Daily Nugget: Royal Mint Considers Gold-Backed Bitcoin

It’s the first Daily Nugget of December and I wish I could bring you some positive news on gold and silver filled with Christmas cheer, but alas I cannot. Last month the gold price fell 5.4%, its biggest monthly loss since June whilst silver was battered and bruised having fallen 8.4%. Gold is now starting its fourth week of trading below $1,300.

The gold price dropped this morning as speculators remain nervous ahead of a big week of key US economic data, which will provide more insight into the health of the US economy. Markets will no doubt look to this week’s nonfarm payroll data, Q3 GDP and manufacturing PMI to gain some insight as to whether or not the FOMC will decide to go ahead with tapering at this month’s meeting.

US data to weigh on gold price

The first big data release of the week will be the Institute of Supply Management’s November manufacturing survey, out today. Forecasts expect the reading to have fallen from October’s 56.4 to 55 in November.

The US employment data this week may show the number of workers in employment climbed by 183,000 last month, after a 204,000 climb in October, giving weight to the belief that the US economy is on track for a full recovery.

Speculation surrounding tapering still remains rife. Despite the majority of commentators and analysts being seemingly convinced that the decision to cut asset purchases will not happen until March many remain nervous that it may go ahead this month.

Whilst Friday’s payroll data many prompt some action in both gold and silver, in the period up to New Year very little change is expected as tapering and improved data is likely to have been priced in already.

Outflows of gold-backed exchange-traded funds continue to add to the bearish sentiment surrounding gold. Last month outflows totalled 38.4 tonnes and are expected to continue for the remainder of the year.

Silver outperforms gold

Despite a third consecutive month of declines last month, sales at the Perth Mint decreased again in November. According to Bloomberg the mint’s sales of both gold bars and coins fell by 32% from 77,255 ounces in October to 52,700 in November. Silver was slightly less bruised with a decline in bar and coin sales of just under 14,000 ounces. In contrast overall sales at the US Mint fell by just 1%.

On November 12th Silver Eagle sales reached 41,475,000, setting a new record for annual sales, smashing the previous record of 39,868,500 in 2011.

India’s gold demand pushes premiums sky-high

In India the gold supply shortage, thanks to government restrictions, continues to push gold premiums to high levels as wedding season increases the demand for gold. Last week they hovered around $125-$130/ounce over London gold prices.

This is in contrast to the premiums seen in the run up to festival season when prices were just $60-$70/ounce above London prices. Last month 24 tonnes of gold was imported, compared to just 11 in August and September.

Gold-backed bitcoin

The big news in the sound money world is that the Royal Mint is planning to forge physical bitcoins in gold, a clear indication that institutions are looking to not only use the currency to energise the economy but also to enable consumers to use them for wealth preservation.

The overall headlines imply the Royal Mint wishes to mint physical bitcoins, but it is not so exciting. The Channel Island Alderney is looking to mint the coins as part of a limited, commemorative collection.

According to the FT the coins will have a gold content value of £500 ‘so that holders could conceivably melt and sell the metal if the exchange value of the currency were to collapse.’ Interesting that the mint is concerned enough about the collapse of the virtual currency so as to wish to preserve consumers’ wealth in coins, but it does not feel the same about a potential collapse in the British pound.

How does this work, turning a virtual currency into a physical currency? The beauty of bitcoin is that each is uniquely numbered, therefore how do you prevent a double counting of bitcoin when one gains a physical presence?

It seems this is a pure marketing activity rather than practical. It is unlikely Alderney wishes to be the first legal jurisdiction looking to allow people to set up to trade and manage an official bitcoin system/economy.