Friday, October 10, 2008
Michael Zielinski at the Mint News Blog sent me a note the other day regarding this item he recently published, an item that seems to be making the rounds on the internet over the last 24-hours and for good reason.
There’s one aspect to this entire situation that many people haven’t been discussing. The Mint is always citing “unprecedented demand” as the reason for suspensions, production halts, and allocation programs, but in 1999 gold sales were more than 4 times higher and none of these measures were necessary.Well, the price of gold wasn't exactly stagnant today - it was down $63!
The story is not that the Mint is unable to produce enough gold coins, it’s that they are unable to obtain enough gold on the open market. This all plays into the puzzling situation of physical scarcity and high demand for gold, while the market price of gold remains stagnant.
Naturally, coin dealers are still desperate for inventory (check out the CNI bullion page which now shows American Eagles available at $80 over spot after having been "Out of Stock" for most of the week and probably "Out of Stock" again by the time you call).
Oh yeah, and the SPDR Gold Shares ETF (NYSEArca:GLD) added another five tonnes today after the price plummeted.
You know, I get the part about investment demand only accounting for about 20 percent of overall demand for gold bullion, but the deal with coin shop shortages really is smelling fishier with each passing day, particularly in light of this data assembled by Michael:
The following table shows the ounces of gold sold by the United States Mint in the form of American Eagle Gold bullion coins. These figures are taken from the US Mint website. You can visit the link for monthly data, as well as the figures for Silver and Platinum Eagles.Yes, the consequences could be quite interesting...
American Gold Eagle Bullion Sales (ounces)
*through October 2008
1986 1,787,750 1987 1,253,000 1988 851,000 1989 839,000 1990 715,000 1991 472,000 1992 638,600 1993 796,000 1994 559,500 1995 600,500 1996 729,500 1997 1,317,000 1998 1,839,500 1999 2,055,500 2000 164,500 2001 325,000 2002 315,000 2003 484,500 2004 536,000 2005 449,000 2006 261,000 2007 198,500 2008 492,000*
The demand for American Gold Eagles is clearly not unprecedented. What's actually unprecedented is the suspension and allocation of Gold Eagle coins. Even amidst the booming demand of the pre-Y2K years, the US Mint never resorted to suspensions or allocation programs. Why is the US Mint having so much trouble keeping pace with demand this year?
With unfulfilled physical demand, why has the market price of gold remained stagnant? I think we will see this situation play out with some interesting consequences during the remainder of the year.