HomeBullion & Precious MetalsThe Coin Analyst: Bullion Coin Sales Go Parabolic, and U.S. Mint Announces...

The Coin Analyst: Bullion Coin Sales Go Parabolic, and U.S. Mint Announces Suspension of Sales of One-Tenth Ounce Gold Eagles

by Louis Golino for CoinWeek ………

In the week since precious metal prices suffered their biggest decline since the 1980’s, buyers of silver and gold coins and bars have been taking advantage of the lower prices at a frenzied pace.  That bodes well for those looking for higher prices.

There are all kinds of factors that show there is a worldwide trend of sharply higher buying of physical metal, and this is an important part of why what is happening now is so different from the aftermath of the sharp correction in gold prices after it peaked at $800 in 1980.

Back then sellers of physical metals were lined up at coin shops to dump their gold and silver, but things could not be more different now.  For example, on April 22 Barry Stuppler said in his weekly market report that in the past week he has had ten times as many buyers as sellers of precious metal bullion, and his buyers were purchasing between $5,000 and half a million dollars worth of bullion.

1-10_oz_ageBullion and coin dealers, wholesale distributors, and issuing mints all over the world are reporting sales so high that they cannot keep up with rising demand.

Sales of American silver eagles have been reaching new records almost every month this year with total sales for the year at 16,610,000, according to Barry Stuppler.  The U.S. Mint has been rationing sales of those coins since January on an allocation basis to its network of authorized purchasers because it has been unable to produce enough coins to meet increased demand, and in January sales of silver eagles were suspended for ten days.

Part of the problem is the difficulty in sourcing the planchets needed to strike the coins, which are only produced by three U.S. companies.  The Mint has the capacity to strike 50-60 million silver eagles a year, according to a report in Coin World’s May issue, but the planchet issue has prevented the Mint from reaching that capacity.

With demand rising at a record pace, silver eagles have been sold to authorized distributors on an allocation basis all year, many dealers are now selling coins they do not yet have, and premiums have continued to rise on both the wholesale and retail levels.  Wholesale premiums are currently running about $5 over spot, while retail premiums are about $7-8 a coin with most dealers selling silver eagles at $30 a piece.

Texas Precious Metals (www.texmetals.com) posted an inventory update on April 22 that noted the extensive problems in faces sourcing enough silver coins to meet demand, especially those from the U.S. Mint and Royal Canadian Mint.  And it characterized the physical market as “ugly,” noting:  “There is no telling at this point when mint inventories will return to normal, but you can be sure it will not happen within the next 8 weeks. Most dealers, at this point, are selling their current customer demand forward, meaning they are selling product they do not presently have, expecting to pull from future mint allocations. Consequently, future allocations will face pressure from today’s demand.”

In addition, foreign mints such the Perth Mint in Western Australia are also reporting sharply higher sales of silver and gold coins.  Texas Precious Metals also noted that it is pleased with the way Perth has been able to increase production to meet higher demand unlike the U.S. and Canadian Mints and attributed this to the fact that it is the only major world mint that is truly run as a business.

Gold coins have been selling at a record pace all year as well, especially American gold eagles in one ounce and one-tenth ounce sizes.  On April 17 alone (two days after gold hit a bottom of $1321) the U.S. Mint sold 63,500 ounces, or two tons, of gold, according to the web site Zero Hedge (www.zerohedge.com).   Moreover, in just two weeks this month sales were equivalent to the past two months of combined sales.

In April the one ounce gold eagles reached their highest sales level of the year so far with sales of 175,000 coins from the Mint to its distributors.  For the year sales of these coins are up 100% compared to last year.

On April 22 the U.S. Mint announced that it is suspending sales of one-tenth ounce American gold eagle coins to its authorized distributors so that inventories can be replenished, and noted that sales of those coins are running 118% higher than at the same time last year.  For the year the Mint has sold 295,000 one tenth-ounce coins.

Sales of the one-tenth ounce coins, the second most popular bullion gold eagles, will resume when the Mint can produce enough coins “to satisfy anticipated marketplace demand.”

It is clear, as many commentators have noted, that there is a war going on between the physical and paper metal markets.

Jim Rickards, a prominent expert on precious metals and financial markets and author of the book, Currency Wars, recently told Business Insider (www.businessinsider.com)  that the real difference between the paper and physical markets is not one of price, but of behavior.  In his view what matters is the difference in how people react to changes in the market.

In particular, what he calls the “weak hands” such as hedge funds and those who buy on the futures markets run for the hills and sell like crazy when gold corrects sharply, whereas the “strong hands” such as central banks and retail buyers take advantage of the opportunity to buy at lower price points.

He added that “The weak hands are retail jumping into GLD, at a top, using margin, futures players, and people who don’t really understand gold. There are a lot of trend followers out there who started following gold on a trend basis, but didn’t really understand anything about gold, or how it works, etc.

The key is that the weak hands are people who are leveraged buyers with liabilities for futures contracts and margin calls, who need to dump gold when it declines, whereas physical buyers can sit tight and wait for higher prices.

Two other key trends to watch are central bank gold buying and Chinese and Indian gold purchases, both of which are harder to track than data on U.S. Mint sales since the information is not as readily available.

