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US Mint raises premiums on Silver Eagles

In an unprecedented move, the US Mint this week raised premiums on its 1-oz Silver Eagles fifty cents per  coin.  It is not unprecedented that the Mint raised premiums on Silver Eagles.  Since being introduced in 1986, Silver Eagle premiums have been increased many times.  But, the size of the increase is unprecedented.  Past increases have been pennies.

The move shows that the Mint is aware of what’s happening in the Silver Eagle market, beyond just the number being sold, which, in 2009, was more than 30 million.  So far this year, in excess of 25 million have been sold.

During the Global Financial Crisis of 2008-2009, the Mint could not meet the demand for Silver Eagles, and the Mint’s authorized distributors tacked on additional premiums of as much as $3 a coin.  Despite the huge premiums increase, investors continued to buy at record paces, but the Mint received none of additional premiums.

In 2009, the Mint sold more than 30 million Silver Eagles, up from 20 million in 2008.  For most of 2009, the Mint’s distributors tacked on huge premium increases at the wholesale level, yielding an absolute windfall for the Mint’s wholesalers, but nothing additional for the Mint.  Now, the Mint has taken steps to benefit from the popularity of its Silver Eagles.

Actually, the increase is not unreasonable, considering past premiums.  For example, when silver traded at $5, the Silver Eagle premium was in the $1.65 range for a 33% markup.  Thirty-three percent on a bullion product is huge.  Still, investors bought them in ever-increasing numbers as awareness of the benefits of owning silver grew.

With Silver Eagle premiums now in the $2.65 range, the percentage market up is about 12%, only a fraction of the 33% ten years ago.  I think that investors who like Silver Eagles will continue to buy them.  However, some may opt for the Royal Canadian Mint’s Silver Maple Leafs.

As of yet, the RCM has not announced a premium increase for its Silver Maple Leafs, which are the Silver Eagles’ main competition.  Industry speculation is that the RCM will not tack on a matching increase of fifty cents a coin but will add a much smaller increase, if any.  The RCM would like very much to gain market share in its battle with US Mint.  Silver Maple Leafs at fifty cents an ounce less than Silver Eagles would help the RCM gain market share, but I don’t think it will be huge.   Silver Eagles are very popular with American silver bullion investors.

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