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Wait Gets Longer for Bullion Coins
By Patrick A. Heller, Market Update
September 30, 2008

In the past week, the U.S. economy has been hit with the two largest bank failures in history (Washington Mutual, Inc. and Wachovia Corporation with total combined assets in excess of $1 trillion), a collapse of efforts by the federal government to try to destroy the value of the U.S. dollar through a so-called $700 billion (which I think would actually cost at least double that amount) bailout of Wall Street firms. As I write this, the Dow Jones Industrial Average is near its lowest level in the past year, and not far from the last time it was under 10,000 on Oct. 26, 2004.

Late last week, the U.S. Mint announced that it was suspending sales of the gold one-ounce Buffalo because it had run out of inventory. This news was widely reported by the general media.

Although the Mint said it would resume sales when more coins were fabricated, the announcement added further urgency to buyers wanting to buy physical gold and silver.

Late last week and so far this week, our store and coin bullion dealers have been besieged by visitors and callers hoping to purchase gold and silver they can obtain for immediate delivery. Demand has been so strong for the past 10 weeks that virtually nothing can be picked up on a cash-and-carry basis.

When the Mint halted Buffalo sales, that shifted more demand to American Eagles. Now, American Eagles are no longer available as the Mint is unable to supply more than a minuscule quantity. South Africa Krugerrands, British sovereigns, Australia Kangaroos, China Pandas, and several other coins were already just about impossible to purchase in quantity.

Physical gold supplies are so tight that Monday afternoon a trader at A-Mark Precious Metals, Inc., a major wholesaler who is also a primary distributor for the U.S. and other mints, told my head trader that they literally had no gold available to sell and were unable to take any orders for any gold coins for future delivery.

With higher demand and lower supply, premiums have risen further on the coins that you can still obtain - if you can find them. As you would expect in such circumstances, premiums are up sharply if you can find a wholesaler or dealer to quote prices. On Monday afternoon, one major wholesaler was willing to take orders for slow delivery of American Eagles and Buffaloes at a price that was 9 percent above gold spot (compared to a normal wholesale premium around 3.75 percent).

The silver market is almost as gridlocked. On Monday afternoon, we could only locate one wholesaler willing to sell 90 percent silver coin - at a price that was 29 percent above silver value. You can purchase silver ingots for a lower price, but you will have to wait 1-3 months after making payment for the bars to be fabricated.

As a coin and bullion dealer, it is frustrating to turn away throngs of new customers coming to buy gold or silver. When the rare customer comes into our store to sell gold or silver coins or bullion, the would-be buyers in our store hang around to see if they might be able to snap up the live inventory. Unfortunately, in most instances that fresh purchase is set aside to fill earlier customer orders.

The attitude of many customers so far this week has bordered on panic - and I expect it to get worse before it gets better. About the only gold coins you can purchase for reasonably quick delivery now are Canadian Maple Leaves and Mexican 50 pesos.

In silver, U.S. 90 percent silver coin can be acquired in sizable quantities and U.S. 40 percent silver coin can be found in limited quantities. A week from now, I wouldn't be surprised if I had to report that even these coins had become almost unobtainable, no matter how high the premium a buyer is willing to pay.

I do not expect supplies of physical precious metals to become plentiful again until gold is solidly established well above $1,000 per ounce and silver at least $22 per ounce. If you want to buy physical metals at today's much lower spot prices, you are going to have to pay significant premiums and be prepared to wait for delivery.


Wait Gets Longer for Bullion Coins

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