(Kitco News) – While gold prices appear to be trapped in neutral below $1,850 an ounce, physical demand for the precious metal appears to tell a different story, one of growing investor anxiety, according to some market analysts.
In its monthly sales data, the U.S. Mint sold 147,000 ounces of gold in various denominations of its American Eagle Gold bullion coins, the best May performance since 2010. Compared to April, sales are up 67%. For the year, bullion demand is up a massive 617%.
Even taking COVID-19-related production issues out of the equation, U.S. gold bullion sales are up more than 400% from the five-year average between 2015 and 2019.
Phillip Streible, Chief Market Strategist at Blue Line Futures, said there is a false equivalence between gold future prices and sentiment in the marketplace.
“Bullion sales better reflects the anxiety investors are feeling right now. When you hear economists talk about a recession, it starts to make sense why bullion sales are so strong,” he said. “Gold will always be a long-term store of value.”
Daniel Pavilonis, Senior Commodities Broker with RJO Futures, also said bullion sales better capture the current sentiment in the marketplace.
He added that the futures market is currently too closely tied with interest rates that are expected to rise through the year. The Federal Reserve has signaled that it is looking to raise interest rates by 50 basis points at the next two meetings. However, markets are looking for three 50-basis point moves.
Although markets expect the U.S. central bank to aggressively tighten monetary policy, Pavilonis said that he doesn’t think interest rates can go too much higher because of the government’s massive twin deficits.
“Gold futures are capped by rising interest rate, but people having been going out to buy the physical metal to have some ‘real money stashed away,” he said.
Pavilonis added that he is ultimately bullish on gold as there is solid demand for the precious metal. He said that he sees gold as undervalued given where inflation is and how persistent it will be through 2022.
While gold saw solid demand in May, investors’ interest in silver was relatively lukewarm. The U.S. Mint sold 850,000 ounces of silver last month, unchanged from April.
The mint has no sales data for silver in May 2021. Silver sales are down 58% compared to the five-year average between 2015 and 2019.
Streible noted that physical silver demand is closely tied with prices. He added that if silver prices fall below $21 an ounce, he would expect bullion demand to pick up.
A perfect storm is brewing in the global economy that is weighing on the silver market. The precious metal is struggling as interest rates rise. At the same time, fears of slowing global growth have weakened silver industrial interest.
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