From time to time, the bullion division of the US Mint suspends sales of one product or another, usually due to some production glitch or shortage of blanks. This week word came out that one-ounce gold Eagles would temporarily be unavailable. (At this time, we have plenty of Eagles in stock, with more coming to us through distribution channels next week.)

Somehow, the coin publication “Numismatic News” picked up this story and sent it out to their email subscribers. No US Mint sources were cited for the story, but instead they quoted an ‘explanation’ provided by Chris Powell, still holding forth under the banner of the Gold Anti-Trust Action Committee. Remember GATA?

Under the headline, “U.S. Mint suspends gold coin sales: futures price is a fiction,” Chris Powell of GATA wrote yesterday (Friday 8/15, 12:15 am ET):

“The U.S. Mint has suspended sales of American eagle gold coins and is refusing orders from dealers, two coin and bullion dealers confirmed Thursday.”

Mr. Powell goes on to say that:

“The suspension is overwhelming evidence that the futures contract price of gold on the commodities exchanges is substantially below the physical market price and that, indeed, the commodities exchanges are being used as GATA long has maintained -- as part of a massive scheme of manipulation of the precious metals, currency, and bond markets.”

In order to separate fiction from truth, let's start with the fact that the US Mint did not suspend all gold coin sales, or even all bullion gold coin sales, but is only temporarily suspending sales of one size (1-ounce) of one product (the gold Eagle).

Word is that the Mint is temporarily out of planchets (round gold blanks of proper coinage weight and .917 fineness), and that more information will be provided by Tuesday 8/19/08 as to when sales of  the 1-ounce gold Eagle will re-start.

In the meantime, gold bullion is available in many forms of coins and bars from all over the world, at prices based on, yes, commodities futures trading. Even the US Mint is offering some, including the .9999 pure gold 1-ounce “Buffalo” bullion coin (a product the Mint first  launched in 2006), and the .917 fine gold Eagles in half-, quarter-, and tenth-ounce sizes.

So what really happened? How does an institution such as the US Mint run out of the gold raw materials from which it strikes the most popular size of its most successful bullion coin product?

In this instance, the Mint is the victim of its own success. Demand for gold Eagles has skyrocketed lately, and some 287,500 1-ounce gold Eagles have been sold by the US Mint since January. This year the Mint's average monthly sales of 1-ounce gold Eagles is some 36,000, compared with a little over 12,000 coins a month in 2007. When the Mint temporarily suspended sales of gold Eagles on 8/14/08, some  60,000 coins had already been delivered in the first two weeks of August alone.

This latest glitch by the US Mint is hardly evidence that “the commodities exchanges are being used as… part of a massive scheme of manipulation of the precious metals, currency, and bond markets.”  In fact, the US Mint is turning out Eagles at a pace not seen since  1999. See U.S. Mint Sales

It’s no wonder that the Mint would run out at that rate. Gold blank production is outsourced by the Mint, and the Mint orders them ahead of time according to expected demand. But when sales triple in a few weeks time, some delays can be expected.

When the Mint places an order, gold strips are prepared, blanks are punched out, then weighed, finished, packaged, and shipped via secure carrier to the Mint’s facility at West Point, New York, where they are struck into gold Eagles, then inspected, tubed, counted, and  boxed.

This process can take a few days. It’s not like running out of chocolate chip cookies at lunchtime, and going to the store for more chocolate, butter, and flour, so you can have another batch ready in time for dinner.

It cannot be unknown to Chris Powell and GATA that billions of dollars worth of physical gold are bought, sold, and exchanged every week, all over the world, in the form of finished bullion, coins, jewelry,  mine bars, and recycled gold scrap, based on the very futures prices which Mr. Powell calls a “fiction.”

Not to be too hard on GATA – they stood up for gold in the days when no one cared much about the shiny yellow metal one way or the other. Around the turn of the last century, when gold was $255 per ounce and The Powers That Be were putting on that gold was just an obsolete metal, an anachronism from days gone by, GATA uncovered and published a lot of factual evidence that gold prices were being held down intentionally by the US Treasury and the Fed, in cahoots with central bankers the world over

Back then, no organization was more loved and respected by the then-tiny US gold- bug community than the Gold Anti-Trust Action Committee. The organization’s self-aware ‘tilting at windmills’ image had a  sort of charm to it, and their noble protests of gold price manipulation had a certain resonance and underdog appeal.

Today, Mr. Powell’s pique is understandable, coming during one of the worst weeks for precious metals in modern memory. For the week just past, gold lost 8.39%, silver tumbled 22.9%, platinum was down 10.8%, and palladium shed some 16.7%, all in five days time. These sorts of number suggest a washout in the current downdraft in precious metals prices.

Why?  There is fairly universal agreement that the credit crunch that celebrated its first birthday this month is a slow-moving train wreck that will take at least a couple of years to come to its ugly end. This has helped tip the US into a recession, Europe is heading there fast, and oil and most commodities are down sharply over the past few months. All these factors have helped to relieve inflationary pressures on prices. In a nutshell, the prospect of potential deflation is the current ‘story’ behind the past few months’ swoon in the precious metals.

The loss in value this week of All the Gold in the World (AGIW) came to some US$300 billion. Total losses to AGIW since March 17th’s London fix of $1011.25 now exceed US$1.049 trillion dollars ($1,049,000,000,000.00). That’s probably nowhere near the aggregate world-wide loss in real estate value over that same time period, but a big chunk of change nonetheless.

This is how free markets work, and no one, including Mr. Powell, is obligated to sell his gold when prices don’t suit him. In fact, the beauty part of these ‘manipulative’ commodities exchanges is that they make it possible for he, or anyone else in a free country, to buy gold for some 28% less than it would have cost on March 17th.  To label that reality a ‘fiction’ is either disingenuous nonsense or a sign of deep denial about how the world works.

Buck up, Mr. Powell. Gold obviously seems cheap to you, so I invite you to act on that impulse. If you’re in the United States, give me a call at 800 800 4485 and I’ll sell you some.

-Richard Smith

August 16th, 2008