Saturday, April 20, 2013

Coin Dealers Paying More for Silver Eagles than the US Mint Charges!?

From the US Mint's website, the cost of Silver Eagles is $2.00 over the price of silver.  The method for determining the price of silver is not presented.

Premiums and Minimums
The United States Mint charges a modest premium above the current market price of platinum, gold, and silver to cover minting, distribution and marketing costs.

  • For the Silver Eagle, we charge the United States Mint's Authorized Purchasers the price of silver plus $2.00 per coin premium. Minimum ordering requirement is 25,000 coins.
  • For the Gold Eagles, we charge 3%, 5%, 7% and 9% premiums for the one, one-half, one-quarter and one-tenth ounce coins respectively. Minimum ordering requirements are 1000 ounces.
  • For the Platinum Eagles, we charge 4%, 6%, 10% and 15% premiums for the one, one-half, one-quarter and one-tenth ounces coins respectively. Minimum ordering requirements are 1000 ounces.
There are currently at least 3 internet coin dealers who are currently advertising 'buy' prices for Silver Eagles of about $26.00 per coin.  The market spot price yesterday for silver was $23.29 per ounce.  

There appears to be an arbitrage opportunity of $0.71 per coin.  The arbitrageur must pay for shipping from the US Mint and to the coin dealer.  The rest is pure profit.  For silver, the US Mint has a minimum order quantity of 25,000 ounces.  The coin dealers charge more for sales of 'Mint Direct' coins so they would probably pay more than $26 for them which would increase the arbitrageurs profit.  

Coin dealer are not likely to pay more for something that they could purchase directly.  After all purchasing coins from the US Mint is their 'bag baby'.  So why the apparent premium?  A couple theories:
- the US Mint is sold out of Silver Eagles and has none to sell.  
- the US Mints method for pricing does not or has not yet been affected by recent market price declines.
- the coin dealers will not really purchase at their advertised price.  The instructions for selling to the dealer includes calling, which probably includes obtaining a current 'live' bid price.

This is all very bullish for physical silver.  It will be interesting to see how these premiums behave over the coming weeks.

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