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American Eagle Gold coins shortage - what's causing it?

Thu Aug 21, 2008 09:08PM | By Tony

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Temporary suspension

According to Reuters and Yahoo, the U.S. Mint temporarily suspends sales of the American Eagle gold coins due to ... shortage.
The news came from the coin dealers - the Mint told dealers in a memorandum it was halting all sales of American Eagles. "A shortage of American Eagle bullion coins following a recent sharp retreat in gold prices has forced the U.S. Mint to suspend sales of the popular coins temporarily ..."

Coin Supply Facts

Many US coin dealers are out and won't be able to supply any to their customers. Blanchard and Co., one of the largest U.S. retail dealers of gold coins, said the American Eagle and American Buffalo one-ounce gold coins are sold out. Kitco still has some. "Kitco's Senior Analyst Jon Nadler said American Eagles are still in stock even though delays in supply and shipping of all bullion products could be possible..." Apmex still showing some quantities available for sale.

What's causing the shortage? - Coin Demand Spike

Coin dealers from the US and Canada also reported a big spike in demand for gold and silver coins and bars since prices plummeted from highs last month. "Kitco reported that demand for gold bullion coins has increased significantly in recent days." "In hindsight, A-Mark's LeShay said that neither the U.S. Mint nor the coin dealers could anticipate such a supply shortage."

Why are they buying?

This spike in demand on down prices is a good thing - it shows that the investors sentiment toward US Dollar is as such: 'US Dollar will continue going down. Buy Gold to offset the losses in dollar value."

Gold and Silver Prices are Up Sharply. Why?

The article states that "The buying spree contributed to supply fears and helped boost gold prices sharply on Thursday. ... George Gero, vice president of RBC Capital Markets Global Futures in New York, cited the gold coin shortage for Thursday's gold rally." This is nonsense. The positive price movement in Euro has caused this! In the most recent weeks, dollar has staged a short bull rally primarily in response to weakening Euro. In the US, economical fundamentals have not changed to benefit the dollar: Feds continue printing paper money, economy continues to be weak, interest rates remain the same.
Euro went up and took Dollar down and Gold and Silver up, subsequently.
On Thursday Aug 21, 2008, spot gold price closed at $837.60 an ounce, $22.80 or 2.81% up ... which by itself is not that significant. What was significant is the price movement in Silver and Platinum: Silver closed at $13.89, $0.58 or 4.38% up, Platinum close at $1456, $83 or 6.08% up! This tells me that at least for now the investor interest has returned to precious metals.

Substitutes for American Eagle gold coins

Some dealers have been recommending customers to buy the one-ounce Canadian Gold Maple Leaf gold coin instead. We suggest buying American Eagle Silver coins - they are cheaper and have more upside potential, in our view, proven by today's higher than gold price increase percentage wise. The gold to silver price ratio as of Aug 21, 2008 is around 60 which is way above the average 50. Silver went down too fast too low.

The Burning Question

Shortage aside ... the question is: "Is this only a temporary spike or something more significant is in the works for Gold and Silver?" Too early to say. IMHO, all will depend on where the Euro is going, and that will depend on where the European Union economy is going ... Stating that US slowing economy is causing slower growth in Europe is premature.

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