Guest Post: "What's Ahead for the American Silver Eagle"
The good folks at Gainesville Coins offered to write up a guest post for us regarding Silver Eagle demand in 2013 and 2014. I said, "knock yourself out", so they did. The result is this excellent summary.
What's Ahead for the ASE?
By Steven Cochran, Gainesville Coins | Thursday, December 19, 2013
Sales of the American Silver Eagle bullion coin hit a new all-time record in 2013, at nearly 42.7 million coins, and it wasn't all due to the precious metals take-downs in April and June. With the Fed giving Bernanke a going-away present of at least a token taper in the December meeting, what will Silver Eagle sales look like in 2014?
The U.S. Mint isn't taking any chances this time, halting 2013 Silver Eagle production a week early, and pushing back the 2014 release date a week, to January 13th. Last year, the Mint had boosted stock on-hand for the 2013 release by 20% over previous year's sales of 6.1 million coins, thinking that this would give them plenty of extra stock. They didn't count on the fiscal cliff/debt ceiling/sequester charades in Washington, though, and completely ran out of 2013 ASEs in eight days, selling 7.48 million coins. Keep in mind, that this was when silver was $30/oz.
The Mint had to ration Silver Eagles through the first half of 2013, due to production bottlenecks, even with the West Point Mint working 24/7. This year, in addition to giving themselves more lead time, they are rationing (allocating) them from Day 1. Is this extra measure of caution well-founded? If pre-orders are any indication, rationing supply among the major distributors is a good idea. Pre-orders of 2014 Silver Eagles are already a best-selling item, more than a month before release.
To protect itself against silver blank shortages again this year, the Mint now has three suppliers. In addition to Sunshine Minting of Coeur d'Alene, Idaho, two Rhode Island companies also supply precious metal blanks: Vennerbeck Stern-Leach of Lincoln, and GSM Metals of Cranston.
It's been noted that 2013 Silver Eagle sales, at 42.7 million oz, was more than domestic U.S. silver production, at 33.7 million ounces. Global silver stocks have been at a surplus for the last few years, and should continue, even with the closure of the Kennecott open-pit mine due to a landslide. (The mine, also known as the Bingham Canyon copper mine, produces over 3 million oz of silver at peak production, and is scheduled to return to full production in 2016.) The U.S. imported over 170 million oz. of silver in 2012, so domestic production covers less than 20% of demand.
The concern over Silver Eagle mintage numbers compared to domestic silver production may be due to confusion regarding the law on bullion sourcing for the American Eagle Program. Only Gold Eagles are required to use bullion (gold) from U.S. mines, which has been mined in the last 12 months.
The Treasury has been allowed to buy silver on the open market since 2002, when U.S. strategic stockpiles of silver were depleted (Support of American Eagle Silver Bullion Program Act of 2002.)
Even with tapering, the Fed is still conjuring $75 billion a month of liquidity into the system, and more people are starting to think about what that will mean for them personally when that money finally hits the broader economy.
At the current spot prices, we expect more people to enter the market in 2014. The American Silver Eagle is the most popular investment-grade silver coin in the world, and as U.S. legal tender, is exempt from sales tax. With current government fiscal policy, we don't see demand for the ASE falling anytime soon.