12.02.202112:22 Forex Analysis & Reviews: Gold prices are falling even amid high demand for bullion coins

Gold prices are dropping even amid high demand for bullion coins. Former director of the US Mint said it is because of the current financial crisis. In fact, last week, the US Mint announced that due to strong demand, it is still rationing its sales of silver coins, while at the same time distributing gold and platinum coins to authorized prospective buyers.

Edmund Moy, former director of the US Mint (from 2006 to 2011), said that such rationing happened during the last financial crisis.

"This happened for the first time during my tenure. We found out that several things came together. First, with the financial crisis, demand for gold and silver bullion coins has skyrocketed. But the problem is that demand exceeded supply, " Moy said.

This time, in addition to issues in the supply chain, there are also COVID-related issues where people get sick and production stops.

"With all these disruptions and high demand for gold in a time of inflation and economic uncertainty, I'm not surprised that the US Mint has rationed every possible supply," Moy said. "Right now, demand for investment coins is "off the charts", which is very surprising since the US Mint is already producing supply, in an addition to what is already on the market."

But despite such strong demand, gold prices are still consolidating and cannot consistently surpass $ 1,850.

"The last time demand was so high was during the financial crisis. People panicked and bought gold so prices went up. And because of that, the government started introducing both fiscal and monetary stimulus. After that, gold corrected by about 20-30%. Then, over the next three years, gold began to rally until it set a new record of $ 1,925 in 2011. After that, gold did not decline until it became clear that the economic recovery would be slow, which removed the uncertainty. The Fed also had time to absorb all the excess liquidity before it triggered inflation, " Moy explained.

If you draw a parallel between previous events and the present, a similar pattern emerges. When the pandemic hit, demand and gold prices rose sharply, thereby resulting to new all-time highs. Then, when the government began injecting fiscal and monetary stimulus into the economy, prices corrected.

"If gold follows the same pattern as it did during the financial crisis, we will see a price increase, at least until economic uncertainty and fear of inflation subside," Moy said.

"Gold will set new all-time highs above the August 2020 high before falling," he added.

Moy also noted that several options are at play here, pointing out that Wall Street is overpricing the recovery and underestimating the risk of inflation.

One of the reasons why gold is consolidating is because the market sees a quick economic recovery.

To this, Moy said, "the only reason the US government was able to print so much money while not having significant inflation is because the recovery hasn't really started yet."

"Demand has not caught up with supply, therefore, retailers cannot charge higher prices. The scenario will change if the economy recovers. Aside from that, with all these stimulating dollars, Fed interest rates will skyrocket, but inflation will not stop. It will be faster than the Fed anticipated, which will help gold break out of its trading range," he added.