Woes on Wall Street coincide with gold coin rush
Arizona Coin Collector
http://news.yahoo.com/s/ap/20081224/ap_on_bi_ge/gold_hunt_2
Woes on Wall Street coincide with gold coin rush
By SANDY SHORE
AP Business Writer
DENVER - Investors who have forsaken shaky financial
markets for the safety of gold must feel a little
bit like prospectors.
As the worst recession in at least a generation
spreads, so too does the clamor for gold bars and
coins, assets less likely to go up on smoke like
so many derivatives and asset-backed securities.
"I've never seen a case where demand was so high
and supply was so short," said Chicago coin dealer
Harlan Berk, who has been in the business 44 years.
Spikes in demand for gold coins this year appear
to run parallel with the mounting woes on Wall Street.
(Story Image Photo)
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In August, as the Federal Reserve pumped $62 billion
into the U.S. banking system and rejected requests
for mortgage finance giants Fannie Mae and Freddie
Mac to take on more debt, sales of the popular
American Eagle coin were suspended for a week.
The U.S. Mint was unable to get enough gold blanks
from suppliers to match demand, Mint spokesman
Michael White said.
In late September, when a massive bailout for the
nation's biggest banks failed, sales of the American
Buffalo coin were suspended until Nov. 3 because
of shortages.
Yet even before the full extent of the financial
crisis was known, investors had begun to load up
on gold and other assets that could be held in
the hand.
By early spring, investors were snapping up
precious metals such as gold, silver and platinum,
said Beth Deisher, editor of Coin World trade
magazine.
Gold for April delivery shot up to a record of
$1,033.90 an ounce on the New York Mercantile
Exchange March 17. According to a report by
the National Bureau of Economic Research
released this month, that was just three months
into the U.S. recession.
That correlation continued throughout the year
as Wall Street institutions fell.
"People sensed there was something going on that
they didn't quite understand," Deisher said.
In the third quarter, when the U.S. bailed out
Fannie Mae and Freddie Mac, the Fed gathered
the chiefs of major banks on Wall Street to
plot a rescue, and Lehman Brothers descended
into bankruptcy protection, gold sales went
into high gear, said Natalie Dempster, head of
the World Gold Council's North American
investment unit.
U.S. demand for gold coins and small bars
jumped 600 percent and international demand
rose 121 percent, according to the council.
"The fact that gold is nobody else's liability
was really an extremely important trait for
investors in Q3 that were growing increasingly
mistrustful of financial institutions in
general," Dempster said.
To get gold as stocks began to fall, investors
were willing to pay.
"You saw people paying premiums to get coins
and small bars," Dempster said. "The refiners,
et cetera, just wouldn't have been set up to
produce that amount of gold, the same way as
any other product."
Compounding the shortage somewhat, Deisher said,
was a decision years ago to offshore some of
the tasks that go into making U.S. gold coins.
Under the law, gold used in U.S. coins must be
mined domestically. However, the government
contracts with private companies to fabricate
blank coins for striking with images such as the
American Eagle. One of those companies is Gold
Corp., owned by the government of Western
Australia and operator of the Perth Mint.
Demand for gold coins continued to grow as
economic news from Wall Street and Washington
grew more ominous.
In early October, the Dow Jones industrial
average closed below 10,000 points for the first
time since 2004. At the same time, coin dealers
saw demand a hit a peak, and bullion coins were
fetching huge premiums, said Larry Shepherd,
executive director of the American Numismatic
Association.
"That's created a shortage not only in the
secondary market, where shops are competing with
each other to find enough supply to meet the
demand but it's also created a real shortage in
the primary market where the Mint itself is
having difficulty getting enough supply to meet
demand," he said.
At his coin shop in downtown Chicago, Berk
advises customers to plan ahead when arranging
purchases, as much as two to three months.
It's frustrating, but "you learn to live with
it," he said.
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On the Net:
U.S. Mint: http:http://www.usmint.gov
World Gold Council: http://www.gold.org
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