Gold, silver bullion plentiful

This article was originally printed in Numismatic News.
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If you’re in the market for gold or silver bullion products, you should be able to find what you want.

In bullion-priced gold coins and ingots, most everything is readily available on a near-immediate basis, except for the U.S. Buffalo.

The U.S. Mint has released 2011-dated 1 ounce gold Eagles. Demand for them is below what the Mint has produced thus far, plus the 2010-dated mintage did not sell out by year end. Fractional gold Eagles for 2011 have not been released yet, but other common dates are readily available.

Expect to pay $65-$85 above spot for the 1-ounce Eagle, $45-$60 above gold value for the 1/2-ounce, $28-$40 over melt for the 1/4-ounce and $15-$25 above intrinsic value for the 1/10-ounce.

The 2011 Buffaloes have not been released yet. The Mint stopped delivering 2010-dated coins several months ago. You pretty much have to find an available supply in order to purchase such coins. This can be a hit or miss proposition – just because a supplier cannot provide them one day does not mean they will never have them in stock, so keep trying. If you can find them, expect to pay $90-$120 over spot for them.

In other coin issues, the U.S. American Arts medallions (the Mint’s bullion series issued from 1980 though 1984 that pre-date the Eagle series), the Austria 100 coronas (0.9802 ounce gold content) and Mexico 50 pesos (1.2057 ounce gold content) have the lowest premiums above gold value. Expect to pay $40-$60 per ounce above the gold value for them. The American Arts medallions have low enough mintages that many dealers will not even offer them to their customers, while the 100 coronas and 50 pesos are readily available.

In my experience, the Royal Canadian Mint and Perth Mint are more sensitive to marketing opportunities. The Royal Canadian Mint realized that selling the 1 ounce Maple Leaf coins to primary distributors at 3 percent above gold value meant that, at higher gold spot prices, the Mint was realizing a higher dollars and cents margin. Therefore, it does not surprise me that the RCM has dropped its premium charged to primary distributors. Maples now cost significantly less than Eagles or South African Krugerrands. Expect to pay $45-$65 above spot.

The 1 ounce Krugerrands are in ready supply nowadays. Expect to pay $50-$70 over spot. Austria Philharmonics and Australia Kangaroos can be purchased for premiums similar to American Eagles.
The 2011 Pandas are not out yet. There are a number of prior Panda issues that are now trading at rare coin prices in order to meet demand from Chinese collectors. Expect to pay $110-$140 above spot for the 2010 1 ounce Panda – if you can find them.

The 1 ounce ingots typically will cost you $40-$60 above spot, though I have heard of occasional deals around $30 over spot. Gold ingots less than kilogram size used to be struck in small enough quantities that the buy/sell spreads on them were wider than for comparable sized coins. However, with the strong demand for gold over the past three years, beyond the capacity of the various mints to strike 1 ounce coins, the demand for 1 ounce ingots has soared.

I still have some reluctance to recommend ingots because of the possible wider spreads down the road, but that is not a problem right now. Twenty-five years ago, the most popular brand names were Engelhard, Johnson Matthey and Credit Suisse. Today, it looks like the top manufacturers of 1 ounce ingots are Johnson Matthey, Perth Mint, PAMP and Royal Canadian Mint.

Smaller-sized gold coins invariably have higher premiums than the “majors” (coins of exact or approximate 1 ounce size). Among fractional size gold issues, the 1/2-ounce American Arts medallions probably have the lowest premium. Expect to pay $20-$30 above gold value for the common issues.

For all the price indications I list here, there are some points to keep in mind. Many dealers have different prices depending on the size of the order, so it is worth asking if you are close to a threshold that might save you a few dollars per unit. A few dealers quote what looks like a low price on the merchandise, but then add a commission or an unreasonably high postage charge. Also, there are a few dealers who claim they are selling at a low mark-up, but then use a higher, above-market price to calculate their selling prices. In order to compare apples to apples, make sure you pin down just how much you would have to write your check for, so that any hidden costs are included.

Something else to be aware of is that there are a few cost-competitive sellers who will not lock in transactions unless the potential buyer already has good funds on account, which may make it impossible to purchase merchandise on a temporary price dip. Obviously, a business that receives customer funds in advance would be in a stronger position to make confirmations and know that the customers will follow through.

