The Spanish government recently approved an expansion program of up to $43 million for minting quality gold coins to meet the surging demand levels. The Spanish National Coin Factory (FNMT) can use this pool of money to purchase gold for gold coin minting. The primary goal behind this gold-coin expansion program is to provide investors with more available safe-haven assets as the economy continues dwindling and inflation rates keep soaring.
The $43 million budget is an unusually high number for Spain compared to prior amounts. In the past, the nation has allocated around $10 million at a time for gold coin minting. The government set this high number based on estimated contract costs and demand rates from the 2021 and 2022 figures.
The Spanish National Coin Factory plans to use this budget to purchase high-quality and unminted one-ounce pieces of gold before minting the coins themselves. This model allows the organization to accept orders in advance and guarantee availability.
This coin-minting scheme is nothing new for Spain. The current system began in 2021 when the government began circulating some of its most popular units.
The Spanish National Coin Factory dedicated its first minted gold coin to the Iberian Lynx, a wild cat species endemic to southwestern Europe, and circulated a total of 12,000 units. Another popular coin, Toto (Spanish for “bull”), maxed at 15,000 units in circulation. Both coins reached both national and international circulation.
As we enter 2023, Spain continues experiencing massive surges in demand for bullion. The government is ramping up budget allocations for minting gold coins as a way to meet investor demands. What’s occurring in Spain is not unique, though, as the demand for gold continues rising worldwide as markets across the globe fail.
The World Gold Council reported that global demand for gold hit a decade-high in 2022, with central banks purchasing more gold last year than they had in the last 55 years. In 2022 alone, demand increased by 18% to 4,741 tons, nearly reaching the level of 2011’s demand.
“Last year was extremely interesting and was a very good example of the robustness and depth of the gold market,” Juan Carlos Artigas, the World Gold Council’s Global Head of Research, explained in an interview with Kitco News. “There is more to gold than one specific market.”
Nearly every demand sector for gold is on the rise. Global demand for gold bars and coins reached a nine-year high in 2022 of 1,217 tons, investment demand increased by 10% to 1,107 tons, physical demand pushed prices, and the supply levels could not meet these demands.
“The need for wealth protection in the global inflationary environment remained a primary motive for gold investment purchases,” the World Gold Council explained. “Continued weakness in the U.S. dollar, growing recession risks, a continued high bond-equity correlation, and elevated geo-political risk form the backbone of a positive tactical case for gold in 2023.”
Gold’s successes in 2022 are only gaining more momentum as we approach the second quarter of 2023 with ever-tightening geo-political tensions, worsening inflation rates, and failing banks on a global scale.
The current banking crisis that began with the failure of SVB Financial on March 10 is no longer contained to U.S. grounds. Only days after its collapse, a major European bank, Credit Suisse, suffered a drop in price of 30% after losing $8 billion last year. As one of the most prominent banking institutions in Europe, this drop sent shockwaves throughout the market, just as the SVB collapse did.
As inflation and financial tensions increase, gold becomes more appealing to seasoned investors and novice groups alike. People want to protect their hard-earned cash with an asset that won’t drastically depreciate the second the market dips.
“Our most recent annual central bank gold survey highlights two key drivers of central banks’ decisions to hold gold: its performance during times of crisis and its role as a long-term store of value. It’s hardly surprising then that in a year scarred by geo-political uncertainty and rampant inflation, central banks opted to continue adding gold to their coffers at an accelerated pace,” the World Gold Council explained.
Spain’s efforts to increase gold coin minting, meet investor demand, and improve overall liquidity should support healthy investor actions. Gold started 2023 in the $1,800 range and is now breaching $2,038 per ounce. The worse the economy becomes, the better gold looks to investors.
As always, investors should consult their financial advisors before making any portfolio decisions.