Dealers' stock as an indicator of market sentiment

[tepid]

I've noticed HGM has around £100,000 worth of stock at the moment (wonder where they store it...). I've been following them for around a year and I've never seen so much stock. When gold was hovering above £700, they had nothing at all for days on end. Anything that came in was snapped up straight away. Now people are unloading their stashes to them, but buyers have dried up

 

Their prices are derived from the London AM fix, so since spot prices have risen since this morning's fix, their 1oz coins are now less than 2% over spot. This still isn't attracting buyers. I'd imagine they're re-thinking the increased premiums they recently started selling Sovs at. It used to be 4% with bulk discounts, now it's 5% with no discount.

 

In the summer when gold prices were low, Chards had Sovs & some 1oz coins on 3-month back-order. They too now seem to be swimming in gold stock.

 

I think this is a crude but interesting indicator of market sentiment. Retail buyers consider the current prices too high and there are more sellers than buyers. Anchoring is a tangible investor psychological trait whereby investors view current prices in the context of recent prices, and this could explain people's reluctance to swap £900 of fiat for a gold coin.

 

Of course, this works both ways. If these prices are sustained for any length of time, they will become the new normal and their stock will likely quickly dwindle. Likewise even more if there's any pullback.

 

The best cure for high prices is high prices?

[HawkHybrid]

retail buyers sentiment and pm's market sentiment are

two very different things. people who buy physical coins

sometimes hold onto them for many years and buy on

the cheapest price on what they are looking for. general

gold buying contains people who trade in non physical

and buy with the purpose that they can sell soon enough

for a profit. these people only look for a rising price trend

and earn their profit on the margin. the exact price is fairly

unimportant if they are confident of making a profit.

 

HH

[KDave]

You make some interesting points, particularly with regard to 'the new normal' regarding higher prices. I myself am holding off buying in the hope that gold falls back, but eventually I will capitulate and buy a £900 ounce of gold should the price remain where it is for a longer period.

Perhaps many people, myself included, have gotten so used to 'cheap' gold they are not buying, and that means there are relatively few people new to the market? That is perhaps a bad sign for the sustainability of the rise. It is still too early to tell, but perhaps either this recent rise is all to do with the paper market (some say it all about short covering) and will result in the resume of the down trend after Q1 for the remaining part of the year OR it is a real change in sentiment and we will see gold shoot higher and those excess physical stock dry up once the herd comes this way.

From the chart side of things the longer gold bounces off the $1200 mark the more bullish it becomes. The limited elliot wave analysis I have been shown is very bullish, with the expected consolidation around $1180-$1240 coming to pass before the expected rise higher. Of course chart analysis is notorious for working 60% of the time, every time, so honestly it is anyone's guess what will happen next. 

On the stock side of things I would expect a business to reduce its prices, or in this case the premiums, if they can not move stock. After all a bullion dealer like HGM makes its money on volume I would have thought. Perhaps they know something we do not  

[sovereignsteve]

The fact there are no new buyers is a good sign. When all the new buyers come in, it's sure to mean the bull has had it's day and the bear will soon be upon us.

I have never seen HGM retain this level of stock for so long. I'm sure it's purely a function of the recent sharp rise and buyers having been used to lower prices. Give it a while, as you say, and we will all be confident the new norm will be here to stay and continue buying. I think most of are still worried it will get smacked down again soon.

When gold was trading in the £850 - £950 (on the way down) range HGM used to slowly clear their stock but they did have days when too much stock came in and they were phoning round clients with special quantity offers. I don't think they're doing that yet.

[4Nines7Hills]

13 minutes ago, KDave said:

You make some interesting points, particularly with regard to 'the new normal' regarding higher prices. I myself am holding off buying in the hope that gold falls back,

 

looking at charts in January, February and march  the gold and silver spot price is higher and it drops a little by may.... However this year there is a lot going on in the world negative interest rates, slowing of economy, volatile stock market , UK referendum, the 7 year cycle, low oil price , tensions in the middle east to name some , all or none of which may make a difference.

[KDave]

8 minutes ago, 4Nines7Hills said:

looking at charts in January, February and march  the gold and silver spot price is higher and it drops a little by may.... However this year there is a lot going on in the world negative interest rates, slowing of economy, volatile stock market , UK referendum, the 7 year cycle, low oil price , tensions in the middle east to name some , all or none of which may make a difference.

Agreed, what you say is so true - in recent past all of these examples and similar events have had no effect on the price of gold, and in many cases have overshadowed falls in the spot price, seemingly counter intuitive to its historic safe haven properties. Perhaps 2016 will be the year this changes? There are currently a lot of positive indicators for the price, including perhaps a change in sentiment which is arguably the most important, but I remain cautious and reluctant to increase my average upwards when there is still hope for lower prices in the near future. Wishful thinking perhaps but we will see   

[Scuzzle]

I only have 10oz of gold but I have worked out if I weighed it in at spot price right now I could make almost £1000 profit.  Since I have only been stacking a year I could do this and condsider it a far better rate of return that if I had cash in a savings account.  On the other hand all that would happen is I would end up with a fistful of cash that I would have to figure out what to do with.  Might be fine if I wanted something like a car but since I don't and I don't want cash in the bank I'm just going to leave things be for now.

 

I actually thought HGM were getting through their stock OK, I checked this morning and they had 2 pages of gold items and when I looked in the afternoon they only had 5 lots of items, good few sovs, half sovs and Krugs in those 5 lines right enough.

[goldbones]

I think a factor to bare in mind is there was a lot of people buying in 2010-2011 that would have hit a break even point after getting burned by a prolonged slump in prices and will have either cashed out entirely or reduced.

Im not saying that is entirely whats gone on there but the "buy high and sell low" crowd are a poor judge of wider macroeconomics they just jump on something at the peak average down then a slight uptick has them break even and gone for good.

At the peak gold hit about £1200 and slumped to as low as £680 since we are in the middle of that range it tells me that a bunch of people who bought near the top and averaged down have broke even that has to factor in here.

[Pipers]

@Scuzzle 10oz of Gold in a year is good going,

 

@goldbonesIt makes sense for some who bought high to sell 'some' of their stack to reduce the price per ounce.  Gold cost $900- $1000 oz to get out of the ground Gold at $1240oz  is not high, its sterling thats weak that is hurting us in the UK.   

[tepid]

HGM now has around £140,000 of stock. I've never seen so much available there.

 

I think people who bought on the way down over the last couple of years are gladly offloading their coins glad to get back to break even, but fewer people are confident to buy yet.  Good old HGM and the likes are providing a ready market to buy nevertheless.

I think this is a major turning point in the market - either a distribution or accumulation phase. As the market has spiked this year, it means participants are not sure what the price should be. Things seem to have flat-lined over the last week or so with little in the way of direction. I think it's just a case of gold moving from weak to strong hands. Of course it could be the other way around, but I don't see as much down-side as there is upside.

 

I'm not a buyer, but will be if the price dips.

[Guest]

The impact on exchange rates is just as important as the spot price. There has been some movement adjusting the price down for us in the last two days.

The spot + exchange rate impact for us means gold is even more volatile. I am waiting till exchange is at a median of 1.55 and then I can see spot impact better.

No rush to buy now unless specific bargain hunting