US Govt Rations Silver

Collectors angered as U.S. rations 'silver eagles'
      

      
U.S. Begins Rationing Popular 'Silver Eagles"
      

      
By Ianthe Jeanne Dugan
      
The Wall Street Journal
      
Friday, May 23, 2008
      

      
The government rationed food during World War II and gasoline in the 
      
1970s. Now it's imposing quotas on another precious commodity: 2008 
      
dollar coins known as silver eagles.
      

      
The coins, each containing about an ounce of silver, have become so 
      
popular among investors seeking alternatives to stocks and real 
      
estate that the U.S. Mint can't make them fast enough. In March the 
      
mint stopped taking orders for the bullion coins. Late last month it 
      
began limiting how many coins its 13 authorized buyers worldwide are 
      
allowed to purchase.
      

      
"This came out of nowhere," says Mark Oliari, owner of Coins 'N 
      
Things Inc. in Bridgewater, Mass., one of the biggest buyers of 
      
silver eagles. With customers demanding twice as many as they did 
      
last year, Mr. Oliari would like to buy 500,000 a week. But the mint 
      
will sell him only around 100,000.
      

      
The coins have a face value of $1. But the mint sells them for the 
      
going price of silver, plus a small premium, to a handful of 
      
wholesalers, brokerage companies, precious-metals firms, coin 
      
dealers, and banks. The dealers mark the coins up a bit more and sell 
      
them to the public.
      

      
For Coins 'N Things alone, the shortage is costing hundreds of 
      
thousands of dollars in lost sales of silver eagles. The firm sells 
      
about $1 billion worth of precious metal every year, including 
      
silver, gold, and platinum coins. Mr. Oliari, a 50-year-old 
      
numismatist who has been in the business since 1973, sniffs: "You 
      
can't print what I want to say about the mint."
      

      
The mint, a bureau of the U.S. Treasury, has offered little 
      
explanation beyond a memo last month to its dealers. "The 
      
unprecedented demand for American Eagle Silver Bullion Coins 
      
necessitates our allocating these coins on a weekly basis until we 
      
are able to meet demand," the mint wrote. A spokesman declined to
      
 elaborate.
      

      
... 'Poor Man's Gold'
      

      
The rare shortage offers a glimpse into the growing love of a 
      
commodity known as "poor man's gold." With more silver mined than 
      
gold traditionally, silver has always been far cheaper than gold and 
      
today has less than 2% of gold's value.
      

      
But silver is growing in popularity, and some investors are betting 
      
that its value will surge as inventory shrinks. Big investors are 
      
loading up on silver eagles, which are the only American silver coins 
      
allowed in individual retirement plans. For small investors, they are 
      
an accessible way to get into the metal boom.
      

      
"Unlike gold, these coins can be bought by regular citizens," says 
      
J.R. Roland, a Brownsville, Tenn., judge who recently began buying 
      
the coins -- and trading them on eBay. "In these economic hard times, 
      
silver coins are a great way to invest."
      

      
In March, sales of silver eagles surged more than ninefold from the 
      
previous month, to 1.85 million. This year, the mint has sold 6.8 
      
million, representing more than twice last year's pace. Still, 
      
numismatists are clamoring for millions more as the price of silver 
      
soars. It has more than doubled in the past three years.
      

      
Linda Wood, a 57-year-old Pittsburgh accountant, scours eBay, coin 
      
shops, and flea markets in search of silver eagles. One by one, she 
      
has accumulated about 300 in the past few months and stores them in a 
      
bank safe-deposit box.
      

      
Traditional coin collectors may be impressed with the government's 
      
written description of silver eagles as "one of the most beautiful 
      
coins ever minted." But Ms. Wood isn't in it for aesthetics. She 
      
became a silver bug after she and her husband saw the value of their 
      
individual retirement accounts decline by $2,500 -- a "significant" 
      
chunk. "I just need bullion," she says. "I wouldn't care if the coins 
      
were ugly."
      

      
Amid the mint caps, shady silver-eagle hawkers are thriving. Mr. 
      
Roland says that he had to wait a month after ordering some on eBay 
      
recently, because the sellers didn't even have the goods. "I can't 
      
wait long, because you never know what's going to happen with the 
      
price," he says.
      

