To Be Available Next Month : Gold Rush Is Under Way as U.S. Issues New Coins
In more than two decades as a gold coin dealer, Luis Vigdor has seen many new gold coins issued. But never has he seen a gold coin whip up so much initial public interest as the new American Eagle coin, to be issued next month by the U.S. Mint.
“It’s electrifying,” said Vigdor, senior vice president of Manfra, Tordella & Brookes Inc. in New York, one of the nation’s largest coin dealers. Between 300 and 500 calls are coming in daily from people interested in buying the coin, he said. “That’s much more than I have ever seen for any other new coin.”
From coast to coast, coin dealers are echoing Vigdor’s words. Spurred by a recent surge in gold prices and the prestige of a new American currency, investors and others are eagerly lining up to buy the Eagle--the first U.S. gold coin tied to the gold market and the first general-circulation American legal tender gold coin in more than 50 years.
Initial demand is so strong that many dealers confidently predict that the American Eagle will almost overnight become the best-selling gold coin in the United States and possibly the world, surpassing the Canadian Maple Leaf, now the top seller with about two-thirds of worldwide and U.S. sales. Some dealers worry that the U.S. Mint may not produce enough Eagles to meet the initial demand.
“The Eagle is going to place other coins into a second-class category,” said Mark Goldberg, an owner of Superior Stamp & Coin in Beverly Hills. That could hurt sales of other leading coins, such as the Chinese Panda, South African Krugerrand and Mexican 50 peso, dealers say.
“We expect that in the first year the Eagle will become the premium gold coin in the United States,” said Michael J. Brown, spokesman for the U.S. Mint.
The success of the Eagle, some experts say, could stimulate more nations to issue gold coins, partly to create markets for their gold. Already, Japan, Australia and Luxembourg are preparing to issue new coins this year or early next year, and Brazil is expected to follow.
“If the U.S. coin is successful, within the next three years you’re going to see a lot of countries with their own gold programs,” predicted Barry Stuppler, president of Gold & Silver Emporium in Encino and president of the California Coin & Precious Metals Assn.
Investors have waited years for a continuously issued American gold coin with legal tender status. The United States minted its last gold coins used as currency in 1933, the same year it went off the gold standard. The United States issued legal tender gold coins to commemorate the 1984 Summer Olympics and the recent restoration of the Statue of Liberty; but those were one-time issues, treated as numismatic coins, or collectors’ items, as opposed to bullion coins, such as the Eagle and Maple Leaf, which fluctuate in value with the price of gold.
Resurgence in Prices
A major reason for the interest in the Eagle is the overall resurgence in gold prices, due largely to jitters about renewed inflation, sluggish U.S. stock and bond markets and fear of gold supply reductions by South Africa. The price of gold for current delivery closed Wednesday at $431.50 an ounce on the Commodity Exchange Inc. in New York, up 30 cents from Tuesday’s close. That is more than 25% higher than its price in early July and is near the metal’s highest price since March, 1983.
But experts cite other reasons why the Eagle will outsell other coins, at least in the United States. One major reason is patriotism. “The largest market in the world has been in the U.S., and most U.S. customers will buy it (the Eagle) in preference to other products,” said John H. Lutley, co-managing director of the Washington-based Gold Institute, a trade association.
Also, dealers cite the coins’ attractive design, which will make the Eagle desirable in necklaces, cuff links and other jewelry. The Eagle’s front side has roughly the same Liberty design as used by sculptor Augustus Saint-Gaudens on the $20 gold pieces issued from 1907 to 1933. Some aficionados consider those the most beautiful gold coins ever produced.
Status as Legal Tender
Another reason is the coins’ status as legal tender. That direct backing by the U.S. government will boost investor confidence. Moreover, its legal tender status will make sales of the coin exempt from sales tax in several states, including California.
Sales of the coin will also be stimulated if the new tax overhaul bill is approved by Congress and President Reagan. The bill contains a provision that will allow investors to use U.S. gold coins as investments in individual retirement accounts. Until now, commodities such as gold have not been permitted for IRAs.
Los Angeles-based Security Pacific National Bank is planning to offer special custodial accounts for customers wishing to hold gold coins in their IRAs, Rick Lawson, head of the bank’s precious metals investment group, said. Other banks and brokerage firms are expected to do the same. The tax bill requires that gold in IRAs must be kept in custodial accounts by banks or other third parties.
The Eagle is also expected to benefit from the virtual collapse in demand for the South African Krugerrand, which only two years ago was by far the best-selling gold coin in the United States and still is the most widely held. The U.S. government banned its import last year, but U.S. investors may still buy and sell it within this country.
Furor Over Apartheid
However, due to the furor over South Africa’s apartheid system of racial discrimination, few Americans want to buy the coin, many dealers say. Many Americans are expected to trade Krugerrands for Eagles. Krugerrand owners wishing to trade for Eagles can expect to pay a premium over the market price of gold of between 4% and 8%, depending on quantities traded, dealers say.
Demand for the Eagle will also be enhanced by its expected wide distribution. When it is made available on Oct. 20, investors are likely to find the coin at a large number of banks, coin dealers, brokerage houses and other places. Also, the U.S. Mint plans to spend between $5 million and $8 million for advertising to promote the Eagle in the first year.
Brown, the U.S. Mint spokesman, said the agency expects first-year sales of 2.2 million ounces. The coin--which is 91.67% pure gold, the same as the Krugerrand--will be available in four sizes: one ounce, half-ounce, quarter-ounce and one-tenth ounce.
As legal tender, those coins will carry face values of $50, $25, $10 and $5, respectively. But no one is likely to use them as money because their actual values will fluctuate with the market price of gold, which is much higher than the face value. The U.S. Mint is also issuing a new silver coin with a $1 face value, expected to be released in mid-November.
Premium of 3% to 4%
The Eagle is expected to command about the same premium as the Maple Leaf, which is currently selling at between 3% and 4% above the market price for gold for wholesale orders and between 5% and 6% for small orders. Manfra, Tordella & Brookes, for example, was selling one-ounce Maple Leafs late Wednesday at a wholesale price of $448.40, about a 3.9% premium over gold’s closing price that day for the contract for current delivery on the Commodity Exchange. Those buying small quantities paid an additional $10 per coin, Manfra’s Vigdor said.
Although many expect the Eagle to become the world’s top seller, other coins will not lose all their luster, some experts say.
Some investors will still prefer the Maple Leaf because it is 99.99% pure, said Bruce L. Kaplan, senior vice president of Beverly Hills-based A-Mark Precious Metals Inc., a leading coin wholesaler. “A number of investors prefer pure gold to alloy, especially in the Far East and Middle East,” Kaplan said.
New Australian Nugget
Some investors may be attracted to the new Australian Nugget coin because it will have a new design each year and a different design for each size. “A lot of investors who like to build a collection of coins are going to take to this,” Kaplan said.
Japan’s new Emperor Hirohito coin, issued to commemorate the 60th anniversary of the emperor’s accession, will become legal tender when issued in November. It has already sold out in advance in Japan, and only 5% of the 10 million pieces minted will be distributed outside of Japan, the Gold Institute’s Lutley said.
