U.S. dollar is valued even today. The United States has gold reserves of 261,498,926.247 troy ounces of gold worth $11.041 billion at the still official price of $42.22 an ounce, according to figures regularly published by the Treasury Department (The simple division shows that its value is $42.22 an ounce) for about 8,133 metric tons of gold.
That means (roughly) that you can take the official price, multiply it by 40, and you have the fair market value. (It also values the U.S. gold reserves at $441 billion.) The World Bank (International Monetary Fund) also values its gold artificially low. It recognizes U.S. preeminence. Which is obvious in looking at world reserves.
Of the top 15 international reserves, the U.S. greatly outnumbers rivals: U.S. (261 million troy ounces), Germany (109 million ounces), International Monetary Fund (90 million troy ounces), Switzerland (33 million ounces) and the European Central Bank (16 million troy ounces).
Significant is a recent the claim that central banks have “lost” money on the decline to $1,280 an ounce. I am reminded that you do not lose money as the market goes up, down or sideway as – only when you buy or sell. And U.S. holdings remain static and have for decades – leaving the U.S. heavily stored in gold and selling it as manufactured goods (coins) at a substantial profit.
Demand for U.S. bullion coins might have slowed in 2012 after two years of significant growth – but even so, the Mint sold almost 35 million troy ounces of gold and silver bullion coins worth $2.5 billion in Fiscal 2012. (On these sales, net income was $28.4 million – about 1.136 percent (small margin indeed, but a rich reward).
So even as the market goes sideways, up and down, expect U.S. Mint products to feed into it – and for many numismatic and bullion products to keep on coming.
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