I have bought Gold Eagles, the gold bullion US coin, from various dealers at a slight premium over the spot price for gold. These were not proofs, or “first strikes” - just gold coins.
I was looking at the US Mint site today ( http://www.usmint.gov ). They offer for sale a proof-quality Gold Eagle, but apparently not a regular run-of-the-mill gold eagle.
And it suddenly occurred to me – where do the dealers get their gold US coins, if not from the Mint? And if they get them from the Mint, how are they buying them?
When the US Mint in 1986 decided to go into the gold/silver coin biz, they decided they only wanted to deal with a few people on a big-time basis. So, to qualify to buy direct from the US Mint you had to fill out a financial statement. I’m only slightly making up the numbers here, but they said you need a net worth of 50 million dollars. You have to order a minimum amount at a time, like about half a million dollars worth. And you have to wire the funds into the government’s account. Then, after all that, you have to make arrangements to pick up your merchandise at the West Point NY depository/branch mint.
So, as a result, there are only about 12 authorized primary buyers in the world. Mostly big banks. They don’t make money on this deal. Quite often they are making about 1/4% or so on the deal. But it’s a prestiege thing I suppose.
So, the bank buys 1 ounce gold American Eagles(in quantities of perhaps 1000 pieces at a time) from the US Mint. The Mint charges them about 3.5% over the bullion price of the gold. They resell it at 3.75% to people who are on their good list, and who buy $50K at a time such as we do. So an American Gold Eagle at $550./spot costs us about $18. over the price of gold. We then resell it to people like you who buy 1-20 pieces at a time. We charge $28. over the spot price.
If the Mint makes as few of these coins as it sounds, why aren’t they all packaged as proofs? You make it sound almost like they sell a few hand-picked proof sets, and the rest are sold in rolls or loose in sacks.
Proofs are totally different coins. They use specially handled and polished dies which are changed out more frequently and each coin is struck multiple times to increase relief and detail.
So they make some fairly small number of coins as proofs, then once the dies are deemed unworthy of striking proofs, the dies move on to strike “regular” coins, which are considered uncirculated. (How and where would you spend and circulate a gold coin?)
If **samclem ** sells gold Eagles at $28 over spot price, and buys them for $18 over spot, he’s making a gross profit of $10, which probably translates into a net profit of five cents. I understand the idea of nobody’s getting rich at this, but it’s looking like “How is this worth anybody’s time?” other than for being a reasonably convenient way for people to purchase small amounts of gold.
What I’m sort of edging toward is if there’s barely any profit at all in the sale of proofs, why does the Mint even bother producing and releasing uncircs?
Gotcha. Gold’s running $557 right now. And one of my dealers is selling them for $582.50. So that’s right in the neighborhood you’re discussing… and there’s very little monetary gain if I were buying direct from the Mint.
The dies used in making proofs are NOT used to strike the uncirculated version. Totally separate dies.
While we sell gold eagles at $28. over spot, we buy them back from the public at just spot. If we run out of Eagles and need to buy fresh supplies, we have to pay the going rate which is closer to the $18 over spot. In the best case scenario, our stock is constantly being replenished at about the spot price and going out the door at + $28 over spot. But that’s not always the case. We have days we lose money on the deal.
As far as the US Mint making a profit on this coin—don’t worry about them. They sell the proofs for much more than the + $28. They get at least $100 or more above spot for them. But that doesn’t make them a good buy.
Because there’s a market for them. I collect U.S. Type coins, and I really don’t like the appearance of Proof coins – I think they look sort of chrome-like and cheap, compared to one with more of a satin surface. The only Proof coins in my collection are ones that were **only **issued as Proof.