86% Surge in Gold Sovereign Production in UK


"For the first half of 2009, production surged. . .to 45,406 ounces."

The UK's Royal Mint doubled its production of sovereign gold coins in the first half of 2009 as British retail investors snapped up a hedge against inflation that does not attract capital gains tax as a coin of the realm.

Bloomberg News extracted the data under a Freedom of Information Act request. The Royal Mint output climbed from 8,030 ounces in the second quarter of 2008 to 16,910 ounces for the comparable period this year. For the first half of 2009, production surged 86% to 45,406 ounces.

Gold ETFs

It has been the same story for exchange traded funds, often seen as a more convenient and safer way to hold gold. The largest SPDR Gold Trust saw first half gains of 74% and held 1,120 tons.

The capital gains tax on ETFs has limited their investment appeal to retail investors, though they can be included in certain government approved tax-free investment schemes.

Hedge funds have been the big buyers of ETFs this year with Paulson & Co emerging as the most high-profile new backer of the yellow metal. The fact that the fund that made billions betting against subprime lending is now hot for gold is clearly a significant market indicator.

On the other hand, gold investors may still need a little patience. Any correction from the current stock market rally will probably involve a selloff of all asset classes.

Dr. Doom

Author of Tomorrow's Gold and a gold buyer since 2001, Dr. Marc Faber says in such circumstances the gold price could dip to $850 compared with $960 as of this writing. He sees that as a buying opportunity, particularly for gold equities.

But retail investors could find themselves with big rewards as governments are likely to respond to any further financial market upsets with more stimulus plans, accelerating fears about dollar devaluation and potentially crashing the bond market. In a gold rush, gold prices could reach $2,000 - 3,000 and silver $100 an ounce.

Certainly holding gold and silver in a portfolio at the present time makes good sense, and that is presumably why so many retail investors are now hoarding gold sovereigns.

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