Since the election, the Dow Jones Industrial Average is up over 13% while the S&P 500 is up 11%. One victim of the move into risk assets was gold, which plunged over 13% in the weeks following the election. Although gold prices have since recovered some of their losses, the yellow metal’s drop has created a buying opportunity for those wanting to add bullion to their portfolios.
US Demand for Gold Is Weak
As the post-election rally roared through December, gold bullion sales from the US Mint had their second-worst month since May 2015.
The weakness in demand has continued into the first quarter of 2017, with sales down 30% year over year.
One consequence of weak demand is that premiums on gold bullion—the amount per ounce you pay over the spot price—have fallen.
For example, premiums on one of the most popular gold coins, American Eagles, have dropped by 6% since January. That puts premiums at their lowest levels since November 2016.
This drop effectively acts as a discount for investors looking to purchase gold bullion. However, with a number of bullish gold trends in motion, demand looks set to increase… which in turn will push up premiums.
The Reflation Trade Is Starting to Reverse
Beginning in October, stock markets enjoyed 109 trading days without experiencing a 1% decline—the second longest in history.
However, that run was broken earlier this month, and the arrest seemed to mark the point at which markets started questioning the viability of the reflation trade.
Since then, equities have been on the decline, and the S&P 500 is on track to have its worst month in over a year.
In a reversal of fortunes, the 10-year Treasury yield, which moves inversely to its price, is down over 8% since the beginning of the month.
Add to it the fact that gold demand from India—the world’s second-largest consumer of gold—was up 175% year over year in February, and you get a very bullish picture for the yellow metal.
A Buying Opportunity
As a result of these trends, gold is up over 5% since early March and almost 9% this year. If stocks continue to correct, gold will likely move higher. This, in turn, will cause premiums to rise.
So, if you’ve considered buying physical gold, now is the right time to do so. But you should act fast while the “discount” is still available.
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