      
In Manitowoc, Wis., Dan Zirk, owner of Manitowoc Card & Coin, has 
      
sold twice as many silver eagles as he did last year. So he has 
      
stashed away his remaining handful of 2008 coins, betting the price 
      
will rise. He says customers, meanwhile, are asking for earlier years 
      
and other forms of silver.
      

      
... Lady Liberty
      

      
The government began producing silver eagles in 1986, basing its 
      
design on Adolph Weinman's 1916 "Walking Liberty" half dollar. The 
      
front features a flag-draped Lady Liberty striding toward the 
      
sunrise, carrying branches of laurel and oak symbolizing civil and 
      
military glory. On the reverse, a design by John Mercanti features an 
      
eagle with a shield, olive branch, and talon and arrows.
      

      
The coins are made at an armored facility in West Point, N.Y., 
      
alongside the military academy. Dealers say they heard the mint had 
      
run out of planchets -- round metal disks ready to be struck into 
      
coins. The disks are used for various coins, and the companies 
      
producing the blanks also are busy, limiting the mint's ability to 
      
increase production. The mint won't comment on the planchets.
      

      
... Coins Divvied Up
      

      
Each Monday morning now, the mint divides its silver coins into two 
      
pools. It divvies up the first equally among authorized purchasers. 
      
The second is allocated proportionately, based on the buyer's past 
      
purchases. The mint limited purchases once before -- in the late 
      
1990s, when investors loaded up on silver, wrongly anticipating that 
      
a failure by the world's computers to adjust to the new millennium 
      
would cripple the economy.
      

      
Jim Hausman, head of the Gold Center in Springfield, Ill., one of 
      
eight companies in the U.S. authorized to buy silver eagles, 
      
estimates that the rationing will cut his expected annual sales of 
      
four million silver eagles in half.
      

      
And the result, he says, is almost un-American.
      

      
Increasingly, investors are taking a shine to alternatives. The Royal 
      
Canadian Mint saw its sales of silver Canadian maple-leaf bullion 
      
coins rise 40% last year, to 3.5 million, according to a spokesman.
      

      
Some investors expect the craze to end badly. They draw comparisons 
      
to what happened to silver in the 1970s. A rich Texas family poured 
      
billions of dollars into silver, and prices surged above $50 an ounce 
      
in 1980, only to plunge again after government intervention.
      

      
"It's akin to what happened when the Hunt brothers tried to corner 
      
the silver market," says Wendell Curry, who owns McAllen Gold & 
      
Silver Exchange in McAllen, Texas. "The silver hawks are now trying 
      
to corner silver American eagles. And it's making it harder for mom 
      
and pop to buy these for their grandchildren."
      

      
* * *
      

      
Here's brief excerpt from the Silver Stock Report:
      

      

      
By Jason Hommel, May 23rd, 2008
      

      
"I sincerely believe that conditions like this come along once in a 
      
lifetime, and in silver's case, I've long said that today's 
      
opportunity is unique in all of human history.
      

      
My gut tells me that silver prices might not stay below $20-25/oz. 
      
for more than about another month or two.
      

      
Never before has silver been so rare and scarce due to consumption by 
      
industry.  Never before in all of human history have all nations in 
      
the world abandoned silver as money.
      

      
No history professor knows anything from history that is even close 
      
to what we are seeing today.  No event in prior human history can be 
      
compared to what we are now witnessing, and will soon witness.
      

      
I can only guess as to how high silver is set to go, and my 
      
experience is that you don't want to hear it, either.
      

      

      
Ted Butler who writes for Investment Rarities writes in his latest
      
 letter:
      

      
"A visitor from another planet would surely be scratching his head 
      
about the current price discrepancy between gold and silver. The one 
      
that is the more rare and needed is selling for less than 2% of the 
      
price of the other. It would quickly occur to the alien that if just 
      
1% of the money in gold switched into silver, that would equal an 
      
amount more than 3 times all the silver in existence. The visitor 
      
would wonder how so few of the earth's 6.5 billion inhabitants could 
      
not see this discrepancy between two items that dated from the birth 
      
of human history. I'd be willing to bet that such an alien, should he 
      
exist and have a desire to make some big human money, would buy
      
 silver."
      

      
* * *
        
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