Silver Eagle Shortage Causing Paradigm Shift?

The very active and upward-trending precious metals markets have caused some interesting repercussions in the coin collecting market. While some dealers are tossing newly-minted coins into the melting pot already, others are clamoring for the very limited supply of new Silver Eagles so they can sell them to eager buyers. The supply of new Silver Eagles isn't usually limited; the U.S. Mint has done an excellent job of staying ahead of demand until this past few months when the falling value of the U.S. Dollar has helped to drive silver and gold bullion to the highest levels seen in decades. And this is a point I want to be clear on, since so many media people seem to be missing it: the soaring prices of precious metals (and crude oil, and other commodities) isn't so much a matter of the prices for these things going up, as it is the U.S. Dollar going down! Although these commodities are more expensive in nearly all world currencies, the rapid decline of the Dollar has made the situation far worse for Americans.

The U.S. Mint distributes the newly-struck supply of generic Silver Eagles to its network of Authorized Purchasers. ("Generic" Silver Eagles are the "business strike" bullion coins, as opposed to the special limited-mintage Proof and so-called "Uncirculated" (burnished) types.) The Authorized Purchasers are major wholesale buyers, who buy upwards of 50,000 to 100,000 ounces per week, and then wholesale the coins off to other dealers in smaller numbers where the coins eventually make it to eBay or your your local coin shop. The problem is that the U.S. Mint hasn't been able to keep up with unprecedented demand this year, fueled by the active bullion market and the general economic uncertainty, (which in itself often drives investors toward precious metals.) According to a recent story in the Wall Street Journal*, coin dealers have heard that the Mint cannot get enough planchets (prepared coin blanks) to strike the Silver Eagles needed. In typical fashion, the Mint has no comment and won't release any information.

Silver Eagle Rationing

The Mint began rationing Silver Eagles a few weeks ago, following a brief period in which it refused to take any orders at all for the coins because they were temporarily sold out. Since the mintages for the generic Silver Eagles are meant to be based on annual demand, the Mint can't just stop selling when they run out. In fact, the Mint has done an excellent job of planning ahead for demand in the 22 years the Silver Eagles have been available, and the 6.8 million they've sold so far this year should normally have lasted several more months. Total mintages of generic Silver Eagles since 2000 have averaged 9.3 million per year. Due to the active silver bullion market, many dealers expected to sell from 50% to 100% more Silver Eagles this year than last year. Because the Mint has to ration them now, these dealers face losing a lot of money.

This is where the paradigm shift comes in. When high-volume bullion dealers (or any dealer, for that matter) are faced with losing money because they can't get the type of coins they want, they get what they can and promote those to their customer base instead. As long as the supply of Silver Eagles was plentiful, the dealers were happy to promote them. But now that the supply has been severely curtailed, these dealers are pushing the Canadian Maple Leaf and Chinese Panda bullion coins instead, and many eager customers are buying them just to have the silver. Buyers who may have been resistant to buying anything but American Eagles are having their resistances worn down, and discovering that the Canadian and Chinese coins (and other bullion alternatives) are just as beautiful and just as pure as the U.S. bullion is, and that the mark-up is often cheaper!

The American Eagles do have one advantage, of course, that the other nations' bullion coins don't, and that is that American Eagles can be held in certain tax-deferred retirement accounts. Of course, changing this is just a matter of Congress changing the tax law, and they do that all the time. When paradigms begin shifting, all kinds of changes can happen, so who knows? Maybe soon your Chinese Silver Pandas and Canadian Silver Maple Leafs will also be eligible for these retirement accounts. I'd say it's not a long-shot bet at all, if the U.S. Mint doesn't get caught up making those Silver Eagles pretty soon!

More About Silver Eagles

• The 2008-W Silver Eagle Errors
• How to Tell if Your 2008-W Silver Eagle the Rare Variety
• How to Detect Fake Silver Eagles

*Tip: If you're trying to read the WSJ story linked above and can only get the preview paragraph because they want you to subscribe, go to Google News and search for part of the headline (in this case "Losing a Mint") and then click through on the Google News link for the WSJ story. This will allow you to bypass the subscription requirement and read the entire article. :) Note that Google News only keeps stories around for 10-14 days, so if you've come along after that, Google News might not find it. (So try the main Google search!)