Friday, June 29, 2012

Panda Coin Market Update 6/30/2012

Summer is traditionally the slow time in the gold market as well as the coin market.  Summer 2011 was an exception with gold rising and Chinese coins seeing the greatest demand in decades.  June 2012 is quiet and gold appears trapped in a trading range.  While North American buyers have been reluctant to take advantage of lower prices, and in some cases liquidating coins at a loss, bargain hunters in Asia are very active.  

Buyers from China are less interested in high grade MS69 and MS70 coins, and instead prefer sealed, unsealed, and MS67-68 coins available at lower prices.  This has lead to a narrowing of the MS69 premium over lower grade coins.  Last year, a good 1oz  MS69 may have carried a premium over 30-50% over sealed of MS68.  Today 20-30% is a typical range over sealed coins, and MS68s even trade at a discount to sealed.

Chinese collectors prefer to build a full set of coins for each year - all 5 sizes from 1/20 to 1oz.  The strong Chinese buying has exposed shortages of certain of the smaller panda fractional coins, driving up prices on some unexpected dates.  Examples include 2000 and 2002 1/4oz MS68 near $900.  2000 1/20 over $300, 2006 1/10oz over $600.

Even more importantly, Chinese buying has been continuous and relentless over the last 6 months.  The modest dealer inventories that remained at the end of 2012 have been further drained.  As recently as 2 years ago, Pandas could be easily found in local coin shops, and dealers would sell for a small percentage over spot. Today, Pandas are almost never present in shops that are not specialists in Chinese coins.  When talking to local dealers, one will often hear comments such as "we used to have a lot of Chinese coins, but not anymore"  and "when we get them, they usually sell very quickly in a day or two."

A famous quote of Ross Perot comes to mind:  "That whooshing sound you hear is..." ...all of the Panda Coins in North America heading back home to China.  Chinese buyers are not flipping these coins for a quick profit.  They are looking for safe assets to protect wealth.  Just as we are seeing wealthy Chinese buying prime California real estate, Chinese coin buyers have strong hands and are keeping these coins for the long term.

I believe this is setting up the next great leg up in the Chinese coin market.  When the gold re-ignites, as I expect it will when QE3 follows the next crisis, the very thin remaining inventories of Chinese gold coins will disappear, and prices on many ordinary Pandas will skyrocket.

Now is the time to re-enter the market. It may be the last train out at these prices.

Saturday, June 16, 2012

Hong Kong Exchange Buys London Metals Exchange

Acquisition of gold and other hard assets is being encouraged by the Chinese government on many levels. Perhaps they are well aware of the debasement game being played by world central banks and see hard assets in Chinese possession as a defensive strategy.

The recent purchase of the London Metals exchange (LME) by the Hong Kong Exchange is just the latest step in what appears to be an ongoing process.  The LME is the one major exchange, other than HK, outside of China, which trades physical gold (COMEX is only paper contracts).  This may be a good way to gain better access to the physical gold market (as well as other key metals).

"The deal could immediately prop up HKEx to become one of the major global metals and commodities exchanges," Hong Kong Exchanges Chief Executive Charles Li said.

LME accounts globally for 80% of trade in nonferrous metals such as copper and aluminum, as well as other industrial metals.