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How Can Gold Coin Prices Fall Despite A Supply Shortage?

Gold coin prices have been falling for some time, yet in recent weeks there have been numerous reports from entities like the U.S. Mint, the Perth Mint, the Royal Canadian Mint, Credit-Suisse and an array of gold dealers that demand for gold bullion coins and certified gold coins is as high as it has ever been. How can this be so? After all, isn’t the law of supply and demand what dictates prices in a free market?

Yes, and no.

It is true that demand for gold coins and bullion has spiked this year, especially in the wake of the mid-April sell-off that pushed gold into the $1300 range for the first time in a long time. Many investors saw that drop as a prime time to buy, and buy they did. At the same time, gold output has been lower than expected due to strikes, mining accidents and less-than-fruitful mining explorations. Yet, gold has remained mostly flat, and sometimes down, even with higher physical demand and less available gold.

However, the U.S. dollar, the currency in which gold is prices, has grown in power in comparison with a basket of other currencies, and faith in the dollar’s long-term solvency has been restored somewhat thanks to our government’s non-stop claims of economic recovery, matched with a Ben Bernanke-led Federal Reserve who refuse to admit that quantitative easing and artificial economic stimuli are not, and never could be, viable solutions to our nation’s financial problems.

Gold derivatives investments have seen dramatic outflows in recent months, especially among ETF and pool account-style investment vehicles. Since derivatives involve much larger amounts of money than does the physical gold market, which is mostly controlled by mom-and-pop buyers and part-time investors, the gold price has fallen. Whether gold bullion coins and certified gold coins truly lost “value” is up for their owners to decide.

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