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Back in the Saddle
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(January 18, 2010) We now have the 2010 gold Pandas in stock in the various sizes, and this week we will be expanding our lineup of various sizes (from the kilogram on down to the twentieth-ounce) in the 2010 gold Tiger coins, the third issue in Lunar Series II from the Perth Mint in Australia. .
We received an email this week with a very good question about the source of gold for the US Mint’s popular gold Eagles. As you may know, the US Mint turned out some 1,425,000 million ounces of gold Eagles in 2009, the highest mintage by far since the record pre-Y2K production of over two million ounces in 1999. Our reader asked,

“I am considering a move into gold investment. However, I am very curious about where the source of gold is obtained by the US mints as they are selling it in such great volumes. I understand it must come from American sources, but what are these sources?”

Yes, by law, the Mint is required to make every effort to source its gold domestically when possible. However, this is a bit hard to do since our Mint does not itself produce any of its own coin blanks, but instead outsources that work to foreign and private vendors. So, when your coinage blanks (planchets) are coming from Canada, Australia, and Switzerland, and various US domestic refiners, it is hard to believe that there is any workable way to to certify the origin of what is the most fungible commodity in existence.

Of course, the US Mint could do so by buying gold from US mines and then making its own blanks. But, as we have discussed here before, the Mint prefers to outsource that task.

So, as it stands today, two major stated objectives of the enabling legislation for the American Eagles program in the law that Congress passed in 1985, are being ignored by our Treasury Department.

One part of the law required that the Mint strike Eagles in quantities sufficient to meet US investor demand – the sporadic shortages of the past two years or so point up that that simply hasn’t happened.

The other objective, that the gold come from US mine production when possible, has also not been met.

Both of these objectives could be accomplished if only the Mint produced its own precious metals planchets. If the Mint regained that capability, which it had from its founding in 1793 up until 1933, domestic sources could be tapped for the metals, and the Mint would no longer be held hostage by suppliers, most of whom are outside of the US. Perhaps the Mint could stop losing money making the stupid penny, and instead give its workers more useful things to do.

As to the question about “great volumes” of gold being struck into coins by the US Mint - if you consider all the gold mined annually in the world, the production of US gold Eagles is pretty small potatoes.

In 2009, the mint struck about 1.4 million troy ounces (approximately 43 metric tonnes) of gold Eagles, a figure which represents about 1.8% of the gold mined in the world last year. Other gold bullion was also bought by US citizens, of course, but gold Eagles are by far the most popular bullion product in this country.

However you measure it, US demand for gold in investment forms, measured against our GDP, lags the rest of the world by a long shot. Should US demand for gold bullion catch up the rest of the world, our US Mint’s inability to meet bullion demand will become even more of a problem.

 

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