No one knows for sure how much disruption the Year 2000 computer problem will cause. Some recent studies suggest that the Y2K bug may not be as catastrophic to finance, commerce, and the infrastructure as many had predicted. A lot of people apparently lack confidence in the government and private sources of these studies, or just believe it's better to be safe than sorry. One of the ways they are preparing for a potential crisis in which credit cards may not work and paper money may lose its value is by buying bullion coins from the U.S. Mint, especially easily negotiable units such as Silver Eagles and 1/10 oz Gold Eagles.

Shortages created by their purchases have driven prices up, which has attracted investors into the market, which has further increased demand. The U.S. Mint, which sold 2.5 million Silver Eagles in all of 1997, and 4 million in 1998, sold 1.2 million in just the month of January 1999. The Mint had orders for 0.6 million in February and 2.87 million in March, but could fill only 25% of them. Projecting based on the January sales and February and March orders, it would appear that annual demand for Silver Eagles has increased to 18.6 million. January '99 sales of that coin equaled sales for all of 1997.

It's not that there's a shortage of silver or gold. The prices of these precious metals remain relatively low. Gold is in the $259.13 per oz area (8/10/99); silver ended 1998 at $5.05 per oz and, after climbing a bit early in the year, was back at $5.34 on August 10, 1999. The problem is that those concerned about Y2K want the guaranteed metal content and legal tender status conferred by the U.S. Mint, and the Mint simply cannot manufacture bullion coins fast enough while maintaining its rigid quality assurance.

Round silver blanks known as planchets are the bottle neck in Silver Eagle production. Unlike the Royal Candian Mint, which manufactures its own, the U.S. Mint buys planchets from outside vendors. Or, for silver coins, from only one vendor. The Mint dropped several planchet producers who were unable to meet its exacting standards while keeping to the low markup over spot silver that the Mint also demands. The current silver vendor, according to Mint Director Philip Diehl, has been supplying 100,000 to 120,000 planchets per week since the beginning of January and was supposed to be at 200,000 per week by March.

Meanwhile the Mint has been working to bring on two other vendors, although one will not be able to start until Fall. It appears that as long as Y2Kers and investors keep piling on the orders, the shortfall in production is likely to continue, with prices therefore continuing to rise.

To check today's current bullion and coin prices, click on Coin Universe Bullion Coins and Prices

Hot demand creates two-tier market

Only seven purchasers are authorized to buy bullion coins directly from the U.S. Mint for distribution to dealers in the United States (there are 11 other authorized distributors outside the US). These distributors have been put on an allocation basis for the scarce Silver Eagles and 1/10 oz Gold Eagles. That means they are sold only a percentage of what is available, based on the size of their past orders. The distributors in turn are charging dealers a premium for filling orders immediately, and the dealers are charging consumers a premium for promptly filling their orders. Buyers of 1999 Silver Eagles who demand immediate delivery rather than waiting 2-4 weeks are paying a premium of $2.00 per coin. The premium for 1/10 oz Gold Eagles is $3 to $5. Bullion coin prices fluctuate with the spot price of the precious metal. Without the premium for immediate delivery, Silver Eagles were selling for about $6.94 (8/10/99) per coin, if you could find a dealer who would take your order, and 1/10 oz Gold Eagles were selling for about $32.17 (8/10/99) per coin.

Y2K buying drives Morgan and Peace Dollars to record increases

Silver Dollar collectors and investors were well rewarded in 1998. From December 31st 1997 to December 31st 1998, rolls of 20 Uncirculated (BU) Morgan Silver Dollars rose 65.55% as reported by The Coin Dealers Newsletter (CDN). Y2K-related buying is part of the demand for these always popular 100-year-old US coins. Another factor is the belief among collectors and investors that Morgans are very affordable and present great value at current levels, even after their 65% increase in 1998.

Peace Silver Dollars are also on the move. Original Brilliant Uncirculated 76-year-old rolls jumped 47% in price during 1998.

For comparison, during this same period, the Dow Jones Industrial Average rose 16.10% and the NASDAQ Composite Average climbed 39.62%. While stocks are at all-time highs, there is still plenty of room for growth before coins reach their all-time highs. In 1989, at the top of the market, Morgan and Peace Dollar rolls sold for four times their current values. As the Millennium approaches, and media coverage of Y2K intensifies, fear of a Y2K disaster among at least a portion of the public is likely to mount. That combined with continuing shortages in availability of U.S. Mint bullion coins could drive prices higher. To summarize, many savvy investors are putting a portion of their portfolios into U.S. Mint bullion coins and Morgan and Peace Silver Dollars. They see an opportunity for continued growth related to

• Y2K demand
• Shortages related to production problems
• Low premium over spot precious metal prices
• High perceived value of US gold, silver, and platinum coins

Some of the current gold and silver coin buyers plan to sell for a profit just before the end of the year; others plan to hold on so that they have an insurance policy if Y2K problems do affect commerce. What if January 1, 2000 comes and goes without significant economic disruption? With the potential for increases in precious metal prices and the possibility of appreciation caused by higher inflation rates, bullion coin prices could still continue their upward trend. Those factors plus an increase in numismatic value could keep driving the prices of Morgan and Peace Dollars. If that happens, it could be a very rewarding 21st Century for investors in these old and new coins.

Source: Coin Connoisseur spring 1999, reprinted with permission