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What is a Gold Bullion Supply Chain?
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(August 30, 2008) Talk is everywhere of gold shortages. American dealers, it is said, are running out of gold bullion to sell. Delays in delivery are causing confusion. And of course, misunderstandings are flying at Internet speed.
This much is true: The US Mint temporarily suspended 1-ounce gold Eagle sales on 8/14 (resuming them on 8/26), yesterday the Rand Refinery in South Africa ran out of Krugerrands, Austrian Philharmonics are nowhere to be seen in the US, the new 2008 five-nines (,99999 purity) Maple Leaf is for the time being unavailable, palladium Maples are not currently being produced, and 2008 Isle of Man gold Cats will probably never arrive on our shores. Even ordinary 1-ounce and ten-ounce gold bars from Pamp Suisse and Credit Suisse are in tight supply.

What on Earth is happening to choices and availability in the gold market?

First off, demand for physical gold bullion products in the US has surged to extraordinary levels in the past few weeks. Gold’s recent plunge from $986 on July 15th to $786.50 on August 15th was very perplexing to US gold investors. Granted, oil prices were down sharply during that period, and the dollar strengthened significantly against the euro, pound, and yen. But why would gold prices plummet some $200 in four weeks time when the fundamental case for gold seems, if anything, stronger than ever?

In that atmosphere, every U.S. gold bullion dealer saw a surge in demand at these new lower price levels. And since there is only a finite amount of product on the shelves of retailers, distributors, mints and refiners at any given time, available gold bullion supplies quickly disappear. That doesn’t mean that gold is any scarcer – it just means that it takes time to convert gold scrap, bullion bars, and newly mined dory bars into the smaller, finished gold bullion bars and coins that are most desired by investors.

Here’s how the process works: The US Mint buys gold in the open market to have made into gold Eagles and Buffaloes. In no case is the Mint using up our gold reserves, or dipping into Fort Knox to sell off the national treasure. The Mint simply buys refined gold and sells gold bullion product in equal measure every week, as it is required to do in order to sustain the gold bullion coin programs that Congress authorized.

For instance, in 2007 the US Mint filled orders for some 140,000 1- ounce gold Eagles, and that number was produced with no real production glitches. But as they say, that was then, and this is now. During this recent surge in gold bullion demand, the Mint sold 80,000 such coins in August 2008 alone - more than half of what they sold all last year. Yet that is still not enough, and the Mint is having to allocate (‘ration’) coins to its distributors for as long as demand exceeds current production capacity.

For our part, even during this recent pinch we have yet to run out, even for a day, of U.S gold Eagles, Buffaloes, Krugerrands, .9999 Maple Leafs, Kangaroos, Pandas, or 2008 Lunar Mouses. Over the years we have built good relations with the distributors that handle both government coins and private refinery bullion, relationships which ensure that, even when supplies are tight, we have a steady stream of product coming our way almost every day.

So if you are looking to buy gold bullion for immediate delivery, give us a call.

However, it is true that certain items are not currently available. For instance, it has been months since we have had gold Philharmonics. US distributors for the Austrian Mint have simply not had any in this country. Whether the gold Philharmonics will return to our shores with the issuance of 2009-dated coins, we do not know at this time.

The 2008 Canadian five-nines limited edition gold Maple is also currently out of stock, both on our shelves and from the Royal Canadian Mint. We expect further supplies in two or three weeks, but as usual, we do not take orders for product unless or until we have it on hand or firmly scheduled for delivery.

Also, the Royal Canadian Mint is not producing palladium Maples at this time. We are hopeful that they will restart production before long, as lower palladium prices have brought on a huge increase in investor demand. But we have a good supply on hand (and more in the pipeline) of the popular Pamp Suisse palladium bars in both 1- ounce and ten-ounce sizes.

And sometimes, a gold bullion product line is dropped simply for lack of serious interest. Today, this is what has happened to the 2008 Isle of Man “Cat” series of gold bullion coins, for the simple reason that there is currently no U.S. distributor stocking Cats.

Why? Well, not to pick on Cats for any reason, but they have always been more of a collector’s coin rather than a bulk bullion item. Sales of Cats are usually onesie-twosie kinds of deals.

Back in 2001 when gold was $260, distributors were shelling out a bit over $130,000 to procure 500 ounces of gold Cats. Today, that same 500 ounce minimum order would entail a capital outlay of over $400,000, paid up front, for a product which typically sells in dribs and drabs over the length of its year of issue.

Those of you who follow our Specials Page know that for the past three years we have handled distributor close-outs on various sizes of Cats at year-end, often at prices considerably below the premiums that were paid to stock them in the first place. After a while, those same distributors have concluded that Cats are just not worth the investment to carry.

As always, we do our best to carry the full line of gold bullion available in the U.S. We regret it whenever choices are reduced, because among the modern bullion gold coins are some of the most beautiful and irresistible products that we could possibly offer our customers.

And we certainly don’t want rumors of shortages to dampen your enthusiasm for putting aside some of our favorite shiny yellow metal, in your favorite form(s), at today's more favorable prices.

 

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