The U.S. Mint recently announced that it would ship no more 1-oz Gold Eagles until January 2008. This policy has become the norm for the Mint toward year-end when it shuts down production of current-year coins to prepare for minting the ensuing year’s coins. The announcement resulted in an immediate jump in the premiums on 1-oz Gold Eagles.
However, just before Thanksgiving the Mint told its authorized distributors that they will get at least one more chance to buy 2007-dated 1-oz Gold Eagles before year-end. That announcement resulted in premiums on 1-oz Gold Eagles dropping back to normal levels. However, if the authorized distributors sell out their “reloads” before year-end, premiums will jump again. If the distributors’ coins last to year-end, premiums can be expected to stay at normal levels.
Only five U.S. distributors are eligible to buy coins from the U.S. Mint. (Gold Eagles are distributed via the classic manufacturer, wholesaler and retailer system. The Mint is the manufacturer; the authorized distributors are the wholesalers; and firms such as CMIGS are the retailers.) Because the distributors lose sales when they run out of Gold Eagles, when the U.S. Mint makes what has now become an annual announcement about ceasing production of 1-oz Gold Eagles, the distributors jack up their prices to compensate for potential lost sales.
Big moves to the downside always bring bargain hunters into the market. These are investors who buy only on price drops. They want low prices. So, because Krugerrands carry the smallest premiums of the widely known 1-oz gold bullion coins, many bargain buyers prefer Rands. In this way, price volatility increases the premiums on Rands.
A final note about premiums: The U.S. Mint sells Gold Eagles at percentage markups over spot (London spot, for Silver Eagles as well as Gold Eagles). The higher the price of gold climbs, the higher the absolute markup.
Today, twenty 1-oz Gold Eagles carry premiums of about $40 to $45 each. (Secondary market 1-oz Gold Eagles usually always carry smaller premiums than new coins; however this is not always the case. Big demand sometimes depletes the inventories of secondary market wholesalers. When that happens, to have coins for their customers secondary market wholesalers have to buy from authorized distributors.)
When gold traded at the $300 level, twenty 1-oz Gold Eagles carried premiums of about $17. With gold in the $800 area, those premiums climb to $40 – $45. This, of course, makes Krugerrands even more attractive to bargain buyers.