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(Kitco News) — While gold prices appear to be trapped below $1,850 an ounce, physical demand for the precious metal appears to be telling a different story, one of increasing investor concern, according to some market analysts.
In its monthly sales data, the US Mint sold 147,000 ounces of gold in various denominations of US gold bullion coins, the best performance in May since 2010. Compared to April, sales increased 67%. For the year, bullion demand is up 617%.
Even excluding production issues related to COVID-19 from the equation, US gold bullion sales are more than 400% above the five-year average between 2015 and 2019.
There is a false parity between future gold prices and market sentiment, said Philip Strebel, chief market strategist at Blue Line Futures.
“Bullion sales better reflect the anxiety investors are feeling now,” he said. “When you hear economists talk about a recession, it makes sense why bullion sales are so strong.” “Gold will always remain a store of value in the long run.”
Bullion sales better reflect current market sentiment, said Daniel Pavilonis, chief commodity broker at RJO Futures.
He added that the futures market is highly linked at the moment to interest rates that are expected to rise during the year. The Fed has indicated that it is looking to raise interest rates by 50 basis points in the next two meetings. However, the markets are looking for three moves of 50 basis points.
Although markets expect the US central bank to tighten monetary policy aggressively, Pavilonis said he does not believe interest rates can rise too much due to the government’s massive double deficit.
He said: “Gold futures are constrained by higher interest rates, but people have gone out to buy physical metal in order to hide some ‘real money’.”
Ultimately, Pavilonis added, he is optimistic about gold as there is strong demand for the precious metal. He said he sees gold undervalued given where inflation is and how long it will last until 2022.
While gold saw strong demand in May, investor interest in silver was relatively tepid. The US Mint sold 850,000 ounces of silver last month, unchanged from April.
The mint has no silver sales data for May 2021. Silver sales are down 58% compared to the five-year average between 2015 and 2019.
Streible noted that the actual demand for silver is closely related to prices. He added that if silver prices fall below $21 an ounce, he expects demand for the bullion to rise.
A perfect storm is brewing in the global economy that is weighing on the silver market. The precious metal is struggling with rising interest rates. At the same time, fears of slowing global growth dampened interest in industrial silver.
Disclaimer: The opinions expressed in this article are those of the author and may not reflect the opinions of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; However, Kitco Metals Inc. cannot. Nor does the author guarantee this accuracy. This article is for informational purposes only. It is not a solicitation to conduct any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. does not accept The author of this article will be liable for losses and/or damages arising from the use of this publication.