Gold buyers show common sense

When September rolls around, do you think of the record price for gold?

I do.

It has been just over five years since the precious metal traded for $1,900 a troy ounce back in September 2011.

What a year that was.

Dealers could put away their inventories and go on vacation and come back and count up the profits they had not lifted a finger to earn while they were gone.

Investors seemed to be grabbing every gold coin they could find.

But with the benefit of hindsight, we can see from U.S. Mint statistics that gold investors actually had their most active gold American Eagle buying year two years before 2011.

In 2009, they purchased 1,325,500 one-ounce coins. Seven years ago, in September of that year, gold was trading around $1,100 and ounce.

As the price rose, investors bought fewer gold coins.

In 2010 they bought 1,143,000 one-ounce Eagles. The price of gold in September 2010 was around $1,400.

Imagine the profits that were being counted five years ago by the buyers of these coins when gold hit $1,900?

But in the year 2011, they bought 910,000 one-ounce gold coins. That was down over 31 percent from the peak two years before.

Did these buyers simply run out of money as prices escalated? Or were they turning a little skeptical as price records were set?

In September 2012 gold was around $1,800 an ounce. In that year buyers took 667,000 one-ounce Eagles.

Demand was down again.

In September 2013, gold’s price was right about where it is today in the $1,300s. That year they bought 743,500 one-ounce Eagles. That was a bump up in demand that did not last.

In September 2014, gold was $1,200 and in that full year bullion coin buyers acquired 415,500 one-ounce gold Eagles.

That was the bottom for gold Eagle demand.

In September 2015 gold was around $1,100 an ounce and in that year buyers dramatically increased their purchases of one-ounce Eagles to 626,500.

That was up over 50 percent.

Here we are in good old September 2016. Gold is $1,325.

Buyers so far this year have taken 508,500 one-ounce Eagles

It looks like demand is on track to exceed last year’s for the one-ounce gold American Eagle. The total might even reach the 2013 number, which was 743,500.

If you are still with me with all these numbers, now comes my point:

What is the formula for a successful investor?

Buy low and sell high. Right?

Doesn’t that appear to be what this demand pattern for gold American Eagles shows?

In the couple of years leading up to when the record price was set, buyers were backing off.

In the most recent two years, when gold has been significantly cheaper, gold Eagle demand has been ramping up.

Gold investors as a group look to be smart.

I have never thought otherwise.

Buzz blogger Dave Harper has twice won the Numismatic Literary Guild Award for Best Blog and is editor of the weekly newspaper "Numismatic News."

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