July 6, 2022

Gold ETF Holdings Surge in 2022

The SPDR Gold Shares Trust (GLD) continues to power higher in 2022 with a year-to-date gain of 7.5%.  The value of gold holdings of the GLD from the beginning of the year increased by over $11 billion to $68.13 billion.  Total gold held in trust by the GLD now amounts to over 1,106 tonnes.

The GLD hit an all time high during early March when it reached $191.50.  The demand for gold has increased due to of control inflation, a war in Europe that is spinning out of control, rampant money printing by the Federal Reserve and reckless spending by the Federal government.

Here are some basic facts about the GLD:

  • An investment in GLD allows investors to purchase an interest in gold without the costs of purchasing, transporting, insuring and storage of gold bullion or coins.
  • The fund expenses of the GLD are a modest 0.40% and allow an investor to purchase gold in whatever amount is desired, saving the cost of commissions and shipping on gold bullion.
  • The GLD does not give the buyer the right to receive gold bullion in lieu of shares purchased.
  • Purchases and sales can be done at any time during the trading day.  The GLD has excellent liquidity and the discount or premium from the value of gold bullion held is usually minimal.

Gold has been going steadily upwards since 2016 with minor pullbacks during 2018 and 2021.

The return on the GLD from date of inception on November 18, 2004 has been 8.36%.  In an uncertain world future returns look brighter every day.

 

 

The Downside to Rising Gold Prices

Investors in gold have reason to cheer as gold prices rise but there is a definite downside to increased prices. Impoverished populations that lack the basics of human comfort have no choice except to mine gold regardless of the environmental consequences.

Although large gold miners do not use mercury, small mines frequently use mercury in the separation and recovery of gold from ore extracts. Besides the danger of handling mercury and breathing the vapors, vast environmental damage is being done in the process of gold recovery, as documented by Bloomberg.

Lax supervision and outright support of informal mining by Brazilian authorities were behind a 46% jump in Yanomami land degradation last year in the form of deforestation and contamination of water and soil, according to a report released Monday.

Artisanal miners known as garimpo have wrecked 3,272 hectares (8,085 acres), with the size of the area doubling since 2018, according to the latest edition of “Yanomami Under Attack,” which is prepared by community groups with support by Brazilian conservation group Instituto Socioambiental. Their presence is also introducing more disease, weapons and alcohol.

The Yanomami are facing a second big gold rush since the 1980s, with an estimated 20,000 illegal miners inside an area of forest that straddles Brazil and Venezuela. The growing threat to remote Amazon communities comes as the administration of President Jair Bolsonaro plans to allow mining on indigenous lands in a bill that’s even opposed by large mining companies. As lawmakers prepare to vote, about 7,000 indigenous people are camped out in the nation’s capital in protest.

This situation seems to be beyond the control of local governments and like many other world problems are insurmountable.

What is the Best Way to Invest in Gold?

Major Gold Mining Stock Outperforms Bullion and Gold ETFs

Investors in gold often wonder about the best way to own the precious metal.  Gold is gold but depending on the vehicle used to purchase gold, investment returns can vary dramatically.

Simply put, the three basic ways to invest in gold are gold bullion, gold bullion ETFs, and gold mining stocks.

Gold Bullion

Purchasers of gold bullion may not trust “paper gold” or they may simply appreciate the beauty of gold bars and coins.  There is an innate satisfaction in being able to physically admire and touch gold, a metal that has had value to man since before the dawn of civilization.  Paper currencies always eventually wind up worthless while gold will maintain purchasing power.  The pleasure of owning physical gold does have drawbacks, the biggest of which is security and storage.

Although gold has moved up dramatically since 2019, the current price of around $1,950 is still slightly below the record high of $2,061 reached in August 2020.

gold Technical chart [Kitco Inc.]

Gold Bullion ETFs

An easy and low-cost method for purchasing gold bullion is by investing in gold bullion ETFs.  Funds put into gold ETFs are invested in physical gold and the fund is responsible for physical security.  The largest gold ETF is the SPDR Gold Shares (GLD) which currently holds about $68 billion in assets.  The ETF has a relatively low expense ratio of 0.40%.  The GLD will closely match the move in the price of gold bullion less the expenses of running the fund.

