In only the first eight months of 2021, the US Mint has already achieved record sales volumes for its gold bullion coin program (combined Gold Eagle Coin & Gold Buffalo Coin buying by the investing public).
Here are some insights about physical gold bullion bar market tightness potentially affecting the US Mint and its many potential suppliers.
We are hearing some rumblings from now multiple mints/wholesalers that seem to be having a more difficult time finding base metal for product production delivered on a schedule that they can rely upon. The first phone call was a few days ago when we were tipped off that gold eagles were likely going to be delayed a week or two. They stated that it was because gold suppliers for the near term have been reluctant to agree to US Mint's supply contracts which include a delivery date guarantee. The delivery date guarantee is to ensure the gold arrives at the US Mint facility on a certain date so they can plan production. If they miss the delivery date deadline, the supplier is subject to huge fines.
The supplier is saying it is too risky to take the chance in meeting the delivery date guaranteed US Mint production schedule. Suppliers we have spoken to have had logistics issues (aka gold not readily available in the normal places) in getting the gold to their facility. Therefore, it appears that multiple suppliers are taking the position they do not want to risk the fine if they are late delivering gold to the US Mint by a day or two given the delay we are now being advised on US Mint gold.
It is important to note, we are not aware of any material differences regarding US Mint delivery date guarantees. The supplier contract of supplying gold to the US Mint has always been strictly regulated and controlled. In other words, the decision by the supplier, in our opinion, is not based on anything the US Mint is doing differently. It would seem to indicate issues within the gold supply chain itself and the reliability that the gold supply currently incoming to the suppliers is more risky than normal.
Another phone call took place today where a mint said that, in their analysis, there is a lot of gold and silver out there. The cost of getting it to where it needs to be is a barrier and a logistical nightmare. Therefore, this seems to back our opinion that suppliers are having to go to 2nd and 3rd line sources to bring in base metals that are less reliable.
Furthermore, the traders had the following to say regarding the situation of the US Mint heading into the fall of 2021:
The US Mint is playing an elaborate game of "Chicken or the Egg" as it relates to selling Gold to their Authorized Purchaser network. Historically, the mint purchases raw Gold from any number of sources, which it then uses to produce Eagles, Buffaloes, etc. Each raw Gold purchase comes with a set standard of terms of delivery (which have not changed) that binds the seller to specific terms, and failure of the seller to meet those terms they've agreed to with the US Mint is very costly.
The Mint is now quoting unexpected delays on their products, notably pointing to the lack of supply of the raw Gold being offered to them. Considering the suppliers of the raw Gold are often the same parties buying the finished product, it's an odd phenomenon where each party is in some sense biting the hand that feeds them. The only reason for this development is that it's too costly for suppliers to agree to a delivery schedule to the mint, as the supply of raw Gold itself is not as reliable as it always has been.
That’s all for this brief SD Bullion update.
As always take great care of yourselves and those you love.