21 Jan 2013

The Return of Silver Eagle Rationing

Late yesterday, the United States Mint informed authorized purchasers that the 2013 American Silver Eagle bullion coins had temporarily sold out. This comes only ten days after the coins were initially made available for ordering and following a three week period of unavailability due to the early sell out of the 2012-dated coins.
Sales of the 2013 Silver Eagle bullion coins will remain suspended until the Mint can build up an inventory of the coins. The Mint expects that sales will resume on or about the week of January 28, 2013 under the allocation process. The “allocation process” refers to a system of rationing the available silver bullion coins amongst authorized purchasers during times when demand exceeds the supply.
As long time readers will remember, Silver Eagle sales suspensions and rationing had occurred somewhat regularly during the years of 2008 to 2010, when a surge in demand for silver bullion exceeded the US Mint’s ability to produce the coins. Besides the implications to precious metals investors of higher premiums and delivery delays, there were also implications for collectors.
The 2008 Proof Silver Eagle became “unavailable” in August and never resumed sales. It was later revealed that the US Mint had been diverting all incoming silver blanks to the production of bullion coins rather than collector coins which were not legally required. In 2009, all proof and uncirculated Gold and Silver Eagles were canceled as the problems fulfilling demand for bullion coins persisted. For much of 2010, the status of collector coins remained in doubt as the US Mint continued to ration bullion coins. The rationing was finally lifted on September 2, which cleared the way for a very late release of 2010 Proof Gold and Silver Eagles.
Although rationing was imposed for the initial release of the 2011-dated Silver Eagle bullion coins, it was soon lifted and became a thing of the past. Numismatic offerings, for the most part, returned to their normal schedules and availability throughout 2011 and 2012.
Silver Eagle Rationing in 2013
The allocation or rationing of Silver Eagle bullion coins in 2013 will have some different aspects than the rationing of the past.
At this point we do not know the specific bottleneck or issues which have caused two sales suspensions and the return of the allocation program. However, this time around the US Mint might have a more difficult time resolving the disparity between production and demand. Last time, the US Mint took numerous steps over the course of several years to bolster production to the level necessary to meet full demand. This included process improvements at the West Point Mint, expanding the number of precious metals blanks suppliers, and adding supplemental production at the San Francisco Mint. What additional steps can the US Mint take at this point to bolster production even more, and how long would they take to implement?
This time the US Mint may not be under as much pressure to resolve the shortage. Almost immediately after the initial suspensions of 2008 and the adoption of the allocation program, many bullion investors called attention to the fact that the US Mint was legally required to mint and issue American Gold and Silver Eagle bullion coins in “quantities sufficient to meet public demand.” This legal requirement added some pressure and probably unwanted attention to the situation. Eventually, the Mint would have the operations of its bullion program scrutinized at a Congressional hearing.
Now, the production requirements for bullion coins have been quietly changed with the passage of the Coin Modernization, Oversight, and Continuity Act of 2010. The requirement was modified to the more ambiguous “quantities and qualities that the Secretary determines are sufficient to meet public demand.” This leaves the door open to the Treasury Secretary to make an independent determination of the quantity of bullion coins sufficient to meet public demand, regardless of the actualquantity necessary to meet demand.
Finally, on a more positive note, this round of rationing is less likely to have implications for collector versions of the American Gold and Silver Eagles. The same Act that obfuscated the production requirement also added greater discretion for the Secretary of the Treasury to mint and issue collector versions of the coins. As such, the US Mint will be able to offer proof and uncirculated quality Gold and Silver Eagles to collectors irrespective of the bullion situation.
At the time of this post, the US Mint’s website shows month to date Silver Eagle bullion coins sales at 6,007,000. This figure, which accounts for only ten days of ordering, has nearly reached the full month total from the year ago period of 6,107,000.
Month to date sales of Gold Eagle bullion coins are also progressing at a faster rate with 121,500 ounces sold so far. In the year ago period, the full month total was 127,000.

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