The GLD currently trades at $181.47 slightly below its high of $190.81 reached in August 2020.

Another ETF worthy of consideration is the iShares Gold Trust (IAU) which currently trades at $36.97, holds $32 billion in physical gold and has an expense ratio of only 0.25%.

Gold Mining Stocks

Gold mining stocks are where it all starts.  Someone must undertake the expensive process of locating and mining gold ore to produce refined gold.  The profit generated by the gold mining stocks depends not only on the price of gold but also on how efficiently gold mining companies are at exploration and deploying capital.  Many junior gold mining companies have not been able to participate in price gains despite the increase in gold prices.

There are two ways to invest in gold mining companies.  An investor can invest in a basket of gold mining stocks in a mutual fund or ETF such as VanEck Gold Miners ETF (GDX) or by purchasing individual gold mining companies.  Purchasing an ETF allows an investor to spread risk across the industry.  Purchasing a successful gold mining company can result in gains that far exceed the increase in gold bullion.

For example, the GDX currently trades at $39.67, below the price reached in August 2020.

Now, look at the performance of Newmont Corporation (NEM) a major gold mining company which has recently exploded to an all-time high and up 173% since late 2019.

There is no way to know which way of investing will work out best until after it happens.  Always diversify to reduce risk is probable the best advice.

For God’s Sake, Put Biden Back in the Basement

Here we go again. President Biden’s penchant for making erroneous, creepy, and discombobulated off the cuff remarks seems to have eliminated any chance of a negotiated cease fire in Ukraine.  Biden, speaking publicly in Poland, stated that President Putin must be ousted from office.  This position slams the door on a diplomatic approach with a country that has been historically paranoid about Western bad intentions towards Russia.

Although the White Houe press staff quickly tried to walk back the bumbling Biden’s remarks, it remains highly doubtful that President Putin will dismiss the remark as a slip of an addled brain.  As noted in Business Insider, the ill-considered remark only seems to reinforce the view of many that top Washington officials want the war to continue to for political purposes.

Richard Haass, a veteran diplomat and president of the Council on Foreign Relations, told the Post that Biden’s remarks don’t achieve the priorities of “ending the war on terms Ukraine can accept, and discouraging any escalation by Putin.”

“It discourages Putin from any compromise essentially — if you’ve got everything to lose, it frees him up. Why should he show any restraint?” Haass added. “And it confirms his worst fears, which is that this is what the United States seeks his ouster and systemic change.”

Haass said that while the White House immediately walked back those comments, the fact that Biden’s comments were off the cuff “could be read as Biden’s genuine belief as opposed to his scripted words.”

Michael O’Hanlon, a senior fellow at the Brookings Institution, told the Post the remarks make him concerned that top officials in Biden’s administration may not be thinking about ways to end the war.

“If they were, Biden’s head wouldn’t be in a place where he’s saying, ‘Putin must go.’

The situation in Ukraine becomes even more dangerous when considering previous unhinged remarks by Biden calling President Putin a “war criminal” and a “butcher”.  Name calling – seriously? We need diplomacy and negotiation – not remarks that only further inflame what is now only a local conflict.  Considering the increasingly aggressive rhetoric it is not now unreasonable to fear that Biden will sleepwalk us into a nuclear Armageddon that puts mankind back into the stone age.

nuclear explosion GIF

Biden’s mental status has been questioned many times by many people.  The problem has become so alarming that the Wall Street Journal actually said The President Should Avoid Public Speaking on important matters.

Some issues are just too important to be left to an unscripted Joe Biden…But these are dangerous times and we would all be much safer if Mr. Biden would make greater use of prepared statements on subjects such as, for example, weapons of mass destruction.

Yes, it’s important for all of us to be able to hear from our elected officials and to assess the content of their remarks as well as the skill and conviction with which they advocate for their policies. But this particular elected official does not appear to be up to the task. While we consider the implications, Mr. Biden should try to say as little as possible in public during an international crisis.

The bubbling crisis in Eastern Europe is just one more reason to increase gold and silver holdings. If you don’t own precious metals, buy them now.  If you own them, buy more.

