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Gold Coins Go on Sale - Really !
(October 23, 2012) Retail gold bullion demand is just not what it was a few years ago. Gold demand exploded during our recent economic crisis, with sales of gold coins and bars worldwide going through the roof starting in year 2008. Although gold accumulation continues strong among the 1% (and central banks), the popular clamor for gold has cooled down.
The World Gold Council is a great source for tracking worldwide gold bullion demand on a quarterly basis, but for a quick read on a more timely basis, the US Mint’s website has weekly-updated sales figures on bullion Eagles in gold and silver. Measuring total bullion sales is as much an art as it is a science, given that there are so many different forms of bullion being produced and sold, along with the recycling of older product. But since the Eagle is the most popular bullion coin in the US, taking a look at sales of Eagles is a good way to roughly measure retail gold bullion sales in this country.

In 2009 more gold Eagles were sold than in any other year of the 21st century, before or since – 1,325,000 1-ounce coins. In 2011, that figure was down to 910,000 coins, and demand has slackened even more since. So far in 2012 production of gold Eagles is a scant 455,000 pieces as of today, and if that trend holds we will see annual sales come in around 550,000 ounces.

Taking note of declining sales, over a year ago the Royal Canadian Mint cut their premiums on gold Maple Leafs dramatically, in order to perhaps take some market share from other bullion products (read: Eagles).

A peculiarity about the distribution of gold bullion coins is that the world’s bullion mints have traditionally priced their coins to distributors on a basis of so much percent over spot. Most world gold mints sell their gold bullion coins in line with the US Mint’s price schedule: 3% over spot for the 1-ounce coins, 5% for the half-ounce, 7% for the quarter-ounce, and 9% for the tenth-ounce. Smaller pieces are more expensive percentage-wise, since there is a fixed cost of manufacturing an item, no matter what its size.

But a serious glitch arises when you percentage-price a commodity which has changed so much in dollar value over the years. For instance, ten years ago, these mints were charging their normal 3% over spot for one-ounce coins. Gold was trading around $300 per ounce, and the mints gladly, and no doubt profitably, sold their 1-ounce coins at spot plus $9 each. Today, with gold trading at $1700, that same 3% premium comes to $51. Needless to say, the various mints’ costs of actual production haven’t gone up over 500%, but their prices have.

Now, some of the mints are taking notice, and cutting prices to grab more market share. The Royal Canadian Mint was first to take action, and they now price their 1-ounce gold Maple Leaf on the basis of spot markets plus so many dollars, which is more rational than percentage pricing. Just this month the Perth Mint did the same for their bullion Kangaroo coins in the 1-ounce size, cutting the premium almost in half. The Austrian Mint has also lowered premiums somewhat on their 1-ounce gold Philharmonic. So today we have more buyer-friendly pricing coming from some of the world's major bullion mints.

Will the US Mint follow the trend by reducing premiums on their 1-ounce gold Eagles? Or will they stand by while other bullion coins trade for much lower markups? The Mint is meeting informally with their bullion distributors later this week, and no doubt the subject will come up. If we hear anything, we will pass it on.

In the meantime, we have this week lowered our 1-ounce gold price premiuims on new Kangaroos and Philharmonics to reflect today's lower premiums for buyers of certain world bullion coins. You can check out all our 1-ounce prices here.


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