By Louis Golino for CoinWeek .....
On March 1, the U.S. Mint delivered to the Senate Banking Committee and House Committee on Financial Services a marketing study prepared by the CPM Group on the feasibility of minting American Eagle coins made of palladium. The report was completed at the end of August, but additional time was needed to do some internal review at the Mint before the report could be released to the Congress.
The report was a legal requirement of Public Law 111-303, the American Eagle Palladium Eagle Coin Act, and was necessary to gauge the market demand for palladium eagle coins in the U.S. market. The coins could not be produced unless they can be done so at "no net cost" to taxpayers. The U.S. Mint’s numismatic programs, as it touts on its web site, operate at no cost to the taxpayer.
The authorizing legislation called for the creation of a new series of bullion eagles made of palladium, and left the Mint with the discretion to decide whether or not to also issue collector versions in proof and/or uncirculated finishes, but it included the stipulation that if collector versions were issued, each year’s coin would have a finish that differed from the previous year’s coin.
The legislation also stipulates that the obverse of the coins had to be a high-relief version of the famous Winged Liberty 10-cent coin, and the reverse a high-relief rendition of the 1907 American Institute of Architects gold medal, both designed by Adolph Weinman.
The coins had to start being issued within one year of the delivery of the report to Congress, so the clock is now ticking.
But coin collectors and palladium investors will be disappointed to learn that the main conclusion of the report is that bullion palladium eagles are unlikely to be profitable because demand would continue to trail off after the first couple of years, while collector versions would be more likely to turn a profit.
The report points out that it is unclear whether the Mint would have the authority to only issue collector versions, even if profitable, in the absence of a bullion program. I would suggest that Mint officials discuss this with the relevant congressional authorities as collectors are eagle for these coins.
The report, which I obtained from the Mint, is a 136-page analysis. In a key section it says that: “One of the largest obstacles to the U.S. Mint in pursuing a palladium coin program would be the cost of financing the palladium working inventories, either by leasing the metal or through direct purchases of inventories (which would need to be hedged against adverse palladium price moves).”
In addition, a lot of emphasis is placed in the report on the relative newness of the palladium market and the fact that it has traditionally been seen as an industrial rather than precious metal, and that it has been more volatile in price compared to gold, silver, and platinum - factors which are seen as limiting demand for palladium and palladium coins. It is also stated that palladium is not seen as a safe haven the way other precious metals are and that it is not “a gifted item” the way the other three metals are.
However, I suspect that if the Mint made palladium bullion coins with a nice design, they would in fact be given as gifts, or used in jewelry.
I find the report provides what may be an overly static view of the palladium market and the potential market for palladium eagles. As the report notes, the metal is now traded in ETFs, or Exchange-Traded Funds. Those ETFs have only been around since I believe 2009, so there is not nearly enough data or evidence to draw the conclusion that palladium is an unloved precious metal. I also question the report’s statements about an oversupply of palladium coins on the market, which has not at all been what I have seen at major bullion dealers.
Moreover, it is hard to gauge the impact of a strong design on investor demand. Consider the American silver eagle, the world’s most popular silver coin, which would be unlikely to have that status if it did not sport such a compelling obverse and reverse. One should never underestimate the patriotic instincts of American metal investors who like to "buy American."
Some people reacted to the market study by asking why the Mint did not survey collectors, although the report does indicate that precious metal experts and coin dealers were contacted. They could have found a way to gauge the views of potential bullion investors more directly too rather than rely so strongly on the experience of palladium bullion programs in other countries such as Canada, Russia, and Australia.
Also, the Mint does not normally do a lot of advertising outside of the numismatic print media. Who knows what might happen if they advertised more in the general media, or electronic resources like this one?
In addition, if they had reached out to potential buyers of the collector version with surveys instead of using models, I can say with close to certainty that they would have seen very positive interest. It is true that at the same time some collectors say they cannot afford to start collecting another precious metal series, but interest in a one-off coin like the 2009 Ultra High Relief Double Eagle would be huge, and some collectors might change their buying patterns and switch from say gold eagles in proof to palladium ones if offered the choice.
In addition, collectors I have been in touch with say that if each year’s coin had a different classic American coin design on it, the chances that they would buy it would be very high. Another suggestion I heard made was to issue fractional versions, which collectors have been virtually clamoring for since the discontinuation of gold and platinum fractional coins after 2008.
It is true that palladium is the least well known major precious metal and that the market for it is more limited at the moment than it is for gold, silver, and platinum.
But all that is changing, and as the U.S. and world economies slowly regain their footing, we will continue to see increased demand for palladium, especially in the automotive sector, where it is a cheaper alternative to platinum for use in catalytic converters.
As the metal's industrial applications expand, and its price rises, I believe we will see increased interest in it as a precious metal too, especially as more investors learn how scarce it is compared to far more abundant gold and silver. The report highlights how different palladium is from other precious metals, but over time I see it converging with them.
Besides, one of the main reasons palladium coins have not sold that well is that the supply of the metal in coin form is limited despite what the report says, and that is why dealers rarely have major supplies of the coins in stock. Most palladium is traded in bar form, not coin form, because the bars are much more plentiful and have lower premiums. But a low-premium palladium eagle with a compleling design, if the metal could be sourced at the right price, could theoretically change the market.
I would urge the Mint to strongly consider at least issuing a one-year collector version palladium eagle, which will be extremely popular. The design appeals to most collectors and buyers, and it would potentially be the only palladium coin ever issued by the Mint.
But down the road, as the market for palladium bullion increases, the Mint should also not cede the entire market to foreign countries.
Louis Golino is a coin collector and numismatic writer, whose articles on coins have appeared in Coin World, Numismatic News, and a number of different coin web sites. His column for CoinWeek, “The Coin Analyst,” covers U.S. and world coins and precious metals. He collects U.S. and European coins and is a member of the ANA, PCGS, NGC, and CAC. He has also worked for the U.S. Library of Congress and has been a syndicated columnist and news analyst on international affairs for a wide variety of newspapers and web sites.
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