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A rush to buy gold coins

December 25, 2008|associated press

DENVER — Investors who have forsaken shaky financial markets for the safety of gold might be feeling a bit like prospectors.

Gold has been getting tough to find.

"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.

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. In early spring, investors were snapping up precious metals such as gold, silver and platinum, said Beth Deisher, editor of the trade magazine Coin World.

Gold for April delivery shot up to a record of $1,033.90 an ounce on the New York Mercantile Exchange on March 17.

"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 mortgage giants Fannie Mae and Freddie Mac, and Lehman Bros. Holdings Inc. descended into bankruptcy protection -- gold sales went into high gear, said Natalie Dempster, head of the World Gold Council's North American investment unit.

For example, in August, as the Federal Reserve pumped $62 billion into the U.S. banking system, sales of the popular American Eagle coin were suspended for a week.

That was because the U.S. Mint was unable to get enough gold blanks from suppliers to match demand, Mint spokesman Michael White said.

Then in late September, when Congress initially failed to approve a massive bailout for the nation's biggest banks, sales of the American Buffalo coin were suspended until Nov. 3 because of shortages.

"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, Deisher said, was a decision years ago to send some of the tasks that go into making U.S. gold coins to other countries.

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 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.

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 hit a peak, and bullion coins fetched huge premiums, said Larry Shepherd, executive director of the American Numismatic Assn.

"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," Shepherd said.

At his coin shop in downtown Chicago, Berk advised customers to plan ahead when arranging purchases. It's frustrating, but "you learn to live with it," he said.

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