March 10, 2009 – Gold Bullion Eagles

The US Mint ran out of gold eagles for the first time in over a decade in late 2008. This had a profound impact on some investors who were invested in or in the market to buy gold bullion. Eagles of both gold and silver sold at very high levels in late 2008 as investors in the stock market fled into commodities, as often happens during an economic crisis. That the price of the commodities also rose respectably during this period, has kept demand very high into 2009.

However, some of the concern over whether gold stocks are in sufficient supply has been unwarranted. A recent shortage in gold Eagle coins was traced to an interruption in the supply of planchets, or what the Mint now calls a type-2 blank, from a key manufacturer. The Mint itself is charged with meeting the demand of the consuming US public, but the logistics of production are sometimes unable to keep up with a demand that fluctuates wildly. The demand for silver Eagles is even more erratic.

Though only sales figures are released, it is expected that the US Mint will increase its physical supply of gold bullion. Eagles account for a large amount of the sales of physical gold from the US. In fact, demand for gold Eagles in January 2009 has seen an over four-fold increase from January of 2008. While smaller denominations have been very attractive to individual investors, the majority of the US Mint’s gold Eagle sales have been in one-ounce denominations.

Thus far, the US Mint has sufficiently ramped up production to meet this unprecedented demand, though with some rationing limits placed upon large-scale investors. There are significant mining operations in the US and a large amount of gold bullion held in government coffers. Thus far, problems with demand have largely been logistical. Demand has also spiked in other countries, straining their ability to physically keep up with demand.

In addition to domestic sales of gold bullion Eagles, investors in the US have been buying up stocks of gold bullion in other countries. Investment in gold held and processed by the Perth Mint, for instance, have reached $2 billion in early 2009, with a significant portion of that coming from the US. Investment in mining interests has also skyrocketed, with over $1 billion being spent in January of 2009, alone. Much of this investment, especially by large investing firms, has been fueled by concerns about the stability of paper currencies in the face of massive public spending on bad assets and infrastructure.

Kenneth Hansen

March 10, 2009

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