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Physical gold demand is picking up Add to ...

Demand for physical gold is starting to creep up again, market watchers said, following a dip in the metal’s price last week.

Market watchers cited a rebound in coin sales by U.S. Mint and gold forward rates turning negative as two signs of physical demand.

The U.S. Mint’s website shows that American Eagle bullion coin sales are at their highest level since July, with one-ounce coin sales already double of what was sold in August and September. As of Oct. 16, 20,500 one-ounce American Eagle bullion coins were sold for the month, versus only 8,500 sold in September and 9,000 sold in August. Total ounces sold as of mid-October are 23,000. American Buffalo bullion coin sales are also at their highest level since July at 11,000 ounces sold. In August and September, Buffalo coin sales were 10,000 for each month.

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Additionally, a few market watchers said that this week gold forward rates turned negative again after being positive recently. The gold-forward lease rates reflect where contributors are prepared to lend gold on a swap against U.S. dollars. As of 12:10 p.m. (ET), the one-month rate was minus 0.05 per cent and the three-month rate was minus 0.03 per cent.

Kevin Grady, owner of Phoenix Futures and Options, said the move to negative gold forward rates from positive shows how physical demand swiftly picked up when prices fell to the $1,260s to $1,270s area.

“It shows you how very, very price sensitive physical buyers are,” he said, noting that much of the gold that banks had available because of redemptions from exchange-traded funds was snapped up, pushing the lease rates to negative.

Peter Thomas, senior vice-president of Zaner Precious Metals, a precious metals physical wholesaler, agreed.

“The pickup in demand has really just started this week. It’s really taken us by surprise. It’s gold, but even more it’s silver,” Thomas said, who added that just Thursday morning he picked up 25 new customers alone, a higher level than normal.

Thomas attributed the sudden interest in physical demand to the stalemate in Congress. With the agreement to a temporary deal, Thomas said buyers are seeing it as more of the same lack of fiscal restraint which makes holding hard assets desirable.

Additionally, he said, the interest in silver comes as prices have fallen around to $20 an ounce. After a busy first half of 2013, Thomas said buying dried up, but the drop in silver prices has revived interest.

The question is whether or not the rising interest in physical demand will stay, market watchers said. The last quarter of the year seasonally is price positive for gold as it coincides with several festivals including Diwali in India and Christmas where gold is sometimes given as gifts.

Edward Meir, commodities consultant for INTL FCStone, agreed that the buying interest in the U.S. Mint coins was spurred by the stalemate in Washington. “Whether these robust sales levels last going into year-end remains to be seen; we have our doubts that they will,” Meir said.

Grady also said as prices rise, physical buying may dry up. That’s been the pattern this year, he said.

“If prices go back to $1,350, the question is, will the physical buyers be there? If the physical buyers aren’t there to buy gold, who else will? You’re not seeing it in the ETFs,” he said.

Allen Sykora contributed to this story.

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