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Eagle Premium Takes Off But Will Fly Away
 | By David C. Harper, Numismatic News
August 28, 2008 |
I wrote a blog this morning asking why anybody would pay a premium of almost 19 percent over metal value for 2008 American Eagle silver coins when buyers have alternatives like 100-ounce silver bars for 7.8 percent over metal value, or 1,000-ounce bars for 2.3 percent over metal value.
A response was posted by one reader saying that the coins were purchased by people who expect prices to go higher who can't afford a 1,000-ounce bar.
On the surface, that response sounds plausible, but after watching the bullion markets for 30 years from this chair in the office and over 40 years since I looked at the metal prices in the financial section of the Des Moines Register, it just doesn't cut it for me.
Put another way, if you pay a premium of roughly 19 percent, the price of the metal has to rise by that amount just to break even. Those premiums often disappear when you want to sell the coins back into the market. I mentioned silver bars for two reasons. The first is the obvious one in that they are a widely recognized way of investing in silver.
The second reason is I remember the late 1970s and the early 1980s market. When silver peaked, people were paying premiums for the bars and were discounting bags of 90 percent silver coins. Both disappeared as values evened up based on underlying metal value.
Silver may go up, or it may go down, but what is certain is the premium that is paid is money that is gone. It is like a stock market commission. The less you pay is money in your pocket. Paying extra to buy or sell 100 shares of IBM or Apple is money thrown away.
You are certainly entitled to throw your money away, but it is not something that enhances investment success, or is in character for the coin collectors I talk to.
Now I full well know that there is currently a shortage of 2008-dated silver American Eagles. There seems to be some circular logic that the existence of such a shortage means that silver has to go higher in price.
There the logic breaks down. The U.S. Mint has struck more silver American Eagles this year than in any other in the history of the program. What does that tell a coin collector? Record high mintages. Hmm. Are you willing to bet on the continuing existence of such a large premium?
It also pays to remember that the Mint is a factory. A factory has a certain capacity. When demand exceeds that capacity a shortage develops.
If every American who owns a car suddenly presented himself to the local Chevy dealer to say he wants an Impala, General Motors could not meet the demand.
Would such an event make the Impala a more desirable car? The price would certainly rise in the face of the shortage just like it has done for 2008 Eagles.
Would resale value improve after five years? Not likely.
After the excitement is over, you have an Impala or a silver Eagle. Both will be valued on the usual long-term factors. Any premium paid is money thrown away. Coin collectors know this, but do the amateur silver investors we are hanging around with know this?
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