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Demand for Gold Leads to Shortages and Rationing

As the value of other asset classes has declined or become uncertain, people have increasing looked towards precious metals as a store of value and protection against economic calamity. This has had interesting impacts and repercussions on the market for gold bullion coins.

The United States Mint produces two different gold bullion coins for investors in precious metals. The first is the American Gold Eagle. This coin was introduced in 1986 as the first gold bullion coin with a weight and purity guaranteed by the United States government. The coins have traditionally been offered in one ounce, one-half ounce, one-quarter ounce, and one-tenth ounce sizes to accommodate different investment budgets. Proof coins are typically produced for coin collectors.

A second bullion coin offering was introduced in 2006. The new offering was called the American Gold Buffalo. This coin was struck in 24 karat gold, compared to the 22 karat gold of the former coin. The bullion coins have only been produced in one ounce size. Coins have been produced for collectors with an uncirculated finish, proof finish, and variations in fractional weights.

The US Mint competes with other world mints to supply gold bullion coins to investors. Recently, this competition has become a struggle as demand continues to migrate to gold and other protective assets. Mints of the world must compete for a finite supply of gold blanks to produce their bullion coins.

The first signal that the US Mint was having trouble dealing with the demand for its gold bullion coins came in August 2008. A suspension of all new orders was announced as the inventory of coins had been exhausted. This suspension lasted for less than two weeks, but sales were resumed under an allocation program. Instead of allowing dealers to order the coins in unrestricted quantities, coins were divided into two pools. The first pool was divided equally amongst dealers and the second was divided based on past sales performance. Later in the year, the decision was made to focus production on only the one ounce American Gold Eagle coin, in an effort to meet as much demand as possible.

In September 2008, a similar situation arose with the American Gold Buffalo coins. The US Mint was forced to suspend sales since its inventory was exhausted. More than one month later, sales were resumed under a similar allocation program. So far, the coins have not been produced in 2009, as the US Mint continues to focus its production on a single option.

How long can the struggle to meet demand continue? There are some possible signs that the tight supply of precious metals blanks may be abating. Recent sales trends suggest that more blanks have been available to produce coins. This in turn has satisfied a greater portion of demand and caused premiums for some offerings to decline.

Once full market demand can be met, things would presumably go back to normal. This would be great news for collectors who have been awaiting the proof version of the coins. It would also be welcome news for precious metals investors who may have a wider range of investment options available.

Michael Zielinski is an internet entrepreneur and coin collector. Find complete information about Gold Eagles or follow the continuing situation related to the 2009 Gold Eagle bullion and collector coin offerings.