The U.S. Mint recently announced that it would ship no more 1-oz Gold Eagles until January 2008. This policy has become the norm for the Mint toward year-end when it shuts down production of current-year coins to prepare for minting the ensuing year’s coins. The announcement resulted in an immediate jump in the premiums on 1-oz Gold Eagles.

However, just before Thanksgiving the Mint told its authorized distributors that they will get at least one more chance to buy 2007-dated 1-oz Gold Eagles before year-end. That announcement resulted in premiums on 1-oz Gold Eagles dropping back to normal levels. However, if the authorized distributors sell out their “reloads” before year-end, premiums will jump again. If the distributors’ coins last to year-end, premiums can be expected to stay at normal levels.

Only five U.S. distributors are eligible to buy coins from the U.S. Mint. (Gold Eagles are distributed via the classic manufacturer, wholesaler and retailer system. The Mint is the manufacturer; the authorized distributors are the wholesalers; and firms such as CMIGS are the retailers.) Because the distributors lose sales when they run out of Gold Eagles, when the U.S. Mint makes what has now become an annual announcement about ceasing production of 1-oz Gold Eagles, the distributors jack up their prices to compensate for potential lost sales.

Gold’s price volatility also has impacted premiums on Gold Eagles in the secondary market and on Krugerrands, which are the quintessential bargain coins and trade only in the secondary market.

Big moves to the downside always bring bargain hunters into the market. These are investors who buy only on price drops. They want low prices. So, because Krugerrands carry the smallest premiums of the widely known 1-oz gold bullion coins, many bargain buyers prefer Rands. In this way, price volatility increases the premiums on Rands.

A final note about premiums: The U.S. Mint sells Gold Eagles at percentage markups over spot (London spot, for Silver Eagles as well as Gold Eagles). The higher the price of gold climbs, the higher the absolute markup.

Today, twenty 1-oz Gold Eagles carry premiums of about $40 to $45 each. (Secondary market 1-oz Gold Eagles usually always carry smaller premiums than new coins; however this is not always the case. Big demand sometimes depletes the inventories of secondary market wholesalers. When that happens, to have coins for their customers secondary market wholesalers have to buy from authorized distributors.)

When gold traded at the $300 level, twenty 1-oz Gold Eagles carried premiums of about $17. With gold in the $800 area, those premiums climb to $40 - $45. This, of course, makes Krugerrands even more attractive to bargain buyers.

A man with whom we have not done business called early this morning. He said he found us on the Internet, doing a search because a dealer from whom he bought coins last year would not return his calls. His story is sad and similar to other stores we often hear.

He said that in early 2006 he responded to an ad in USA Today by a firm in Texas offering sets of the US Mint’s Gold Eagle coins. A Gold Eagle “set” contains one each of the four sizes of Gold Eagles: the 1-oz, the ½-oz, the ¼-oz and 1/10-oz gold coins, totaling 1.85 ounces. Gold Eagles are basic gold bullion coins that can be bought from any bullion dealer or coin shop in the country at a few dollars over the value of their gold content.

To increase supposed value, the sellers had submitted the Gold Eagles to one of the two major grading services, PCGS or NGC, where they are “slabbed,” which is an industry term that means the coins have been graded and inserted in hard protective cases. Grading is appropriate for old US gold coins, such as $20 Liberty Heads and St. Gaudens, because many of those coins (most of them in the case of the Liberty Heads) have been used as money and have suffered wear. New slabbed Gold Eagles are usually promoted as First Strike or Early Release coins. (Follow this link for an article on First Strike coins, which NGC now calls Early Release coins.)

The grading services provide a valuable service to the coin collecting industry when they grade old coins; however, grading new US Gold Eagles is superfluous because all new Gold Eagles are either MS69 or MS70, the two highest grades. Still, promoters submit new coins to grading services because of the supposed increased value that comes with the coins being slabbed.

In reality, there is no value to slabbing new coins. When we buy Gold Eagle coins in the secondary market from wholesalers, the coins normally come in tubes as shipped from the US Mint. More often, though, we are receiving slabbed MS69 and MS70 Gold Eagles, which means that slabbed Gold Eagles are carrying no premiums in the secondary market.

Back to the man who bought from the Texas promoter.

Unfortunately, the man did not pay a few dollars over spot for the slabbed Gold Eagle sets he was sold, which would have been about $750/oz or $1387.50 a set if valued at normal Gold Eagle prices. He paid $3150 a set. He also was sold proof Gold Sets at still higher prices. “Hate to tell you what I paid for those,” he said.

The buyer could not get the seller to return his calls when he needed to sell. He went to the Internet and found us, and we became the bearer of the bad news. Sadly, this man’s have become commonplace of the last few years.

The practice of slabbing new US Gold Eagles has been called into question legally. Late last year, one lawsuit alleged that “tens of thousands of people have been duped” into buying First Strike coins. The suit named PCGS and NGC, but NGC has settled. A Google search produced no evidence that PCGS has yet settled, so the case may go to court.

Early this year, another lawsuit, seeking $1 billion in damages, was filed against a group of companies in Texas. This suit accuses “the firms of using high-pressure, unlawful telemarketing tactics” to get buyers to pay prices beyond the real market for gold, platinum and silver coins.

May 2005 we sent an article, which is now on our Articles Page, alerting CMIGS’ client about the dangers of buying First Strike coins. Hopefully, we saved some clients the heartache of paying way too much for their gold. We know, however, that many buyers fell for the First Strike promotions and suffered losses. This morning’s caller was evidence.

At CMIGS, we recommend gold bullion coins, which sell at a few dollars over the value of their gold content. With bullion coins, buyers get more gold for the money. Still, we find ourselves spending a lot of time talking to buyers of overpriced gold coins, so much time that we feel morally obligated to tell these horror stories on our website in the hopes that would be buyers of overpriced coins learn the truth before they buy.