Eagles are where it

I sometimes wonder if the people interested in American Eagles are all participating in the same hobby.

To illustrate, I can point to the precious metal gurus, gold bugs and the hard money crowd who are telling us that the banking bailout is for all practical purposes state socialism and to buy precious metals now before the whole system collapses. The free market is extolled. Government intervention of any kind is criticized. In fact, the government, it is charged, is secretly manipulating bullion prices lower, though in the long run bullion will soar. A shortage of Eagles is interpreted as a sign that they are right.

On the other hand, I get letters from readers who complain about the shortage-induced prices of the popular bullion coins, specifically the American Eagle coins in gold, silver and platinum. They say prices are too high.

More specifically, they say the premium is too high, as if there is some Central Office of Official U.S. Coin Pricing that sets a value that cannot be deviated from in the secondary market. Perhaps in deference to the gold bugs I should dub my nonexistent office the Central Office of Official U.S. Coin Price Manipulation.

Markets do strange things. Economist John Maynard Keynes pointed out that they can do irrational things longer than the individual investor who expects an eventual rational outcome can stay solvent. He was a good judge because after World War I he bet that inflation would destroy the German mark, which it eventually did, but he was almost wiped out when the market value of the mark rose early on against all common sense.

It is true that the Mint sells Eagles at a base price. The Mint sells the bullion coins into the marketplace for $1.40 over bullion value to its authorized purchasers who in turn sell to secondary buyers. Secondary buyers are free to charge anything they want. They could charge $100 per silver Eagle, for example, if they thought they could get it. Market premiums of $3-$5 have become common but are thought by some to be too high.

The reason the premium is so high presently is that many people are scrambling to buy the coins and are willing to pay high mark-ups to get possession of them instead of paper assets. Numismatic News has published stories about the ongoing excess of demand over supply, which is the definition of shortage.

At some point, the market will return to more normal conditions and demand and supply will even out and premiums on the secondary market will fall back.

In the meantime, this dichotomy is a good thing because it shows the high level of attention being focused on bullion coins and all attention is a good thing.

The old joke in public relations is it doesn’t matter what you say as long as you spell the name right.

American Eagles are a desirable set of coins whether you are a collector buying examples for an ongoing set, or whether you are buying thousands as an investor in precious metals.

What is most important is the coins exist. They serve a useful purpose. If they did not, nobody would care whether they were a hedge against socialism, manipulation, or just priced too high.