As for physical silver products, most everything is readily available. The U.S. Mint has already sold more than 4.7 million 2011-dated silver Eagle dollars this month, the highest one-month total since the program began in November 1986.

Demand is so strong that the Mint is already rationing shipments to primary distributors, but that is just starting to affect the ability of my companies to promptly deliver silver Eagles. The rationing has bumped up 2011 silver Eagle premiums about 10-20 cents per coin compared to levels at the end of 2010. As of Jan. 24, supply shortages were starting to affect availability. Right now, figure that large orders will take an extra one to two weeks to fill.

A couple months ago, the U.S. Mint raised the formula it was charging primary distributors from $1.50 above London silver spot to $2 above spot. Since the London silver spot is roughly 5 cents higher than New York prices, figure that the primary distributors are now paying about $2.05 above U.S. spot prices. Although the dollars and cents price above spot is higher, the premium as a percentage of silver spot is much lower than at this time last year. For most quantities, expect to pay $2.85-$3.85 above the spot price. If the current rationing continues much longer, expect premiums to go even higher.

Canada silver Maple Leafs can be had for about $2.60-3.60 above spot, though I have heard of some delivery delays in Canada. The 2011 Australia Kookaburras have been released, but expect to pay $4-$5 above spot if you can find them. The 2011 China Pandas are not out yet.

Silver ingots were in short supply one to two months ago. Higher spot prices at the end of 2010 and start of 2011 put a crimp in demand. Right now, the 100- and 10-ounce ingots are available almost immediately. You may run into some slight delays if seeking a quantity of the 1-ounce Ingots, either round or rectangular. Engelhard, the brand that was most popular in the mid-1980s, has not struck ingots since about 1986. If you insist on that brand, you may have difficulty coming up with any quantity of the 1- or 10-ounce Engelhard ingots. Because of the strong demand for ingots, the cost above spot price has actually increased in the past few months, though with higher spot prices the premium as a percentage is lower. For the 100-ounce ingots, expect to pay $1-$1.75 over spot. For the smaller ingots, your cost will likely range $1.25-$2.50 above spot.

The U.S. 90 percent silver coin is still the most widely traded form of bullion-priced physical silver. It has a relatively low cost above silver value, the greatest divisibility (one dime contains about 1/14 of an ounce of silver), and is the most liquid. While some dealers recommend owning silver Eagle dollars in case there is a need to spend silver, I think that the 90 percent coin will be even more popular because a significant percentage of the population still remembers seeing these coins in their change.

Two months ago, so much 90 percent coin was being shipped to the refineries to melt down that the cost over metal value fell to almost nothing. However, since the silver spot price fell this month, very little has been sent to refiners. Instead, retail buyers are snapping up supplies, which has the effect of pushing up its premium relative to spot. Today, you can acquire the U.S. 90 percent coin in quantity at prices about 40 cents to $1 above spot. With virtually no 90 percent coin going to refiners now, expect a tighter squeeze on silver supplies to fabricate ingots and other products. It would not surprise me to see all physical silver premiums rise within the next month.

U.S. 40 percent silver coins, the half dollars struck for circulation from 1965 to 1969, were an attractive option when silver spot prices were under $5 per ounce. At that time, these coins could be purchased so close to face value that they had limited downside risk. You can purchase 40 percent coin today at about the same attractive cost per ounce of silver content as 90 percent coin, but 40 percent coin has two significant disadvantages. First, 40 percent coin needs more than double the storage space for the same silver content because the coins are 60 percent copper. Second, if you need to ship these coins, postage costs eat up a higher percentage of the value because of their weight and bulk.

I don’t have space here to discuss current gold or silver market prices, except for one significant indicator. Starting on Jan. 14, the backwardation of prices in the London silver market, a condition where the spot month prices are higher than prices in some future months, became so extreme that spot month prices were higher than for contracts 12 months in the future. The last time that London silver market backwardation occurred that far in the future was in January 2009. After this happened two years ago, the silver spot price rose more than 40 percent within the next few weeks. Will it happen again? It is possible.

Patrick A. Heller owns Liberty Coin Service and Premier Coins & Collectibles in Lansing, Mich., and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects. He also writes a bi-monthly column on collectibles for The Greater Lansing Business Monthly (www.lansingbusinessmonthly.com/articles/department-columns). His radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 a.m. Wednesdays on 1320-AM WILS in Lansing, which streams live at www.1320wils.com.