June 19, 2024

Physical Silver Shortage Worsens Due To Mint Rationing and Surging Investment Demand

The inability of the US Mint to meet public demand for gold and silver bullion products was discussed at a recent House Financial Services Subcommittee hearing.  Testimony by industry experts revealed that the US Mint was losing an estimated one-third of potential bullion sales because they cannot meet demand.

For the past several weeks the US Mint sales figures for Silver Eagle bullion coins have been essentially flat. The US Mint sells its bullion products in bulk to authorized purchasers (AP’s).  The AP’s resell the bullion coins to dealers who then sell the products to the public.  The US Mint has been rationing the 2011 Silver Eagle bullion coins to AP’s, leaving one to conclude that the flat sales of Silver Eagles have been the result of Mint production constraints or supply shortages, rather than flat or reduced market demand.

On past occasions, the US Mint has cited the lack of adequate supplies of silver planchets as the cause for the continuing rationing of silver bullion coin sales. Earlier this year, the Royal Canadian Mint admitted that they were having significant problems in sourcing silver since huge demand was outpacing silver supply.

Combine rationing and surging demand and the obvious result is a severe shortage of  physical gold and silver bullion products.  Confirming this situation, American Precious Metals Exchange (APMEX), announced yesterday that they were seeking to purchase US Mint bullion products from their customers in order to meet “recent incredible demand for gold and silver bullion products”.

APMEX, one of the country’s largest precious metals dealers, offered to purchase American Gold Eagles and American Silver Eagles at generous premiums over spot prices in order to secure inventory.  Despite the increase in the price of gold and silver, public demand obviously remains incredibly strong.

The American public has been provided with plenty of evidence that out of control deficit spending and money printing policies by the Federal Reserve are destroying the value of the paper dollar and they are acting accordingly (see Why There Is No Upside Limit To Gold and Silver Prices).  A loss of confidence in paper money is fueling the rise in gold and silver prices as people seek to protect their wealth.  Any pullbacks in precious metal prices should be viewed as another major buying opportunity.

Gold and Silver Eagle Rationing Ends… For Now

The United States Mint’s “on again, off again” rationing of American Gold and Silver Eagle bullion coins is “off again”.

For more than two years, increased levels of demand for gold and silver bullion coins have caused problems for the United States Mint. Under current law, they are required to produce Gold and Silver Eagle bullion coins in quantities sufficient to meet public demand. When they have been unable to meet full demand, they have defaulted to meeting as much demand as possible.

In February 2008, following a multi-week suspension of Silver Eagles, the US Mint imposed their “allocation program” for the first time, which rationed the supply of bullion coins amongst authorized purchasers. At the time their memo stated, “The unprecedented demand for American Eagle Silver Bullion Coins necessitates our allocating these coins on a weekly basis until we are able to meet demand.”

Despite making some progress with the overall number of gold and silver bullion coins available, the US Mint has resorted to this allocation time and time again, in response to increased bullion demand. When demand subsides, the program is lifted, only to be reinstated weeks or months later when demand reemerges.

Last year rationing was ended for both gold and silver bullion coins in June 2009 with little fanfare. In the ensuing months, the US Mint presumably produced the bullion coins in quantities necessary to meet full demand. However, as had happened before, fresh waves of demand upset the delicate balance.

In late November 2009, sales of both Gold and Silver Eagles were briefly suspended and resumed under the familiar allocation program. Rationing eventually ended for Gold Eagle bullion coins in March 2010, and for Silver Eagle bullion coins early this month.

Will the latest “end of rationing” finally stick? Or will events once again transpire to reignite bullion demand and bring back the rationing program yet again?