Some collectors who buy Uncirculated American Eagle gold, silver and platinum bullion coins wonder why they can't buy the coins directly from the United States Mint instead of having to buy the issues from dealers on the secondary market.
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Gold images by Jason Soffee courtesy of Paul Sims Inc. Authorized purchasers can acquire the American Eagle gold and platinum bullion coins directly from the U.S. Mint for the daily spot price of the metal each contains, plus an established premium. For the 1-ounce gold coin shown, the premium is 3 percent.
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Silver coin images by Jason Soffee courtesy of Paul Sims Inc. When placing orders for American Eagle 1-ounce silver bullion coins, authorized purchasers are required to acquire a minimum of 25,000 coins at the daily spot price of the metal plus a premium of $1.25 per coin.
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The answer lies within the purpose of the American Eagle bullion coins: to enable investors to buy U.S. bullion coins at prices not much above the coins' bullion values.
While some hobbyists collect the Uncirculated American Eagle bullion coins without Mint marks by date, those issues are intended to be investment vehicles. Their value is tied to the daily spot price of gold, silver or platinum, plus a premium.
Consumers are able to buy the Proof and Uncirculated collector versions of the American Eagle coins, all bearing the W Mint mark from the West Point Mint, directly from the U.S. Mint. However, these collector coins are sold a fixed price that is considerably higher than the intrinsic value of the metal each coin contains.
In terms of composition and size, the U.S. Mint sells nine different American Eagles, irrespective of finish. The American Eagle .999 fine silver coin is sold in a 1-ounce size only. The American Eagle .9167 fine gold and .9995 fine platinum coins are sold in four sizes: 1 ounce, half ounce, quarter ounce and tenth ounce.
Authorized purchasers
The U.S. Mint sells its Uncirculated American Eagle bullion coins through a network of domestic and foreign distributors, referred to as "authorized purchasers." Dealers wishing to become authorized purchasers, according to the U.S. Mint, must meet stringent financial and professional criteria that can be documented by an independent accounting firm approved by the U.S. Mint. The criteria are as listed:
? Be an experienced, established market-maker in American Eagle gold, silver and/or platinum bullion coins.
? Have a broad base of retail customers to whom the coins may be distributed.
? Must have a tangible net worth of $50 million to purchase gold and platinum American Eagles, and $5 million for silver American Eagles (may be met using letter of credit).
? Provide a liquid two-way market for the coins.
? Be audited annually by an accepted accounting firm, with the authorized purchaser assuming the cost of the annual audit.
? Place minimum orders. The ordering requirements are a minimum of 1,000 ounces for gold and 1,000 ounces for platinum; for silver, the minimum is 25,000 ounces.
? For gold, must have sold more than 100,000 ounces of gold bullion coins over any 12-month period since 1990.
The U.S. Mint explains in its authorized purchaser certification criteria that the Uncirculated American Eagle bullion coins are sold "based on the current price of gold, silver and platinum plus a premium to cover minting, distribution and marketing costs. A portion of this premium is recoverable upon resale." The Mint offers the American Eagle silver bullion coins for the spot price of the metal plus $1.25 per coin.
The premiums above the spot price for the 1-ounce, half-ounce, quarter-ounce and tenth-ounce coins of either gold or platinum are, respectively, 3 percent, 5 percent, 7 percent and 9 percent.
The minimum orders for the gold and the platinum coins may include a mixture of the four versions, and need not comprise just one of the issues for the entire order.
The authorized purchasers may then sell the coins directly to the public or to secondary market dealers.
To the public
If a collector or investor purchases an American Eagle bullion coin from a dealer further from the source in the distribution network, the purchase price will reflect additional premiums tacked on at each level to cover each dealer's costs and offer a small profit. The premium each dealer adds may differ, as in any competitive market.
Also factored into establishing the secondary premiums is how many coins an authorized purchaser has acquired and how many are then purchased by individual dealers in the secondary market.
This hierarchy explains why the same coin can be purchased from different dealers at different prices.
Distributing the American Eagle bullion coins through a network of authorized purchasers has been in place since the American Eagle coin program was initiated in 1986.
The two-way market begins with the authorized purchasers, who then sell the bullion coins to wholesalers (and some, to the public directly). Wholesalers sell the coins to a network of retailers, who then sell the bullion coins to bullion coin investors and collectors.
Because the bullion coins market is a two-way market, consumers often sell the coins back to dealers when prices reach levels that will give them a profit. The prices dealers might pay for coins purchased back from consumers will vary depending on a range of factors.
The Mint elected to sell the American Eagle bullion coins though a network of distributors rather than directly to consumer because the Mint does not buy bullion coins back from distributors or the public.
The tiered distribution system, according to the Mint, provides the means for the buy-back market.
Large distributors are likely to buy back bullion coins, while a small distributor may be less likely to do so because of the strain such actions could place on its liquidity, according to www.encasedcollectorsinternational.org.
Currently, the Mint sells to 11 authorized purchasers each for gold and silver coins, and six for platinum coins. The purchasers may sell silver coins only, gold coins only, silver and gold coins both, or all three.
In the United States, six authorized purchasers operate, four of which buy and sell American Eagle bullion coins in all three metals. Two U.S. purchasers buy silver coins only.
In Europe, four authorized purchasers operate: three for silver and gold, one for all three metals.
In the Far East, three authorized purchasers operate: one for silver and gold, one for gold and platinum, and one for gold only.
