Precious Metals

Unsold silver American Eagles are piling up

The U.S. Mint's June 27 allocation of 2,837,500 American Eagle silver bullion coins is the highest weekly allocation to authorized purchasers since the Jan. 11 availability of 4 million coins.

The Mint sold the year's first weekly allocation of 4 million coins in four days. Weekly sales have begun to slow over the past month.

The 2,837,500 coins reflects 1,837,500 coins carried over from the week ending June 24 and added to the scheduled weekly allocation of 1 million coins. The Mint sold just 125,000 silver American Eagles on June 27.

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The U.S. Mint sold 517,000 of the 2,204,500 coins available during the week ending June 24.

Why does the U.S. Mint allocate only a certain amount of coins?

For the last year or so, the Mint has been making available to its authorized bullion purchasers a weekly allocation of American Eagle silver bullion coins because it has been unable to acquire sufficient supplies of planchets as demand skyrocketed to record levels in 2014, 2015 and 2016.  

The allocation restricts the pool of available American Eagle silver bullion coins weekly, with distribution based on previous ordering patterns by the individual authorized purchasers.

The problem in meeting consumer demand for the coins has not been the result of lack of production capacity at the West Point Mint, but instead derives from the inability of planchet suppliers to meet the demands of mints worldwide.

The recent trend of allocations not selling out each week might be a sign that the end is near for the allocation system and that a more open, buy-as-many-as-you-want system could return.

Who are authorized purchasers?

As you can read about in this post from our Precious Metals Basics series, the bullion coin market operates in a tier system structured something like a pyramid, with the issuing authority at the top. The issuing government produces and then distributes the coins in large quantity through a narrow system of large distributors. Dis­tributors in turn sell to wholesalers, who sell to a network of retailers, who then sell to the public. 

The most important function of the distribution system is in providing a buy-back market. Bullion coins are investments; investments must have a degree of liquidity. 

Governments sell coins into the pipeline but will not buy them back. Selling the bullion coins through a network of private dealers enables a ready two-way market. 

The authorized purchasers buy the coins from the U.S. Mint based on the closing London PM spot price of the metal per troy ounce on a given day plus a $2 premium per coin. The coins are then distributed for a small premium to other dealers, collectors and investors.

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