Examining the "Unprecedented Demand" for Gold Eagle Coins

Oct. 9.08 | About: SPDR Gold (GLD)

Earlier this week, the United States Mint took further actions to meet the increased demand for gold and silver bullion coins. This included production halts for certain bullion offerings and the continued allocation for one ounce Gold and Silver American Eagle coins.

Within the memorandum sent to authorized bullion purchasers, the US Mint specifically stated, "gold and silver demand is unprecedented." Throughout the course of this year, the Mint has provided similar explanations each time a new suspension or allocation program went into effect. While sales of Silver Eagle coins are higher than any other year in history, the sales of Gold Eagle coins are far below their peak.

The following table shows the ounces of gold sold by the United States Mint in the form of American Eagle Gold bullion coins. These figures are taken from the US Mint website. You can visit the link for monthly data, as well as the figures for Silver and Platinum Eagles.

American Gold Eagle Bullion Sales (ounces)

1986 1,787,750
1987 1,253,000
1988 851,000
1989 839,000
1990 715,000
1991 472,000
1992 638,600
1993 796,000
1994 559,500
1995 600,500
1996 729,500
1997 1,317,000
1998 1,839,500
1999 2,055,500
2000 164,500
2001 325,000
2002 315,000
2003 484,500
2004 536,000
2005 449,000
2006 261,000
2007 198,500
2008 492,000*
Click to enlarge

*through October 2008

While the number of ounces of gold sold has already more than doubled from last year, it still does not approach the levels reached during the several prior years, most notably 1998 and 1999.

In terms of monthly demand, during 2008 the highest number of ounces sold was in September at 113,000 ounces. During 1998 and 1999, there were seven months with sales in excess of 200,000 ounces. The highest monthly sales total occurred in October 1998 at 288,500 ounces.

The demand for American Gold Eagles is clearly not unprecedented. What's actually unprecedented is the suspension and allocation of Gold Eagle coins. Even amidst the booming demand of the pre-Y2K years, the US Mint never resorted to suspensions or allocation programs. Why is the US Mint having so much trouble keeping pace with demand this year?

The mainstream press has recently given coverage to the US Mint's suspensions and allocations of gold and silver bullion coins. The stories have always reported about the US Mint's inability to produce enough coins to meet demand. Given that the Mint has been able to produce far greater quantities of gold bullion coins in the past, I think the real story is the Mint's inability to obtain the physical gold needed for the coins.

But that just raises another question: With unfulfilled physical demand, why has the market price of gold remained stagnant? I think we will see this situation play out with some interesting consequences during the remainder of the year.

Disclosure: Long physical gold.