Sales of U.S. Mint 1/10 Ounce American Gold Eagle Coins Surge in July.
Lower gold price drives smaller coin American Gold Eagle demand.
Premiums on American Silver Eagle coins reach 30% at many dealers.
Why it may make sense to buy small sized American Gold Eagle coins rather than American Silver Eagle coins.
Update: July 30, 2015 Sales of 1/10 ounce American Gold Eagle coins top 135,000.
July 1/10 Ounce American Gold Eagle Coin Sales
While the surge in one ounce American Gold Eagle coins (AGEs) in June and further spike in July as documented and updated here , the unusual surge in 1/10 ounce AGEs in July has gone unremarked.
July sales of 1/10 ounce American Gold Eagle coins have risen exponentially in July and are at their second highest July level ever*.
Update: July 30, 2015
Sales of 1/10 ounce American Gold Eagle coins reach 135,500 as of July 30, 2015.
Why the sales surge in 1/10 ounce American Gold Eagle coins?
The 1/10 ounce American Gold Eagle coins (sightly smaller than a dime) usually have their best sales month in January as dealers stock up for the year. July sales of AGEs in general are lower than other months and sales of 1/10 ounce AGE, even more so.
The knock against 1/10 AGEs is the high premiums. One ounce AGEs have a reasonable low to mid single digit percentage premium (see chart below). One tenth ounce AGEs, however, can have premiums as high as 15-20%. The higher premium on 1/10 ounce AGEs is high enough for many on limited budgets to either save up for a one ounce AGE or to buy one ounce American Silver Eagle coins (ASEs) instead.
Premiums on one ounce American Gold Eagle coins in mid 2015 were about 5% over the spot price of gold.
Further fueling ASE sales is the historically high gold silver ratio, where the price of silver is cheap on a relative basis to the price of gold. Indeed, demand for ASE’s was so strong in June and July of 2015, the U.S. Mint suspended sales in early July after selling nearly three million ASEs in about a week.
The gold silver ratio has risen steadily the past few years as the price of silver has declined at a greater pace than gold.
The Case for 1/10 ounce American Gold Eagles
The Gold Silver Ratio Favors Purchases of American Silver Eagles over 1/10 ounce American Gold Eagles – or Does it?
The gold silver ratio as of July 24, 2015 was well over 70 to 1.
Here is what the gold silver ratio looks like at 72:1
The gold silver ratio illustrated with seven American Silver Eagle coins, two 1/10 ounce silver rounds and one 1/10 American Gold Eagle coin.
The visceral reation of many is, if they are going to spend about $100-$125, they might as well get seven one ounce ASEs instead of one tiny AGE.
Currently, however, the premiums on one ounce ASEs bring the price to about $20, making the effective price of an ounce of silver about $20 per ounce vs. the current spot price of silver of $14.79, resulting in a premium of well over 30%!**
In contrast, a 1/10 AGE sells for about $129 for an effective price of an ounce of gold of $1,290 vs. the spot price of gold of $1100, making the premium about 12%. While premiums on 1/10 AGEs are more than double the five percent charged on one ounce AGEs, they are less than half the premiums on ASEs.
The lower gold price may make paying a 12% premium on a small AGE more palatable than paying twice that premium for $125 or so worth of ASEs.
Considering the effective cost per ounce of silver when buying ASEs is about $20 and the effective cost per ounce of buying 1/10 ounce AGEs is $1,290, the gold silver ratio comes down from the spot price gold silver ratio of 74 to one to 64.5 to one.
As the price of silver has fallen, and the the U.S. Mint fabrication charge and dealer mark ups remain constant or rise, the premiums on American Silver Eagle coins explode higher.
*1999 was a record year for American Gold Eagle sales as many were hoarding gold in preparation for potential Y2K disturbances.
**The premiums on ASEs are high on a percentage basis because the price of silver is so low. The U.S. Mint charges its authorized dealers $2 per coin whether the price is $14 or $44 an ounce. When silver prices are low and ASE resellers add a dollar or two to their selling price on top of what they pay for each coin from the Mint, premiums scream higher.