by Elijah Johnson
As turmoil heightens in the geopolitical scene, the world markets, and world economy, investors are seeing precious metals as the go to safe haven. Gold prices have risen over $150 per troy ounce, or about 15 percent, since the beginning of 2016. Precious metal dealers around the country are experiencing increased demand.
Investors bought $1.6 billion of precious metals in the second week of February alone. That’s the second largest weekly demand for precious metals in the last five years, Forbes reported.
“The best way to describe the events of the gold market for the first two months of 2016 are ‘fear’ and ‘flight to safety,’” senior writer for Gainesville Coins, a bullion distributor from Lutz, Florida, Steven Cochran said.
Managing Partner and Co-founder of bullion dealer Perpetual Assets Gus Demos says business has been strong ever since the equity markets in America and around the world started showing extreme volatility last August. But once gold and silver prices started rising at the beginning of the year, he said demand for precious metals grew even stronger. Demos estimates that business is currently double what it was last year at Perpetual Assets.
President and Co-founder of a Minneapolis based precious metals dealer Miles Franklin Andrew Schectman said “We are witnessing a really strong demand actually, as strong as I can remember in many years.”
Schectman said business has increased at his company 15 to 20 percent from last year.
People are investing in precious metals because they want protection from a further stock market crash, said precious metal analyst and commentator Bill Murphy.
“Stock markets are under pressure all over the world,” Murphy said, “people are concerned that all of a sudden their equity that they’ve saved all their lives for…all of a sudden is disappearing.”
Cochran, Schectman, and Demos all noted that recent talk of implementing negative interest rates around the world also has been bullish for precious metals.
Although not a reality yet in America, negative interest rates are being tried by central banks in Japan and European countries. As for the bond market, Bloomberg reported $7 trillion worth of government bonds have a negative return.
“Negative interest rates completely remove one concern cited by detractors of physical gold – that it doesn’t pay interest,” Cochran said.
Also, economic and geopolitical strife worldwide is affecting demand. In the precious metal bull run in 2011 where gold peaked above $1900 per ounce, Miles Franklin saw investment demand coming from people who were trying to make a profit. But Schectman said this time around the demand is coming from people worried about the future.
“It just seems like things are different this year,” Schectman said, “Things are different in many respects, whether it be the impending election and the mess we have here with our political system, or our own monetary system, or negative interest rates worldwide…or issues in the Middle East or the South China Sea or all across Europe – there are so many problems that are springing up, not to mention against a backdrop of confusion to say the least in the world of currencies and investments.”
It is not just concern about the financial system that has been fueling the demand. Investors are taking advantage of what have been low prices relative to what they were a few years ago. For over four years, gold has been in a bear market, falling over $800 from its 2011 all time high to a six year low of about $1050 in December.
“The resilient demand for gold is partly due to its oversold condition at the end of 2015,” Cochran said.
Demand has been not only coming from America, but also from Asia.
Cochran said, “Our Asian customers have also been heavy buyers, in contrast to media reports that gold demand there has moderated.”
Gainesville Coins has experienced shortages of 2016 American Silver Eagle coins. The U.S. Mint is rationing the coins at just over a million coins per week, due to a shortage of silver blanks. However, other government and private mints have been able to keep up with the demand, Cochran noted.
About the Author:
Elijah Johnson is the host of the web-channel “Finance and Liberty.” On Finance and Liberty, Johnson interviews financial authors, analysts and market makers on the state of the U.S. and world economy from angles not covered on the mainstream news.