Gold buyers had a good year in 2009. Silver buyers did even better.
As measured in U.S. dollars, the price of gold climbed 23.9 percent in 2009, the ninth consecutive year that the price of gold has risen against the dollar. Even though that is a spectacular result, it is still only the third highest percentage increase of the decade, following the 24.7 percent jump in 2002 and the 31.4 percent rise in 2007.
Gold closed 2009 at $1,095.20 a troy ounce.
Gold also rose by more than 20 percent in 2009 when its price is expressed in other other major currencies such as the Chinese yuan, euro, Japan yen and Swiss franc.
As good as gold’s result was, silver rose 49.3 percent against the U.S. dollar in 2009. It closed the year t $16.822 a troy ounce.
The U.S. Mint has delayed the initial release of 2010-dated gold and silver Eagles until Jan. 25. For many years, the Mint had released the new coins in the first week of the year. It is possible that some coins released on that date may be 2009-dated.
You can place orders right now for 2010-dated coins with the Mint authorized purchaser network, but wholesale premiums are now higher than normal because the U.S. Mint will not say flat out just how many 2010 coins will be available in the first release. It is possible that premiums will decline in later releases, but those who wait run the risk of higher spot prices.
Although gold did not end 2009 at its high for the year, there are some developing issues that point to possible near term increases.
On Dec. 30, the International Monetary Fund reported that the U.S. dollar had declined from 37.3 percent of global official foreign exchange reserves at the end of June 2009 to only 36.3 percent at the end of September. Holdings of euros, yen, and British pounds all rose in the third quarter of 2009. Dollars held in official reserves peaked at $2.81 trillion at the end of September 2008 and are now down to $2.73 trillion. To the extent that the U.S. dollar continues to decline in official reserves, its value will fall and the price of gold will rise.
Another sign that the U.S. dollar was falling out of favor is the recent surge in the interest rate on U.S. Treasury debt. At the end of 2008, the 10-year Treasury note yield was 2.253 percent. As of Dec., 1, 2009, the yield was 3.28 percent. On Dec. 30, the yield was up to 3.786 percent, an increase in the rate of 15.4 percent for December and 68 percent for the year.
This huge increase in the interest rates in such a short period of time is flashing alarms that there may be significant hikes in consumer prices very soon. The effects of the massive U.S. government inflation over the past two years may be about to slam private citizens in their pocketbooks.
There are three indicators of shortages of physical gold on the market. First, on the London Bullion Market Exchange, there are repeated attempts from buyers wishing to place large orders for gold, but they are consistently turned down in recent weeks. Second, in India, the world’s largest gold consuming nation, the price of gold is currently trading at $6-$7 above the world spot price. The spot price in India is usually close to the world price and is frequently slightly below it. Third, the price of gold in Vietnam, which has become one of the world’s largest gold consuming nations in response to its rapidly depreciating domestic currency, is now more than $40 above the world price. The Vietnamese government has just announced that it will close 20 gold exchanges by March, supposedly because they were insufficiently regulated. What I think will happen is it will simply add to the private sector demand in that country to acquire physical gold.
The year 2009 was certainly exciting for precious metals markets. I anticipate that results for 2010 will be even more exciting and positive – and possibly quite soon.
Sign up for Patrick A. Heller’s weekly comments in the KP Numismatics Update e-newsletter at www.numismaster.com.
Heller owns Liberty Coin Service in Lansing, Michigan and writes “Liberty’s Outlook,” the company’s monthly newsletter on rare coins and precious metals subjects. Other commentaries are available at Financial Sense University (www.financialsense.com). His periodic radio interviews on WILS-1320 AM can be heard at http://www.amlansing.com, and on the Korelin Economic Report at http://www.kereport.com.