War on Commodities: Falling Prices Equals Ballooning Demand For Gold Coins

The implied price controls conducted by some the major governments have apparently been meant to forestall the rise of statistical inflation via the commodity transmission.

Yet instead of the markets freaking out of commodities, physical demand instead has reportedly been swelling.

From Bloomberg, (bold highlights mine)

Sales of gold coins are on track for the best month in a year amid the worst commodities rout since 2008, a sign that bullion’s longest bull market in nine decades has further to run, if history is a guide.

The U.S. Mint sold 85,000 ounces of American Eagle coins since May 1 as the Standard & Poor’s GSCI Index of 24 raw materials fell 9.9 percent. The last time sales reached that level, bullion rose 21 percent in the next year...

It’s not just the U.S. Mint that saw accelerating sales. Rand Refinery Ltd., which makes the Krugerrand, said May 13 that sales are heading for their best month since August. Demand for physical gold on May 6 was the strongest since early February, Standard Bank said in a report May 11. The U.S. Mint sold 62,000 ounces of American Eagles in the first week of May, as the S&P GSCI slumped 11 percent, the most since December 2008.

UBS AG, Switzerland’s biggest bank, had its second-best day this year for physical sales on May 9, according to a report the following day. The bank’s sales to India, the world’s top bullion consumer, are more than 10 percent higher than in 2010.

So like my earlier post on declining silver inventories, we seem to be witnessing markets taking advantage of the government orchestrated turmoil.

And this has not been an all the private sector affair; Emerging market governments have reportedly joined the frenzy to accumulate.

From the same Bloomberg article, (bold highlights mine)

Another warning sign for the rally may be central banks adding to their reserves for the first time in a generation. Mexico, Russia and Thailand bought about a combined $6 billion in February and March, International Monetary Fund data show. Central banks hold 30,575 tons, equal to about 18 percent of all the metal ever mined, the data show.

The banks were also boosting holdings in 1980 when gold rose to a then-record $850, only to fall for most of the next 20 years. That high is equal to $2,299 in inflation-adjusted terms, according to a calculator on the website of the Federal Reserve Bank of Minneapolis. Prices tripled from 1999 through the beginning of 2008 as the banks sold more than 4,000 tons.

It would seem that the current ploy implemented by the US could be benefiting emerging market economies. Has the rigging of the marketplace also been meant to give EM economies ‘friends’ a discount?

Needless to say, the effect of the price manipulation seems becoming more evident—a policy failure.