How Gold & Silver Prices Have Affected Investor Sentiment

Gold and Silver Prices
Gold & Silver Eagles

Over the past few years, we’ve experienced bull and bear markets in gold and silver, and have witnessed varying levels of sentiment toward precious metals.  As the price of silver was approaching a 21 year high in April of 2011, we couldn’t keep enough silver in stock to meet demand.  Gold, likewise, was in incredibly high demand by the time that it topped out in August of 2011 at $1,900 an ounce.  In 2013, gold and silver experienced their worst performance in decades with losses of 28% and 36%, respectively.  All the while, demand for physical gold and silver was nearly insatiable with an increase of gold and silver eagle sales of 13.75% and 26.47%, respectively, over the prior year.   At the moment, gold is up 3% year to date while silver is off by nearly 5%.  In this article, we’re going to discuss how the price of gold and silver has affected coin sales and provide some insight as to where we think prices are headed from here.

As recently reported by Coinupdate.com, gold and silver eagle sales have been mixed in 2014.  While the pace of silver eagle sales is only slightly off from a year ago (which could be due in part to delayed release of the coins), the sale of American gold eagles is off over 50% over a year ago.  This is a substantial drop-off; especially when you consider that gold prices have only risen 3% this year.  Our assumption is that investors of gold coins have become disillusioned with stagnant gold prices, and will likely need some type of catalyst to move back in the markets.  On the other hand, investors of silver bullion are likely taking advantage of lower prices as a buying opportunity, considering that the price of silver isn’t much above production costs.

From a local perspective, we’re seeing similar sentiment in the two metals.  Most of our larger gold coin buyers seem to have lost a bit of their resolve, and have pared down on the frequency and quantity of gold coins that they’ve been purchasing.  Some of these individuals now view silver as a better buying opportunity, and have shifted strategies, while others appear to be content taking a neutral position for the time being.  From a silver perspective, demand for 90% silver coins remains relatively strong, while silver eagle demand continues to lead the pack.  This may be due in part to premiums for silver eagles collapsing over the past year from nearly $8 a coin back to their historical average.

We believe that a substantial price shift in the price of gold will likely be needed before we begin to see an increase in demand.  We addressed in a previous article some potential catalysts that may cause the price of silver to break out, and as of this post, all of the scenarios are still feasible.  Another potential catalyst not mentioned in the article is the recent election in India, which may put an end to gold restrictions, as the elected officials appear to be more pro-gold than the prior regime.  If India reopens its markets and puts an end to its oppressive 10% precious metals import tax, look for a new wave of gold and silver to flow into India.

Monthly jobs reports have also historically moved the gold and silver markets.  Just today, the ADP reported its May jobs figures, which fell below expectations.  According to this report from Businessinsider.com, 179,000 new jobs were created compared to expectations of 210,000 new jobs.  The ADP report is typically a precursor to the BLS jobs report, which is scheduled to be released on Friday.  If this report equally disappoints, the Fed may reverse course, or at least suspend its bond tapering program.  Historically speaking, a more accommodative monetary policy has had a positive impact on the gold and silver markets.

In summary, while sentiment toward gold and silver may be less than lackluster at the moment, we’re still seeing strong American silver eagle demand, and to a slightly lesser extent, 90% silver coin purchases.  Additionally, there are many potential catalysts that could drive gold and silver prices higher, which could bring individuals into the market that have been sitting on the sidelines.  Depending on the results of the BLS jobs report this Friday, we could potentially see the price of gold and silver spike, which would be a long overdue relief to the precious metals faithful.

Tony Davis
Tony Davis