Precious Metals

Weak investor demand for palladium makes coin unneeded

A long-term palladium bullion coin program would create rarities, but not profits for the U.S. Mint. Ultimately, the continued production of palladium bullion coins would likely be a losing proposition for the U.S. Mint and taxpayers.

A U.S. Mint-commissioned feasibility study suggests that a long-term American Eagle palladium bullion coin program may be unprofitable, but that collector versions may offer limited profitability.

The study was required by the American Eagle Palladium Bullion Coin Act of 2010 as a prerequisite to the production of palladium bullion coins to demonstrate that “there would be adequate demand for palladium bullion coins produced by the United States Mint to ensure that such coins could be minted and issued at no net cost to taxpayers.” The law directs the U.S. Mint to focus on “the production of palladium bullion coins to provide affordable opportunities for investments in precious metals, and for other purposes.”

The 136-page report indicates that the strongest demand for an American Eagle palladium coin would be during the first year of the program with demand slipping substantially over the first five years. At the 10-year mark, the report suggests that demand would drop to dismal levels, including mintages of just 500 for certain palladium pieces.

The report’s conclusion is consistent with Canada’s experiences in palladium. The Royal Canadian Mint ended regular production of its palladium Maple Leaf coins because of limited demand coupled with palladium’s notorious price volatility.

In absence of a sustainable long-term demand for palladium coins, a single commemorative coin of palladium may prove popular as a novelty, but history has shown that palladium commemorative coin proposals are tough sells to Congress.

For example, in July 1989, Sen. Max Baucus, a Democrat from Montana, introduced legislation that would authorize the U.S. Mint to strike up to 350,000 $5 palladium coins and 1 million silver dollars to mark the centennials of various western states. The measure failed.

The concept of a palladium coin was also floated around in 2003, when the chief executive officer for Montana’s Stillwater Mining Co. — the nation’s only primary producer of palladium — pushed for a palladium coin depicting explorers Meriwether Lewis and William Clark. That too was unsuccessful.

Only Congress can authorize a commemorative or bullion coin, as regulated by the U.S. Constitution. There’s never been a U.S. palladium coin, and recent legislation has stipulated that the palladium be acquired from deposits in the United States or a territory or possession.

That leaves just a single supplier: Stillwater Mining Co.

That supply issue, coupled with the fact that palladium enjoys relatively low awareness in the investment community and is not considered a safe haven investment as gold or silver is, sounds a warning signal.

The report says it all: “There are multiple factors unique to the palladium market that suggests that there is little investor interest in a palladium coin, in either bullion or numismatic form.” ¦

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