by Louis Golino for CoinWeek
Every year about this time collectors of American silver eagle coins have their own holiday ritual, namely, pre-ordering the next year’s issue.
Bullion dealers are currently taking pre-orders for delivery during the second week of January 2012.
If you believe that silver will be higher next year, now may be a good time to lock in your price. Demand for these coins has exploded in recent years, and the 2011 issue could reach the 40 million mark.
American silver eagles are sold by the Mint to a network of eleven Authorized Purchasers, including Dillon Gage, Fidelitrade, APMEX, A-Mark, and seven others. My understanding is that these bullion dealers pay the Mint $2 per coin over spot to purchase their coins.
To become AP’s, companies must meet all kinds of requirements. In exchange for being the authorized distributors of bullion coins made by the Mint, which is a rather lucrative deal given the frenzy for bullion, they must agree to adhere to certain conditions such as making the coins widely available at a reasonable premium.
Only one AP, APMEX of OK (http://www.apmex.com), which is the newest member of the AP network, sells directly to the public through its web site, although some of the other periodically do that as well.
The AP’s distribute the coins to smaller bullion and coin dealers, who sell them to the public at a higher premium.
The buy-sell margins on these coins are very tight, especially at large dealers, and they clearly make their profit on volume, especially considering all the fixed costs they incur such as storage, shipment, insurance, etc.
The retail premiums vary quite a bit, depending on several factors. Generally, the higher the spot price of silver, the lower the premium retail dealers charge. The reverse if also usually the case, i.e., when spot prices are low, like now, premiums tend to run higher.
In 2008, for example, when silver was under $10 and supplies were very limited, premiums were substantially higher than they are now.
Currently, the larger dealers are charging about $4-5 over spot for 2012-dated coins, and smaller dealers sometimes want a little more.
The current year’s coins, or the next year’s beginning in late December of the previous year, usually retail for about a dollar premium over other years, except for certain better, low-mintage dates like 1996. But if you sell your coins to a dealer, I would not plan on getting any premium for the newest issues.
These coins are also collected in graded slabs. I have noticed at coin shows and from checking dealer inventories online that many older issues are becoming hard to find.
To understand the silver eagle market, one has to study the silver bullion market.
Silver prices have dropped dramatically in the past couple weeks.
The decline in spot silver is driven not by changed fundamentals, but by sellers looking to cover losses on other trades at the end of a difficult quarter.
Some analysts believe silver is still trying to find a bottom and that it could go as low as below $20, or even into the teens.
But there is very strong physical demand for silver, especially this time of year when Asian buyers stock up and give gifts made of precious metals. The end of one year and start of the next year and into the spring are usually the peak season for bullion buying and for spot prices. The fall is historically also a strong period.
This past year, 2011, saw silver hit a peak of $50 an ounce in April. Since then it has generally hovered around $35, but last week it dropped to below $30, as it has a couple of other times in the past couple months.
I believe silver under $30 represents a good buying opportunity.
There appears to be strong support for silver at about $28-30, and that is why my own view is that we are unlikely to see silver below $25 or $20, as other analysts predict.
A slowdown, or even a recession next year, especially as government spending cuts begin to take effect, could put a further drag on silver because of its significant industrial demand. Nevertheless, I doubt we will see silver as low as $20.
Based on this analysis of the silver market, I believe that now is a good time to purchase your 2012 silver eagles.
I did some price comparisons for 2012 silver eagles at coin dealers who currently are taking pre-orders. This includes, but is not limited to, APMEX, Gainesville Coins, Mint Products.com, and e-Bay sellers. I also tried Provident Metals, Bullion Direct, and Silvertowne, but they have not started taking pre-orders yet.
There are different factors to consider before determining which seller has the best overall price such as shipping fees and payment methods. It also depends if you are buying less than a 20-coin roll, or larger quantities.
If you are looking for a roll, my research found that Mint Products.com, a New Hampshire company with decades of experience, had the best price on December 20 with spot at about $29.50 per ounce.
Mint Products’ price was $669 per roll and shipping is a reasonable $9 for priority mail. In addition, it is possible to get that price and pay with a credit card, whereas most bullion dealers require payment by check or money order to receive the lowest price. This is what they call the cash discount.
I am not endorsing Mint Products, only pointing out that it had the best price I could find for a roll. Most of the others were in the $700 range and shipping was generally closer to $20.
Collectors know well that dealers often cherry pick these coins to find the ones more likely to be graded MS70. To receive a roll that has not been picked over, I would suggest dealing with reputable companies. In addition, APMEX offers what it calls MintDirect rolls, which are sealed when they are removed from a 500-coin monster box.
The U.S. coin that has by far the largest population of MS-70-slabbed coins is the silver eagle.
Over the years many collectors have expressed a desire the buy bullion silver eagles directly from the Mint in the belief that they would get a better deal than they get from dealers.
But were the Mint to take on all the costs associated with selling the bullion version of this coin, in addition to its existing obligations to sell collector versions of the coins and other numismatic products as well as produce other bullion coins in gold and platinum and circulating coinage, surely that would be too much.
This would probably overload the Mint’s capacities, and it would not necessarily result in a lower premium for buyers.
And don’t forget that silver eagles make great stocking stuffers!
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.