Saturday, May 24, 2008

Curb on Coin Sales Angers Collectors

WSJ Online: U.S. Begins Rationing Popular 'Silver Eagles'; How $1 Fetches $19


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 world-wide 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 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.

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."

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.

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

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