Jim Nichols, another noted gold expert (www.nicholsongold.com), said last week that he expects central banks to take advantage of lower prices, but to do so quietly so as not to drive prices higher too quickly.  And based on other reports in the past week, buyers in China and India do appear to be increasing purchases at the new, lower prices.
Louis Golino is a coin collector and numismatic writer, whose articles on coins have appeared in Coin WorldNumismatic News, and a number of different coin web sites. His column for CoinWeek, “The Coin Analyst,” covers U.S. and world coins and precious metals. He collects U.S. and European coins and is a member of the ANAPCGSNGC, and CAC. He has also worked for the U.S. Library of Congress and has been a syndicated columnist and news analyst on international affairs for a wide variety of newspapers and web sites.

Louis Golino
Louis Golino
Louis Golino is an award-winning numismatic journalist and writer specializing on modern U.S. and world coins. He has been writing a weekly column for CoinWeek since May 2011 called “The Coin Analyst,” which focuses primarily on modern numismatic issues and developments at major world mints. In August 2015 he received the Numismatic Literary Guild’s (NLG) award for Best Website Column for “The Coin Analyst.” He is also a contributor to Coin World, where he wrote a bimonthly feature and weekly blog, and The Numismatist, the American Numismatic Association’s (ANA) monthly publication, where he writes a monthly column on modern world coins. He is also a founding member of the Modern Coin Forum sponsored by Modern Coin Mart. He previously served as a congressional relations specialist and policy analyst at the Congressional Research Service of the Library of Congress and as a syndicated columnist and news analyst on international politics and national security for a wide variety of publications. He has been writing professionally since the early 1980s when he began writing op-ed articles and news analyses.

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  1. Louis,

    You’ve done an excellent job of tying the events of the past week together. I was not aware that people had actually been lining up in the 1980s to try to sell their gold. I would have figured they’d have kept most of it. The reaction in 2013 could not be more different.

    I noticed you mentioned sales of gold in Asia. ZH had a nice “roundup” article posted last week indicating that apparently the buying in Asia is just as frenzied as it is in the USA. See here: http://www.zerohedge.com/news/2013-04-17/gold-buying-frenzy-continues-china-japan-and-australia-scramble-physical

    More recently, GoldCore (posting on ZH), also indicated Asian demand seems to be very high. Note in particular the comments about the Hong Kong Gold & Silver Exchange: http://www.zerohedge.com/news/2013-04-23/asians-drive-gold-demand-30-year-highhttp://www.zerohedge.com/news/2013-04-23/asians-drive-gold-demand-30-year-high

    We live in exciting times.

    • Thanks as always, Capt., for your positive feedback and useful observations. I am hearing the same thing about demand in Asia from various outlets.

      It seems clear that physical buying played a key role in the $100 retracement in gold price’s since last week’s lows. On the other hand, silver seems a lot weaker and appears more vulnerable to further declines.

  2. My theory is that the physical market is largely irrelevant in the intermediate to longer term; only the bulk ETF market really matters. Yes, physical buyers can rapidly expand premiums for physical, but the physical market ALWAYS eventually capitulates. There simply is not enough oomph in the totality of the physical market to stand up against even one hedge fund’s attack against bullion products, or any other asset class for that matter. It’s NOT the gummint, not the Fed, not even banks that are the boogeyman. One smart boy hedge fund manager with a hot trading computer algorithm can swamp the entire physical market pretty much at a whim.

    We fool ourselves if we believe either a) the physical market took bullion up, or b) we can prevent it from going down. The paper traders dragged us up, lulled us into believing the abnormal was normal, and have now turned against bullion. Keep buying only if you have lots you can afford to lose. I’m looking for lots more downside from here.

    • Kurt,

      I don’t think the physical market is responsible for moving the paper price up or down. I think there’s an argument to be made that physical is decoupling from the paper markets. As Louis pointed out, people aren’t lining up to sell their physical this time. Instead, it seems like the opposite.

      You are correct that the decoupling can’t go on forever and that either the physical or paper market must eventually capitulate.

      I don’t agree, however, that there’s much downside left. Miners will start to have major problems if gold falls below $1300-$1200. If miners start shutting down and/or going bankrupt, that will squeeze supply even more than it already is being squeezed and make a paper capitulation that much more likely.

      • CO,

        Yes, I think you’re right at the margins on gold at about $1100-1150. At those levels about 15-20% of mining gets awfully skinny on margins.

        What was different about the 1980’s spike is that it was revealed (esp. in silver) as one family’s attempt to corner the market, so the average Joe found a more ready reason to head for the exits than this time. There is no singular evildoer this time, so the exit case is more diffuse, but I submit there is an even more dangerous evil out there – the automated computer trading algorithm. In the 1980’s trading ordering was done by phone (or TTY) to traders in actual trading pits with hand signals. Now, with automated computer generated trades, metals can go up or down so fast that no individual can ever participate. The whole deal is fully run by hedge funds.

        Here’s the key – if the “momo fascination” with metals is winding down, we can AFFORD to sideline maybe 30% of current gold production. I don’t think gold is at a sensible level as long as its dollar price has four digits. And silver will have a two-digit number starting with “1” before I’m back in.

      • Right now, I believe we’re seeing the classic “dead cat bounce” based on true believers (like 90% of coin guys) who wrongly, in my learned opinion, believe that the fundamentals are still bullish and want to get in now. I simply do not believe they are any more. I’m short, and intend on staying short a while longer. I have been a professional watcher of silver since the mid 1970’s and I still see a radically overbought silver market.


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