- Gainesville Coins: How is the price of a gold coin determined?
- Sharps Pixley: Do Russia's gold reserves affect the war?
Gainesville Coins: How is the price of a gold coin determined?
The demand for gold coins is only a small part of the total gold trade. Therefore, its impact on the price of gold is very small, says a numismatic expert from Gainesville Coins.Jan Nieuwenhuis. The gold trade is greatly influenced by the fact that the reserves of mined gold are already large, and gold does not wear out due to trade. For this reason, the interaction of supply and demand for gold works somewhat differently than for other investments. In fact, gold trading resembles currency trading.
The price fluctuations of gold coins cause a lot of confusion when the overall price of gold remains stable. The reason for the fluctuations is how the coins are produced: each gold product must be manufactured, and production costs vary by product. The production costs of gold bars can be considered consistently low, but mints find it more difficult to change their coin production capacity on short notice. The volatility of demand for gold coins is very high. For example, the monthly sales of the U.S. Mint can vary between 250,000 ounces and only 10,000 ounces.
Mints reduce their production capacity when the demand for gold coins decreases. When demand rises again, the mint's stocks deplete quickly, and it takes a while before the mint's production levels match buyer demand. The increase in the price of gold coins is a sign of a shortage of coins, not gold.
The gold spot price generally refers to the selling price of gold in London, as the liquidity of the gold spot markets is the highest. The silver coin markets operate mostly in the same way. The demand for gold coins should be interpreted as an indicator of resale for a limited consumer group, which can vary depending on the sales location. Gold is a currency, so there is no shortage of gold itself – only of certain gold products in certain places.
March 30, 2022, Jan Nieuwenhuijs
Sharps Pixley: Do Russia's gold reserves affect the war?
Lawrie Williamsconsiders in his article whether Russia's extensive gold reserves could be a way to cope with the economic sanctions imposed by the West. The state has so far remained silent about the size of its gold reserves.
Currently, however, Russia is the second or third largest gold producer in the world, with its mines extracting at least 300 tons of gold per year. And although the Central Bank of Russia has not reported the size of its gold reserves anymore, the state has, according to the IMF, at least the fifth largest national reserve in the world – and plenty of room to expand it.
This observation is important, as due to the West's economic countermeasures since the start of the war in Ukraine, it has been nearly impossible for Russia to utilize its international bank deposits. Currently, the costs of replacing already lost military equipment are significant. It is likely that Russia based its plans on a quick surrender and a relatively rapid return to economic normalcy, but the unexpectedly strong resistance from Ukrainian forces and the West's swift counter-reaction have worked against these possible assumptions.
President Putin has so far managed to survive the sanctions largely because other countries are dependent on Russia's supply of strategic resources such as oil, gas, and uranium. However, if the Kremlin carries out its threat to cut off supplies or limit the exchange rate to the ruble for countries it considers hostile, Russia may need its gold reserves and its role as a universal currency to support its economy.
The world's largest untapped gold deposit is located in Russia's Sukhoi Log, which is why the country has the potential to become the world's largest gold producer – assuming they do not need modern mining equipment made by Western countries.
Overall, the war between Russia and Ukraine has disrupted the economies of both countries, and its effects will be felt for years to come.
April 22, 2024, Lawrie Williams
