I have always considered sales of modern gold and silver bullion coins a bellwether on the general health of the global precious metals market. In reality, though, bullion coin sales comprise only a very small portion of the physical gold and silver markets. According to the World Gold Council, modern gold coins make up only about 13% of investment demand and a little less than 5% of overall demand. Yet, as is often the case in statistical inquiry, it is the small and often unobserved, sometimes even ignored, that can accurately tell the larger story – particularly when it reflects the net effect of human action within the greater economy and financial markets.
In a nutshell, it is because the demand among ordinary private investors is telling us something very important: The level of confidence people have in the economy and the plan being carried out by the central planners in charge. Twentieth-century economist Joseph Schumpeter (1883-1950), most famous for his theory of creative destruction in capitalist economies, said it best: “The modern mind dislikes gold because it blurts out unpleasant truths.” I am quite certain that the “modern mind” to which Schumpeter referred was a collective term for the social and economic planners responsible to this day for the construction and maintenance of the fiat money economy.
With that for initial spade work, let’s take a look at the demand for modern gold and silver bullion coins to see what they might be “blurting out” at this juncture in economic history. First and foremost, the numbers tell us that though Washington and the mainstream media may have recovered psychologically from the 2007-2008 crisis, the investing public has not. In fact, by implication the numbers tell us that concerns about a repeat, or better put, an extension, of that crisis still run high among investors.
The charts depict two different eras for gold and silver bullion coins – the one before the crisis and the one after. The strong consumption in 2016, in that respect, is decidedly a continuation of a well-established trend that began in 2008. For gold, 2016 was the fifth best year on record in terms of sales and in a virtual dead heat with 2015. For silver, 2016 was the fifth best year on record coming after last year’s record sales. Since 2016 was a relatively calm year in financial markets, the question arises how high demand might go if another crisis were to suddenly ignite.
Another lesson in these charts, and one that should not be overlooked, is that the record performances in both precious metals since 2008 did not occur in an inflationary environment, but in a distinctly disinflationary one. The strong and continuing post-crisis demand, running consistently at five to nine times pre-2007 levels, belies the mainstream media’s unremitting mantra that the precious metals are an inflation hedge and inflation hedge only. In that regard, silver is the big surprise. Prior to the current period, silver was generally viewed as an industrial metal with some investment potential and rarely a safe-haven or crisis hedge. Now investors give silver nearly the same credence they do gold for asset preservation purposes.