Small investors go for the gold

Demand for gold bars and bullion coins among private investors has increased sharply in light of low gold prices, according to a report by CPM Group of New York, N.Y.

Investors in gold were most active in North America, the Middle East, Western Europe, China and India in October 1997, when equity markets around the world and currency markets in Asia came under selling pressure. Bullion purchasing increased in November and December as the price of gold dropped to its lowest point in 12 years.

In the United States, sales of the Eagle gold coin in November 1997 topped 84,000 oz., up 282% over the 22,000 oz. sold in the same period of 1996. To date in 1997, sales of the coin totalled 621,750 oz., up 205% from the 204,000 oz. sold in the first 11 months of 1996.

The drop in the gold price, according to the report, is partly the result of the misinterpretation by the market of gold sales by the world’s central banks. Although sales by central banks will top 20 million oz. in 1997, the report points out that few countries have sold their reserves because of financial distress or, in the case of European nations, to raise capital to reduce their debt for acceptance into the European Monetary Union. The report notes that many central banks began reviewing their gold policies in the late 1980s, and that recent gold sales are not unusual. Central banks sales of gold are expected to remain high in 1998.

Net private investment demand in 1997 is currently projected at 9.3 million oz., up 129.2% from 4.1 million oz. in 1996. Bullion investment forecasts for 1998 are as high as 12.4 million oz. According to the report, increased private investor buying in 1997 may be the start of the reversal of the gold market.

CPM says that gold prices may rise as a result of increased buying by investors seeking to diversify their portfolios and take advantage of low prices. The largest buyers of gold bullion are reported to be small North American and European investors and larger investors in Southeast Asia, China and the Middle East. Bullion dealers in Europe and the United States have reported smaller supplies of gold bars as a result of increased demand.