So far this month the US Mint has sold 2.65 tons of American Eagle gold coins.

May 23, 2011 – So far this month the US Mint has sold 2.65 tons of American Eagle gold coins. Yes, tons. “The last time sales reached that level, bullion rose 21 percent in the next year,” say Bloomberg’s Nicholas Larkin and Pham-Duy Nguyen. And it is not just the Eagle that’s selling like hotcakes. Another standard, the Krugerrand, just had its strongest month since late last summer.

The strong sales of gold coins is representative of a broader growth in investor demand for physical gold. “What drives people towards physical metal, as opposed to ETF or futures, is fundamental insecurity. It’s like safe haven in extremis,” Ross Norman, chief executive officer of Sharps Pixley Ltd., a London-based bullion brokerage told Bloomberg.

Even though investor participation in the physical gold market is negligible, in 2009 investment demand outpaced that of jewelry for the first time in 30 years. Since then it has been steadily growing and is expected to increase nearly 10% this year and 11% in 2012.

Bloomberg surveyed 31 analysts, traders and investors – mainstream experts not known for their warm feelings about gold – and found that 81% of them expect gold’s bull market to continue throughout 2012. The median of their estimates puts the gold price at $1,750 by the end of the year.

The head of commodity research at Goldman Sachs Group concurs, expecting sovereign default risk “will continue to support gold prices. We see them trading up to the high $1,600s at the end of this year and going into the mid-$1,700s next year.”

There is, of course, some peril in growing investor demand – eventually investor participation could reach a level where a real bubble could form. But we are far, far from that point today.

As Rob Arnott, chairman of California-based Research Affiliates, told Bloomberg, our economy is “bottom bouncing and showing no signs of recovery … It’s hard to identify uncertainties that could drive markets massively higher, but relatively easy to identify those that could drive them massively lower … which means now is a wonderful time to have a very defensive investment posture.”

By its very definition, that equates to a very strong investment in physically held gold coins.

Kevin Johnson

Senior Staff Writer – GoldCoin.net