Gold-Coin Demand Tightens Supplies, Raises Premiums, Broker GoldCore Says

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An employee prepares gold ingots for shipping at the Argor-Heraeus SA gold producing and refining plant in Mendrisio, Switzerland. Close

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Photographer: Adrian Moser/Bloomberg

An employee prepares gold ingots for shipping at the Argor-Heraeus SA gold producing and refining plant in Mendrisio, Switzerland.

Demand for gold coins is tightening supplies and boosting premiums as mounting concern over Europe’s debt crisis and a proposed increase in U.K. capital-gains tax spur purchases, according to GoldCore Ltd.

Wholesale premiums on British sovereigns, added to the price of immediate-delivery bullion, have jumped to about 7 percent from as little as 2.5 percent in early May, the broker and dealer said. For the more popular Krugerrands, they have risen between 1 percent and 1.5 percent in the past month. May bullion sales almost tripled from a year earlier, GoldCore said.

Gold climbed to a record $1,252.11 an ounce in London yesterday on investor demand for an alternative to currencies and on speculation that debt-cutting measures across Europe will slow growth. Gold sales to Europe from the Perth Mint in Australia surged in May, and South Africa’s Rand Refinery Ltd. raised production of blank Krugerrands to a 25-year high.

“We’re finding it difficult to get sovereigns in large volumes,” Mark O’Byrne, executive director of GoldCore in Dublin, said yesterday by phone. “People see the crisis getting worse, not better, and demand is increasing. There’s still a bit of doubt in the market about the capital-gains tax, and sovereigns are exempt” from the levy, he said.

Tax Rates

U.K. Prime Minister David Cameron said June 7 his government must raise capital-gains tax to stop a “massive leakage” of revenue. Gains on non-business assets will be taxed at rates “closer to those applied to income,” according to the Conservative-Liberal Democrat coalition’s legislative program published last month.

The basic income tax rate is 20 percent, with higher rates at 40 percent and 50 percent. Capital gains are now taxed at 18 percent. Changes will be unveiled in the budget scheduled for June 22, according to Cameron.

Gold is up 12 percent this year and set for a 10th annual gain, the longest winning streak since at least 1920, as investors seek to safeguard their wealth against the crisis in Greece and other European countries struggling to repay debt. The euro has slumped 16 percent against the dollar this year, while the MSCI World Index of shares is down 9.8 percent. The metal traded at $1,233.90 an ounce at 2:52 p.m. in London.

“Normally premiums have small moves,” O’Byrne said. “For some to double in a matter of weeks is quite a signal.”

‘Panic Buying’

European buyers accounted for 69 percent of purchases last month, compared with 51 percent a year ago, according to Perth Mint. Rand Refinery said output at the end of May jumped 50 percent to 30,000 ounces of blank coins for minting, the highest weekly production since 1985. Demand was strong enough to constitute “panic buying,” Muenze Oesterreich AG, the Austrian mint that makes the Philharmonic coin, said on May 12.

“Buy orders are coming from wealthy and high-net-worth clients, so the increased buying is not from the man in the street,” GoldCore said today in a report. The broker said it has a minimum purchase order of $10,000.

A South African Krugerrand weighing 1 ounce costs 934.33 pounds ($1,360.93), according to GoldCore’s website. The Krugerrand is the world’s most widely held and actively traded gold coin, Rand Refinery’s website shows.

To contact the reporter on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net.

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