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The recent gold price drop caused some major losses in the paper gold market, but it's triggered a gold rush for physical buyers.
Ever since the precious metal got clobbered in a two-day period by heavy short selling in the futures market, there has been an unprecedented frenzy around the globe for the actual physical metal, in the form of bullion, jewelry, bars and coins.
In fact, the U.S. Mint announced Tuesday it had suspended sales of its one-tenth ounce American Eagle gold bullion coins for the first time since November 2009, as demand depleted the government's inventory.
The gold bears must be scratching their heads…
Gold Price is Good News for Asia
The gold buying frenzy is most apparent in Asia, which may be experiencing its strongest torrent of physical gold purchases in 30 years.
Haywood Cheung, president of the Hong Kong Gold & Silver Exchange Society, told the Financial Times "In terms of volume, I haven't seen this gold rush for over 20 years. Older members who have been in the business for 50 years haven't seen such a thing."
All of this demand led directly to premiums for gold in China jumping to a 15-month high over the spot price in London.
Hong Kong's banks, jewelers and gold exchange do not have enough gold on hand to meet the soaring demand. Demand was also high in Beijing, with long lines forming outside places that sell gold. In Shanghai, trading on the Gold Exchange's contracts exceeded 150 metric tons in the past week alone.
China is hardly alone is Asia in its gold-buying binge.
In Australia, sales of gold coins at the Perth Mint climbed 49% from a year earlier to 97,451 ounces in the first quarter of 2013. That was before April's swoon in the gold price. Perth Mint treasurer Nigel Moffatt told Bloomberg sales more than doubled in the week of the gold plunge.
In Japan, many investors fear the highly expansionary fiscal and monetary policies known as "Abenomics." Rampant money printing and a national debt in excess of double its annual GDP has many Japanese convinced that gold is the place to park their money. Especially since interest rates on bank accounts are basically at zero.
Let's not forget about India, traditionally the world's largest gold buyer. Many consumers there have been waiting for the gold price to dip to 25,000 rupee per 10 gram level. But some more aggressive buying has been seen thanks to the fall in the price of gold.
Joni Teves, an analyst at UBS, told Kitco News that physical gold flows to India are near the highest levels seen since 2008.
Mehul Choksi, CEO of the country's biggest jewelry retailers Gitanjali Gems Ltd, told Bloomberg the sharp dive in the gold price, after 12 straight years of higher prices, will make the precious metal more affordable as the traditional wedding season approaches.
U.S. Mint Sets Record as Gold Price Tumbles
Even though Asia is leading the global charge to buy physical gold, U.S. investors are not missing out.
The U.S. Mint sold a record 63,500 ounces (about 2 tons) of gold coins on April 17 alone. That brought its total sales for the month through the end of last week to 175,000 ounces, more than the prior two months combined. U.S. Mint sales in 2013 are 467,500 ounces so far.
This is more than 62% of last year's total already.
Gold dealers across the U.S. are seeing similar high demand for all forms of physical gold, which has seemingly stabilized the gold price, even in the paper market.
Tim Gardner, a managing director at TD Securities in New York, said to Bloomberg in an email "The gold price is finally reacting to the physical demand. Reports of record demand keep coming in from around the globe with retailers in North America, Europe and Asia Pacific all out or running out of stock as buying interest overwhelms demand."
What should the average investor do about gold right now?
Perhaps listen to the wise words of famed investor Jim Rogers.
In an exclusive interview with Money Morning, he told investors that gold was in the midst of a very much needed correction at the moment.
But that doesn't mean the gold price is done its record climb for good.
- Money Morning:
Why Gold Really Crashed and What You Can Do About It
- Financial Times:
Asian Bargain Hunters Pile Into Gold
Slump in Gold Prices Releases Years of Pent-Up Retail Demand
- Bloomberg News:
Gold Resumes Climb as Physical Purchases Temper Drop in Holdings
- Bloomberg News:
Gold Gaining as Physical Demand Said to Be Extraordinary
- Kitco News:
Gold Coin, Bar Demand Remain Strong a Week After Price Rout