Saturday, August 23, 2008

US Mint revisited

In 1986 the government decided to produce bullion coins for sale to the public as a way to pay for mint operations. Starting with silver and gold, and later adding platinum coins, it's been a good money maker for them. I bought a few silver eagles in the late 80's, but soon lost interest and haven't paid attention since. So, it came as a bit of a shock when Mojo alerted us to the fact that the US Mint was halting production of gold coins. With the recent run-up in spot prices, was there a run on gold coins? Was some evil-doer trying to corner the market? None of the above.

The way it works is, the mint sells coins exclusively to coin dealers at a static price based on their cost and whatever is deemed a reasonable profit. The coin dealer resells these same coins based on the spot price plus a $25 premium to the public. As long as the spot price rises, everybody wins. When the spot price falls below the production cost at the mint, the mint stops production. If it falls below the dealer cost, he/she pulls the coins of the shelves. The only loser is, as always, the consumer. The last guy in line gets left holding the bag.

This chart shows a classic double top formation, well known to "chartists". The time to sell is just after the second peak. As the price falls, more sellers arrive and when the price falls below the previous bottom it's "everybody out of the pool" time. Eventually, the buyers outnumber the sellers, and a new bottom is formed. My guess is, the mint stopped prodution in early July, sold off their inventory, and are only now announcing their production halt.


Anonymous said...

We are thinking the same thing too, they stopped production in early July ...I'll be back, I have another article to share with you but I can't find it right now.

Nice to see that someone is paying attention.

Local So-and-so said...

I was wondering if these economic posts were making any sense to anyone. Thanks for the confirmation.