 

 

The Number One Risk of Owning the iShares Silver Trust SLV

Evaluating risk is a part of any investment decision process.  A quick look at the recent past reveals that every asset can fluctuate in value, sometimes very rapidly.  Housing prices declined around fifty percent during the financial/banking crisis that started in 2018.  Commodities are notoriously volatile, subject to wide swings in demand and supply.  Even stocks, which for the past two years have been on a nonstop upside ride can have long stretches without gains or sudden sharp downdrafts.  Stock returns for the decade 2000 to 2010 were just a shade above zero.

Gold and silver, the only currencies to retain value for thousands of years, will continue to shine but will also have periods during which pullbacks will occur.  Holding physical silver in large quantities can be problematic when considering the cost of storage and security.

One alternative to holding physical silver is to purchase shares of the iShares Silver Trust (SLV) which holds physical silver stored by a custodian.  The value of the SLV over time will correlate closely to changes in the price of silver which makes it a relatively good proxy for holding physical silver.

As discussed above, every asset class has risk and owning the SLV is no exception.  If you are of the opinion that the greatest risk to the SLV (and to your personal wealth) is the government, you would be right.

As discussed in the SLV proxy statement, among the various risks of owning the SLV, adverse and/or confiscatory actions by the government is the number one risk of owning the iShares Silver Trust.

Future governmental decisions may have significant impact on the price of silver, which may result in a significant decrease or increase in the value of the net assets and the net asset value of the Trust.

Generally, silver prices reflect the supply and demand of available silver. Governmental decisions, such as the executive order issued by the President of the United States in 1934 requiring all persons in the United States to deliver silver to the Federal Reserve, have been viewed as having significant impact on the supply and demand of silver and the price of silver. Future governmental decisions may have an impact on the price of silver and may result in a significant decrease or increase in the value of the net assets and the net asset value of the Trust. Further regulations applicable to U.S. banks and non U.S. bank entities operating in the United States with respect to their trading in physical commodities, such as precious metals, may further impact the price of silver in the United States.

The SLV currently holds approximately $12.25 billion in silver bullion.

Yes, You Can Still Buy Gold Coins

There has been a lot of talk about gold being unavailable to settle futures contracts and the like but that is paper gold they are talking about.

If you love to hold and touch and possess physical gold (who wouldn’t) then yes – you can still buy gold bullion coins at retail but perhaps not for much longer.

Although you can still buy gold bullion coins, the selection and availability are severely limited due to a huge increase in demand, decreased mine production, and mint closures. Toss in the facts that the world is in an economic depression (by any definition of the word) and governments worldwide are flooding the global economy with helicopter money makes one wonder how much longer it will be before gold coin stocks at dealers are exhausted.

I have been buying gold coins for many years and I have never seen such a limited selection in all categories of gold coins. Other than the American Eagle and the American Buffalo dated 2020 there are no other contemporary US Mint gold coins available!  Pre 1933 coins gold coins are available but the selection is sparse.

Here are a few examples from Provident Metals, a leading online retailer of all sorts of bullion and coins. I have always had good experiences buying from Provident but please note that there are also many other reputable dealers out there who are also authorized purchasers from the US Mint.

2020 American Eagle 1 oz Gold Coin BU

In Stock  IRA eligible
Item is available and ready to ship!
Pricing and quantity as follows

1-9 coins
$1,905.88 cash
$1,925.74 bitcoin
$1,985.34 credit card

The 2020 American Buffalo 1 zo gold coin BU is also available for pre order with an estimated ship date of April 27th.  The pricing on the Gold Buffalo is $180 over spot price and on the Gold Eagle is $160 over spot price.

Given the scarcity of inventory, I am surprised that the premiums are not higher.

American Gold Eagle Bullion Coin Sales Up Sharply in March

gold-eagle-100x100According to the latest report from the US Mint, sales of the American Gold Eagle bullion coins soared in March from both the previous month’s sales and the previous year.

Total sales of the Gold Eagle bullion coins during March came in at 46,500 ounces, up by 151% from the previous month’s sales of 18,500 ounces.  Sales of the gold bullion coins were also way ahead of the year ago month, with more than double the sales of 21,000 ounces in March 2014.

