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Silver Eagle rationing to return?

Will rationing return to limit purchases of 2014 silver American Eagle bullion coins from the U.S. Mint?

It might. But the Mint calls it allocation.

On Friday, in response to questions from me, the Mint said “The demand we have seen for American Eagle silver bullion coins over the last two weeks has been unprecedented. We normally only see this level of demand in January when our bullion coins for that year are first offered.”

September silver Eagle sales totaled 4,140,000 and so far in October another 1,650,000 have been snapped up by Authorized Purchasers, whose many clients apparently are trying to take advantage of the low price of silver in recent days.

In comparison, the Mint sold 4,775,000 silver Eagles in January.

This high demand at this time of year surprised the Mint, but of course, the staff there cannot possibility know where the price of silver bullion is heading from one day to the next when the whole hard money industry cannot figure it out.

The Mint will not reveal what level of silver Eagle inventory it maintains.

It says, “It is our long-standing policy not to discuss our inventory levels.”

There is no way then that outsiders can determine remaining supply from the current drawdown rate and whether rationing is likely.

However, the Mint conceded, “If this rate (of demand) continues, we will in all likelihood go on allocation as we were earlier in 2014. We will track silver demand closely and work with our suppliers and customers and adjust our production plans accordingly. However, at the current time, we are able to meet demand.”

That last sentence reads like it came from a harried bank executive in a movie who assures customers who are demanding their money that there is enough in the bank tills to meet their needs.

It also might be true. But we cannot know this.

Bank runs are pretty much a thing of the past because of deposit insurance, but the psychology of a run seems regularly to kick in among buyers of silver Eagles.

An expectation of shortage causes Authorized Purchasers to take more now because they might not have the coins for their retail clients later.

Those retail clients read the signs of looming shortage as a possibility to make money on any rise in the price of silver, so they want to buy more too.

This psychology could be tamped down if the Mint’s inventory carried an impressively large number of coins in reserve and this figure were publicly known.

But there is a financial cost to holding a large number of coins in reserve.

By the Mint’s not paying it we get runs on supply instead.

It might be a fair trade-off. It benefits the Mint financially not to ever have any excess supply.

It gives me news stories and headlines to write.

Some silver Eagle buyers might view their investments as a form of entertainment and another round of shortage would be great fun.

So let’s see where this goes.

Buzz blogger Dave Harper is winner of the 2014 Numismatic Literary Guild Award for Best Blog and is editor of the weekly newspaper "Numismatic News."