Has yesterday’s $40.50 drop in the price of gold bullion to a closing price of $1,286 a troy ounce created a new buying opportunity, or is it a signal that worse is to come?
Some two years after gold peaked at nearly $1,900 a troy ounce, enthusiastic buyers near the top are nursing losses that are approaching one-third of their investment. If you add in the high premiums they were paying to buy gold American Eagles, the losses grow even larger.
People who find themselves in this position are growing nervous. This morning the Kitco website indicated gold had bounced back $15.50 to a price of $1,301.50.
There is always something reassuring about an up day, especially when the price jumps over a nice round number like $1,300.
However, is it time to simply stand pat, buy more, or to sell?
Gold owners who follow the advice of professionals not to put more than 10 percent of their investable funds into the precious metal still have their precious metal insurance policy against financial turmoil and the one-third loss becomes a manageable 3.3 percent of their investments.
This is not pleasant, but it is not threatening them in any way especially if their stock and real estate holdings are sporting large gains as the market averages say they are.
Where do we go from here?
The answer, if we look at sales trends for American Eagle gold bullion coins is troubling.
Sales for the month of September came in even lower than August at 8,500 coins compared to 9,000. Few buyers, it seems, are taking advantage of the roughly $125 drop since Labor Day.
If you play with statistics, you see that sales during the first six months were 124,500, 68,000, 54,000, 187,500, 61,500 and 49,000.
The April number of 187,500 was swelled by buyers rushing to take advantage of "cheap" bullion, which dropped $200 in two days' time.
During the first six months sales averaged 90,750 a month.
In July sales were 43,000 followed by August’s 9,000 and September’s 8,500.
In this three-month period sales have averaged 20,167 a month.
That’s a drop of roughly 78 percent.
Is this a sign that bullion coin buyers are losing faith in this investment?
Even silver Eagle sales are weakening. Their monthly sales numbers are distorted by rationing. Since January buyers have been prevented from buying as many as they want.
However, September’s sales number of 3,013,000 is the lowest monthly figure of the year and might be the first hint that worse is yet to come.
I last wrote about gold to point out the breakdown between the present market pattern starting with the April decline and that which prevailed after the peak in 1980.
This cannot be definitive, but more evidence seems to be accumulating that the gold market is in a prolonged pause.
What will snap it out of its present condition?
Well, let’s watch the usual suspects. They have become well known in recent years. The U.S. government will not be able to pay all of its bills starting around Oct. 17 when it comes up against its debt ceiling.
Italy’s government is stumbling in a manner that can shake the euro.
There are others.
Ultimately, gold buyers must adjust their behavior to their own needs and circumstances. In September, they decided they didn’t need many more gold American Eagle bullion coins. How will they behave in October?
Buzz blogger Dave Harper is winner of the 2013 Numismatic Literary Guild Award for Best Blog and is editor of the weekly newspaper "Numismatic News."