Although sales of the gold bullion coins have been declining since 2009, year to date sales for 2015 have slightly outpaced the previous comparable period.  For the three month period ending March 31, 2015, the US Mint sold a total of 146,000 ounces, up from 143,500 ounces in the previous year’s quarter.

Sales of the gold bullion coins during 2014 totaled 524,500 ounces.  If the sales pace for the first quarter continues, sales for 2015 should outpace last year by around 60,000 ounces.

The chart below shows sales by year since 2000 of the US Mint American Gold Eagle bullion coins.

The current price for a one ounce gold bullion coin is about $1,270, an expensive purchase for many people but the Mint also sells smaller weight coins.   The American Eagle gold bullion coins are also available in one-half ounce, one-quarter ounce and one-tenth ounce sizes.   A one-tenth ounce gold American Eagle coin currently costs only about $138.  During March the US Mint sold a total of 70,000 one-tenth ounce coins, 8,000 quarter ounce coins, and 5,000 one-half ounce coins indicating solid demand by small investors for physical gold.

American Eagle Silver Bullion Coin Sales Drop Sharply from Previous Month and Year

american-silver-eagleSales of the US Mint American Eagle silver bullion coins dropped sharply during February from both the previous month and comparable prior year period.

The US Mint reported total sales of 3,022,000 ounces during February which is down by 19.4 percent from the comparable prior year period and down by a considerable 45.4 percent from the previous month.  Due to strong January sales, however, total sales of the silver bullion coins is up slightly by 0.3 percent on the year.

There were four months during 2014 in which monthly sales of the silver bullion coins dropped below the 3 million level and yet sales hit an all time record high of 44,006,000 troy ounces.  Average monthly sales of the silver bullion coins during 2014 came in at about 3.6 million ounces per month while the average monthly sales year to date during 2015 is at 4.3 million ounces.  The silver bullion coins remain extremely popular with precious metal investors despite the decline in the price of silver since 2011.  Long term silver investors allocating a portion of their portfolio to physical precious metals view the current bargain price of silver as an opportunity to load up as evidenced by 2014 record breaking sales.

The chart below shows the trend of sales for the US Mint silver bullion coins since 2000.  Sales for 2015 are year to date through February 28, 2015.  Ever since the financial crisis when the banking system can close to completely imploding, sales of silver bullion coins have exploded by about 500 percent and remained strong despite the so called recovery in the economy and banking system.

While the sales of gold bullion coins has declined since the financial crisis, silver bullion coins remain as popular as ever with investors seeking a store of value in physical precious metals.

The price of silver has declined sharply since the highs of 2011 as investors have fled what seems like a losing proposition, especially in comparison to stocks and bonds which have been pumped up in value by the Fed’s easy money policies and zero interest rates.  Silver has seen volatile price action since the financial crisis but most investors who have made purchases since 2008 are now at about a break even price level or sitting with losses making this an interesting price juncture for silver investors.

10 year silver

Whether it be stocks, bonds, or precious metals, it is classic psychological behavior for investors to pile in at the top as prices are reaching bull market highs and then refuse to buy at the bottom when everyone is bearish.  No one can predict the timing of future price moves, but with silver prices in the bargain bin and little interest by investors, this is probably an area that deserves additional investment by long term buy and hold investors.  Silver has been considered money and a store of value throughout the ages and this is not likely to change, especially as desperate and over indebted governments rely upon printing press money from the central banks to keep the wildly over leveraged financial system from crashing again.

The sales of silver bullion coins by year since 2000 is shown below.  The figures for 2015 include year to date totals as of February month end.

American Silver Eagle Bullion Coins

               YEAR

OUNCES SOLD

2000

 9,133,000

2001

 8,827,500

2002

 10,475,500

2003

 9,153,500

2004

 9,617,000

2005

 8,405,000

2006

 10,021,000

2007

 9,887,000

2008

 19,583,500

2009

 28,766,500

2010

 34,662,500

2011

 39,868,500

2012

33,742,500

2013

42,675,000

2014

44,006,000

2015

8,552,000

             TOTAL

 327,376,000

 

American Eagle Gold Bullion Sales Plunge in February Following Weak 2014 Sales

gold-bullionThe US Mint’s February sales report for American Eagle gold bullion coins revealed slow sales in February continuing the weak sales trend set in 2014.

