Gold coins increase in value with production suspension

The spike in premiums for gold coin transactions followed last week's announcement by the United States Mint that it has suspended production of 1-ounce American Eagle gold coins until early December because it has depleted its inventory of gold.

"It's widening the spreads a little and pushing them up," said Ben Chew of Rogue Valley Coin & Jewelry Exchange.

On Nov. 6, an American Eagle coin was trading for $55 above the commodity price (about $1,040 an ounce), while dealers were paying sellers $15 over the price, Chew said.

"Now, it's going to cost $75 over the price (about $1,180 an ounce) to get an Eagle, but we would pay $30 over the price of gold," he said. "Both the buying and selling have moved up, reflecting the scarcity of the coins. The harder to get them, the more you have to pay for them."

When bullion coin blanks run out, it's not a matter of simply going to the warehouse or ordering an overnight shipment.

"They do not have an unending supply of gold and silver," Chew said. "You just can't walk into Fort Knox and start loading up on bars."

There are six major wholesalers bonded to handle the precious metals, who in turn feed secondary wholesalers and some retailers.

It generally takes a week or two for dealers to receive shipments and holiday orders generally take a little longer.

Gold traded for nearly $1,180 per ounce in New York Monday, as the U.S. dollar continued to weaken. Five years ago, on Dec. 1, 2004, gold was selling for about $450 an ounce.

The Mint's suspension has spurred demand for other gold coins as well.

"It has caused the premiums on the other precious coins such as Krugerrands and Maple Leafs to go up," said Gary Burton, owner of Burton's Rare Coins in Grants Pass.

An American Buffalo gold coin at Burton's would cost buyers a premium of about $70 over the spot price. Dealers are paying $25 to $30 over the spot price.

"When they begin striking the coins again, the premiums will come down," Burton said. "But I'm not sure for how long."

The Mint said it would resume striking American Eagles early this month, but there has been no announced date.

"It's up to the Treasury (Department)," Chew said. "I imagine they will start minting as soon as they have a supply of blanks. When you get into something like the U.S. Mint, politics and a lot of other factors enter into it."

There has been a steady uptick in buyers, he said.

"There are still people needing money and selling, but there are a lot more people that do have money and are taking it out of banks and the stock market."

November gold sales topped 124,000 ounces, a 7 percent gain over the 115,000 ounces sold in September and October, the Mint said.

American Eagles are made from 22-karat gold and weigh 1.1 ounces, while American Buffalo coins are 24-karat gold and 99 percent pure, Burton said.

"They are still making the Buffalo coins," Burton said. "Worldwide, most people like pure gold."

December 02, 2009

Source: The Daily Tidings

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