Ordering restrictions on silver Eagle bullion lifted
- Published: Jul 18, 2016, 7 AM
The companies that buy bullion directly from the U.S. Mint may now order as many American Eagle silver bullion coins as they want after the Mint ended its weekly ordering restrictions on July 18.
The companies, known as the Mint's authorized purchasers, have not been able to order as many coins as they want for well over a year, as the Mint has allocated only a certain number of coins for sale each week due to record-setting demand, and at the time the allocations began, a shortage of the slabs of silver that the coins are made from, known as planchets.
Mint officials have said in recent weeks that that there has not been a shortage of silver planchets.
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The following notice was sent to the authorized purchasers the morning of July 18:
“We are pleased to announce after 28 weeks of allocation in 2016, effective Monday, July 18, 2016, we have lifted allocation of American Eagle Silver Bullion Coins. Authorized Purchasers may purchase as many American Eagle Silver Bullion Coins they desire. The United States Mint will continue to monitor its American Eagle Silver Bullion Coin demand and adjust its bullion coin production accordingly.”
How did the allocations work?
The weekly allocations limited the number of coins each authorized purchaser could buy based on their previous buying history.
Until recently, the Mint's allocations have sold out after only a couple of days. In recent weeks, however, as the price of silver has gone up to the $20 per ounce level, the allocations have not sold out and the Mint was carrying over inventory from week to week.
For most of 2016, the overall weekly allocation has been 1 million total coins made available for all the authorized purchasers, with the exception of the first allocation of 4 million coins Jan. 11, which sold out in four days.
Any coins that remained unsold from any given week were carried over and added to the subsequent week's allocation. Over the past two months, coins have remained unsold from each weekly allocation. As a result, the weekly allocation announced July 11 was 3,649,500 coins, and orders were placed for only 175,000 coins that day.
One week later, the allocation system is no more.
What is an authorized purchaser?
The authorized purchasers are the only people or companies who are allowed to buy bullion directly from the Mint — it does not offer the American Eagle silver bullion coins directly to the public. The coins are offered to several authorized purchasers who then provide a two-way market in the bullion issues.
These firms buy the coins at the closing London spot price of the metal on a given day plus a premium of $2 per coin.
The coins are then resold to other dealers, collectors and investors at a markup per coin.
Read more about how the bullion market works.
Is this a sign of decreasing demand?
The price of silver has risen significantly this summer, which could lead to a decline in demand, as buyers might fret about buying at a peak price and then having their silver coins lose value if prices dip back below $20.
But it also could just be a sign of decreased demand among the first ring of bullion buyers, the Mint's authorized purchasers.
Gobbling up all of the weekly allocations over the last year so as not to be caught without sufficient supply to meet anticipated demand, some authorized purchasers and other major distributors are now be in a position where they have stockpiles of unsold silver and don't need to buy as much from the Mint in the near future.
Terry Hanlon, president of Dillon Gage Metals Division, said last week that "most APs are ordering less because they have inventory that they don't need right away."
Josh Wagoner, general manager of the The Gold Center in Springfield, Ill., said that with the spot price of silver rising, his firm has witnessed increasing selling, not buying, by investors. With the rising prices, some larger secondary market buyers and distributors have also reduced their buying, so as not to be caught with a lot of inventory at the top of the market
What does this mean for 2016 sales compared to the record-setting 2015 sales?
The U.S. Mint recorded sales of 26,945,500 American Eagle silver bullion coins from Jan. 1 through the opening of business July 18.
In 2015, a record-setting year for American Eagle silver bullion coin sales, the Mint sold 27,315,000 coins through July 31.
So 2016 sales may well be ahead of 2015 sales at the end of the month. However, 2015 had a strong August, when 4,935,000 coins were sold.
So we'll see if the spiking price of silver and existing authorized purchaser stockpiles start to show up in the sales numbers and put 2016 behind 2015.
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