Gold Defying Seasonal Weakness

U.K. Royal Mint Doubles Gold Output as Demand Swells (Update1)

By Thomas Biesheuvel and Nicholas Larkin

Aug. 4 (Bloomberg) -- The U.K.'s Royal Mint, established in the 13th century, doubled production of gold coins in the second quarter as demand surged for bullion to diversify investments.

Output climbed to 16,910 ounces from 8,030 ounces a year earlier, according to data obtained by Bloomberg News under a Freedom of Information Act request. First-half production jumped 86 percent to 45,406 ounces, the figures show.

Demand for physical gold as a store of value and hedge against inflation has increased as governments spend trillions of dollars to combat the worst recession since World War II. Bullion holdings in gold-backed exchange-traded products rose to records in the second quarter. Gold is trading about 7 percent lower than the record $1,032.70 an ounce reached in March 2008.

"There's still interest in gold as a safe-haven asset," said Stephen Briggs, an analyst at RBS Global Banking and Markets in London. "This whole sector will capture people who don't have access to the futures market."

Individual investors typically buy gold coins, bars or shares in exchange-traded products. Holdings in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, were 1,120.55 metric tons on June 30, up 74 percent from a year earlier. Investment in the fund, which reached a record 1,134.03 tons on June 1, was little changed from the first quarter.

Gold for immediate delivery fell 0.2 percent to $954.74 an ounce, snapping a three-day gain.

'Huge Uncertainty'

The mint's gold production in the second quarter, when the benchmark FTSE 100 Index of shares gained 8.2 percent, fell 41 percent from the prior three months. The index slid 11 percent in the first quarter, its seventh straight retreat, helping to stoke demand for bullion as an alternative investment.

"Earlier this year, with the crisis, it led to huge uncertainty," Briggs said. "Things have come off the boil a little bit. There's not quite that urgency, but there's still a sense that there's inflation and uncertainty around the corner."

The recession may be ending, former Federal Reserve Chairman Alan Greenspan said in an Aug. 2 interview on ABC's "This Week" program.

First-quarter demand for official coins more than doubled from a year earlier, according to the World Gold Council's latest figures. Rand Refinery Ltd., the world's largest gold refiner, boosted coin output to the highest in about 23 years in January, while Austrian mint Muenze Oesterreich AG sold a record 1.5 million ounces of gold in 2008. Coin fabrication reached a 21-year high last year, according to researcher GFMS Ltd.

Commentary: Gold frequently slides in the July to November period before the jewelry season increases demand in December. Massive fiat currency printing will likely boost gold prices in my view. A pullback in prices this fall certainly is possible even with a longer term bull market for precious metals firmly in place.