Bloomberg recently reported on January gold and silver coin sales from the U.S. mint. The headline for their article reads:
"U.S. Mint Gold-Coin Sales Jump 63% in January; Silver Triples."
"Sales of gold coins by the U.S. Mint rose 63 percent in January to the highest since April as futures rebounded. The volume climbed to 91,500 ounces from 56,000 ounces in December, while sales of silver coins almost tripled to 4.78 million ounces, the highest in a year, mint data showed yesterday."
However, this increase is typical for the month, as January usually represents one of the strongest months for U.S. Mint bullion sales. Precious metals investors are eager to obtain newly dated coins, driving high initial demand during January. Pent-up demand from any supply shortages at year-end also gets carried over into January sales.
So, it is a bid odd to headline the article by comparing January sales to December sales. To uninformed readers that don't make it to the last sentence of the article, it would seem that demand for gold and silver bullion has skyrocketed at the start of 2014. This is simply not the case.
Sales of gold coins during January 2014 were actually down 39% versus the same period a year ago. Sales of silver coins, while respectable at 4,775,000, were down 36% compared to January of 2013. Bloomberg threw in a single sentence at the end of the article mentioning this fact, almost as an afterthought. I have no idea if this was intentional or just sloppy reporting, but it is misleading to headline the percentage increase in bullion sales for January vs. December, without putting the numbers into proper context.
I am bullish on precious metals in 2014 and you can read why in my article: 12 Reasons Why Gold Will Rebound and Make New Highs in 2014. Strong physical demand is one of the reasons, but this is mostly from the fact that China is importing gold at record levels and central banks around the globe remain net buyers. Sentiment towards precious metals remains very bearish in the U.S. and investors are not buying bullion coins at the same pace they did last year. This is largely because stocks have been providing better returns over the past two years, thanks to FED stimulus, corporate share buybacks and cost cutting.
However, 2014 has thus far been a difficult year for equities. The S&P 500 is down 6% and emerging markets are off by more than 10% YTD. Manufacturing is slowing in the U.S., China and around the globe, while the FED has thus far cut $20 billion per month from their quantitative easing program. Fears of a protracted stock market correction persist and could continue dragging markets lower and pushing precious metals higher.
If money continues to flow from stocks into gold and silver, we are likely to see strong gains in bullion sales not just versus weaker seasonal months, but year on year. I also believe that we will see a strong rebound in oversold and undervalued mining stocks, many of which are already up double digits so far in 2014.