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Sentiment in the gold market was fairly bullish last month as investors saw the precious metal as an important inflation hedge and safe-haven asset as recession fears have started to grow. However, that bullish sentiment was not seen in the physical bullion space as sales dropped sharply last month.
According to sales data from the US Mint, it sold 44,000 ounces of gold in various denominations of its American Eagle Gold bullion coins last month, down nearly 75% from the 175,000 ounces sold in May. For the year, gold bullion sales have dropped 76% compared to 182,000 ounces sold in June 2021.
Demand for US bullion coins was at its lowest level since December 2021.
According to some market analysts, June’s weak sales are startling, given how strong demand has been throughout the year. The US Mint has sold 733,500 ounces this year, up compared to 653,000 ounces sold in the first half of 2021.
According to some analysts, a couple of factors appear to be dragging down bullion sales. The first is the sharp correction in equity markets. The S&P 500 fell 23% in the first half of 2022, its worst half-year performance since the 1970s. Analysts said that in this environment, retail investors do not have a lot of excel capital to buy physical bullion.
However, there is another headwind facing the market, which is significant premiums.
“Gold prices had been dropping through most of June, but premiums remained elevated, which is keeping a lot of customers out of the market,” said Everett Millman, Precious Metals Expert at Gainesville Coins.
Millman said that the physical gold market has become slightly unbalanced as investors are holding on to their gold, which has driven up premiums.
He added that lower prices should lead to lower premiums for bullion coins.
“June’s weak sales numbers are more a function of the marketplace than a shift in sentiment,” Millman said. “We still see strong demand for gold because there is still a lot of fear. The fear has shifted away from the inflation threat. Investors are now afraid we are in a recession.”
Phillip Streible, chief market strategist at Blue Line Futures, said gold should continue to see solid demand through the rest of the year. However, he added that the precious metal’s most significant hurdle remains the US dollar.
“Research shows that gold does well in a recession, so many investors are looking at lower prices as a buying opportunity. The question is: how low will gold prices go before this is over?” he said.
Although sentiment appears to be holding firm in the gold market, the same cannot be said for silver. The silver market struggled through most of June and that uncertainty was reflected in physical demand.
The mint’s sales data shows 861,000 ounces were sold last month, down 36% from May’s sales numbers of 1.35 million ounces. At the same time, sales are down 69% from last year.
Analysts have said that silver has struggled as recession fears have grown over the last month. Although silver is an important monetary metal, more than half of the market demand comes from industrial uses.
Gold prices have dropped to their lowest levels since September 2021; however, silver prices are at their lowest point since July 2020.
Concern about an impending recession steadily grew in June as the Federal Reserve aggressively raised interest rates to tamp down inflation. Markets expect the US central bank to raise interest rates by another 75 basis points at the end of the month.
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