For the month of February 2015 total sales of the American Eagle gold bullion coins rang in at only 18,500 ounces, down 40.3 percent from the comparable prior year’s month and down a whopping 77.2 percent from the prior month’s sales of 81,000 ounces.  Who needs gold when you can buy government debt at negative interest rates?

The situation with gold and all other assets classes has been distorted beyond all traditional metrics by the ultra easy monetary policies of the world’s central banks.  Leverage in the world financial system now exceeds by many orders of magnitude that which existed prior to the financial crisis of 2008 which nearly brought the system to a grinding halt.  Where and when we go from here is anyone’s guess but I think it’s fair to conclude that at some future point gold will be acknowledged as the only store of value that cannot be devalued by desperate governments and central banks.

Until the investment masses reach that moment of clarity when they conclude that central banks cannot provide prosperity to the masses by printing money and monetizing government debt, gold may remain on the deep discount rack.  One has to wonder about the critical thinking skills of citizens such as Greece or Russia or Venezuela or many other countries in which the currency is plunging in value and life savings are being wiped out but yet the masses are not moving into a traditional universally accepted store of value such as gold.  Considering the fragile state of paper currencies and concerted efforts by central banks to destroy the purchasing value of the currency, it should be impossible to buy any amount of gold in many countries since no logical sellers would offer their gold at any bid.

Gold bullion sales in 2014 dropped to only 524,500 ounces after fairly robust sales of about 800,000 ounces during both 2012 and 2013.  The decline in the sale of US Mint gold bullion coins can be seen in the chart below.  Note that sales figures for 2015 include year to date totals through the end of February.

Although sales of gold bullion coins has been in a definite downtrend it is interesting to note that sales of the coins are still fairly robust compared to average sales in the years prior to the financial crisis.  After an increase in sales during 2013, sales of the gold bullion coins have declined every year since peaking during 2009 despite the fact that gold bullion did not reach its peak price of almost $1,900 per troy ounce during late 2011.

Listed below are the annual sales of the US Mint American Eagle gold bullion coins since 2000.

 

Gold Bullion U.S. Mint Sales Since 2000
Year Total Ounces Sold

2000

164,500

2001

325,000

2002

315,000

2003

484,500

2004

536,000

2005

449,000

2006

261,000

2007

198,500

2008

860,500

2009

1,435,000

2010

1,220,500

2011

1,000,000

2012

753,000

2013

856,500

2014

524,500

2015

                       99500

TOTAL

 9,483,000

2015 totals through February 28, 2015

Will 2015 turn out to be another year of low demand for American Eagle gold bullion coins?  Time will tell but based on annualzied year to date sales, total US Mint gold bullion coins would total 597,000 ounces, slightly above 2014 coin sales.

American Eagle Gold Bullion Coin Sales Up 25% In November

Liberty-EagleThe sale of the US Mint American Eagle gold bullion coins remained strong in November.

The US Mint reports that sales of the gold bullion coins were 60,000 ounces in November up by 24% from last year’s monthly sales of 48,000 ounces.  Sales for November slipped from October sales of 67,500 ounces which was the second biggest sales month of the year.  The year started off with a bang for the gold bullion coins when the US Mint sold 91,500 ounces in January.

Year to date sales of 506,500 ounces through November remain far below last year’s comparable sales of 800,500 ounces, a decline of 36.7%.  The sale of gold bullion coins has been in a general decline since 2009 as seen in the yearly sales chart below.

Gold has been in a nonstop bear market decline since early 2011 and gold sentiment weakened even further with today’s announcement that Swiss voters rejected a call for the Swiss National Bank to increase their gold reserves.

gold Technical chart [Kitco Inc.]

Shown below are the total ounces sold by year since 2000 of the American Eagle gold bullion coins.  Based on current sales trends sales of the gold bullion coins for 2014 will decline to the lowest levels since 2007.