Wall Street Journal - How $1 Fetches $19 [or whateHow $1 Fetches $19 [or whatever]
By Ianthe Jeanne Dugan
The Wall Street Journal
Friday, May 23, 2008
The government rationed food during World War II and gasoline in the
1970s. Now it's imposing quotas on another precious commodity: 2008
dollar coins known as silver eagles.
The coins, each containing about an ounce of silver, have become so
popular among investors seeking alternatives to stocks and real estate
that the U.S. Mint can't make them fast enough. In March the mint
stopped taking orders for the bullion coins. Late last month it began
limiting how many coins its 13 authorized buyers worldwide are allowed
to purchase.
"This came out of nowhere," says Mark Oliari, owner of Coins `N Things
Inc. in Bridgewater, Mass., one of the biggest buyers of silver
eagles. With customers demanding twice as many as they did last year,
Mr. Oliari would like to buy 500,000 a week. But the mint will sell
him only around 100,000.
The coins have a face value of $1. But the mint sells them for the
going price of silver, plus a small premium, to a handful of
wholesalers, brokerage companies, precious-metals firms, coin dealers,
and banks. The dealers mark the coins up a bit more and sell them to
the public. Currently, the coins are fetching about $19 apiece, with
some sellers seeking more than $20.
For Coins `N Things alone, the shortage is costing hundreds of
thousands of dollars in lost sales of silver eagles. The firm sells
about $1 billion worth of precious metal every year, including silver,
gold, and platinum coins. Mr. Oliari, a 50-year-old numismatist who
has been in the business since 1973, sniffs: "You can't print what I
want to say about the mint."
The mint, a bureau of the U.S. Treasury, has offered little
explanation beyond a memo last month to its dealers. "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," the mint wrote. A spokesman declined to elaborate.
… `Poor Man's Gold'
The rare shortage offers a glimpse into the growing love of a
commodity known as "poor man's gold." With more silver mined than gold
traditionally, silver has always been far cheaper than gold and today
has less than 2% of gold's value.
But silver is growing in popularity, and some investors are betting
that its value will surge as inventory shrinks. Big investors are
loading up on silver eagles, which are the only American silver coins
allowed in individual retirement plans. For small investors, they are
an accessible way to get into the metal boom.
"Unlike gold, these coins can be bought by regular citizens," says
J.R. Roland, a Brownsville, Tenn., judge who recently began buying the
coins — and trading them on eBay. "In these economic hard times,
silver coins are a great way to invest."
In March, sales of silver eagles surged more than ninefold from the
previous month, to 1.85 million. This year, the mint has sold 6.8
million, representing more than twice last year's pace. Still,
numismatists are clamoring for millions more as the price of silver
soars. It has more than doubled in the past three years and now trades
at around $17 a troy ounce, which is slightly heavier than a
traditional ounce.
Linda Wood, a 57-year-old Pittsburgh accountant, scours eBay, coin
shops, and flea markets in search of silver eagles. One by one, she
has accumulated about 300 in the past few months and stores them in a
bank safe-deposit box.
Traditional coin collectors may be impressed with the government's
written description of silver eagles as "one of the most beautiful
coins ever minted." But Ms. Wood isn't in it for aesthetics. She
became a silver bug after she and her husband saw the value of their
individual retirement accounts decline by $2,500 — a "significant"
chunk. "I just need bullion," she says. "I wouldn't care if the coins
were ugly."
Amid the mint caps, shady silver-eagle hawkers are thriving. Some
coins are priced at $25 and higher. Mr. Roland says that he had to
wait a month after ordering some on eBay recently, because the sellers
didn't even have the goods. "I can't wait long, because you never know
what's going to happen with the price," he says.
In Manitowoc, Wis., Dan Zirk, owner of Manitowoc Card & Coin, has sold
twice as many silver eagles as he did last year. So he has stashed
away his remaining handful of 2008 coins, betting the price will rise.
"I want $22 apiece," says Mr. Zirk. He says customers, meanwhile, are
asking for earlier years and other forms of silver.
… Lady Liberty
The government began producing silver eagles in 1986, basing its
design on Adolph Weinman's 1916 "Walking Liberty" half dollar. The
front features a flag-draped Lady Liberty striding toward the sunrise,
carrying branches of laurel and oak symbolizing civil and military
glory. On the reverse, a design by John Mercanti features an eagle
with a shield, olive branch, and talon and arrows.
The coins are made at an armored facility in West Point, N.Y.,
alongside the military academy. Dealers say they heard the mint had
run out of planchets — round metal disks ready to be struck into
coins. The disks are used for various coins, and the companies
producing the blanks also are busy, limiting the mint's ability to
increase production. The mint won't comment on the planchets.
… Coins Divvied Up
Each Monday morning now, the mint divides its silver coins into two
pools. It divvies up the first equally among authorized purchasers.
The second is allocated proportionately, based on the buyer's past
purchases. The mint limited purchases once before — in the late 1990s,
when investors loaded up on silver, wrongly anticipating that a
failure by the world's computers to adjust to the new millennium would
cripple the economy.
Jim Hausman, head of the Gold Center in Springfield, Ill., one of
eight companies in the U.S. authorized to buy silver eagles, estimates
that the rationing will cut his expected annual sales of four million
silver eagles in half.
And the result, he says, is almost un-American.
Increasingly, investors are taking a shine to alternatives. The Royal
Canadian Mint saw its sales of silver Canadian maple-leaf bullion
coins rise 40% last year, to 3.5 million, according to a spokesman.
Some investors expect the craze to end badly. They draw comparisons to
what happened to silver in the 1970s. A rich Texas family poured
billions of dollars into silver, and prices surged above $50 an ounce
in 1980, only to plunge again after government intervention.
"It's akin to what happened when the Hunt brothers tried to corner the
silver market," says Wendell Curry, who owns McAllen Gold & Silver
Exchange in McAllen, Texas. "The silver hawks are now trying to corner
silver American eagles. And it's making it harder for mom and pop to
buy these for their grandchildren."
* * *