There are no Eagles and Nellie won

My father used to say, “Whoa, Nellie,” when he was confronted by a surprise that gave him pause. He used to, that is, until a grandson married into a family that had a daughter named Nellie and it seemed impolite to retain the phrase.

But “Whoa, Nellie,” seems all too appropriate for use in relation to what’s going on in the American Eagle gold bullion coin market.

The U.S. Mint once again finds itself behind in supplying the market with what it needs even though the number of Eagles sold so far in 2009 is already up by 63 percent. Because of a change in policy, production and sales of 2009 coins will continue through the end of December.

The fact that a 63 percent increase in supply is not sufficient to help stabilize the market situation is just one of those things we all can simply marvel at. The Mint had to suspend deliveries Nov. 25 until production at West Point could produce a salable quantity. It was expected that deliveries would begin again in early December.

Well, such an interruption seems like an eternity to anxious buyers. They are nervously bidding up the premiums on what would otherwise be very common gold coins.

The “gotta have it now” premium is one that is no big deal when all the ultimate buyer wants is bragging rights about first delivery of a proof set or collectible gold coin, but if it applies to gold in large enough quantities, it is something that simply fattens the profits of the middlemen who buy bullion coins at fixed prices from the Mint and then distribute them to their networks of dealers.

If the premium paid is high enough, it can seriously affect the investment performance of gold as an asset. New buyers might be throwing away their chance to make a decent return.

During market panics, talking about investment performance sounds quaint, like I expect tomorrow will come and the sun will shine on a fairly normally functioning American economy.

Well, that isn’t what panicked gold coin buyers think when they are told there are no American Eagles currently available. It seems to be confirmation that all is not well and that gold is not an investment so much as a survival tool.

It doesn’t pay to try to remind them that in 2007 the Mint sold just 147,500 gold American Eagles because that’s all buyers wanted. That is little more than a month’s demand nowadays.

I expect the Mint’s system of rationing supply, called allocation to its authorized purchasers, will have to be reimposed. Even if the Mint makes it to the beginning of 2010 without allocations, I don’t see how it can be avoided. Starting the new year without any kind of 2010 gold Eagle supply seems guaranteed to be yet another chapter in the ongoing panic.

The last time, rationing gold Eagles lasted from August 2008 until June 2009. How long will it last next time? Who knows?

I don’t imagine it would help to point out that the Austrian Mint expects gold bullion coin demand to drop by 32 percent next year. Eagle buyers aren’t in a mood to wait to see how the new year unfolds. They want their Eagles now.