September 13, 2022
If you’ve been wondering why the current premium over spot silver for American Silver Eagles is so much higher than it is for other world bullion coins like Canadian Silver Maple Leafs and British Britannias, the reason has to do with a shortage at the United States Mint – not a shortage of silver but of the silver planchets which are used to strike the coins and which the Mint does not produce and must obtain from other sources.
And that planchet shortage has resulted in a coin production shortage, with the Mint having struck only 12.8 million Silver Eagles through September 2022 – compared to at least twice that amount at this point last year when demand was at a similar level. And that has pushed premiums way up to perhaps the highest levels over spot ever seen.
Back in 1986 when the American Silver Eagle program debuted, the law that created the coin specified that the silver for the coins had to come from silver mined in the U.S. That was not a problem since the silver used to make the coins back then came from the Strategic and Critical Materials Stockpile that had been created in 1968 and was no longer viewed as needed by the 1980s.
Once the stockpile was gone, Congress modified the law creating this bullion and numismatic program to specify that the Mint must purchase freshly mined silver (i.e., within one year of when it was mined) and could not use recycled silver.
According to former U.S. Mint Director Edmund C. Moy, the Mint decided against producing its own silver planchets because the demand for its coins fluctuated so much and because of the large number of resources needed to manufacture its own planchets. He said it was not cost-effective to spend the money needed to do that and made more economic sense to outsource planchet production. In this way, it could trim costs during lower production years.
But given that demand for Silver Eagles only dipped briefly for a couple of recent years and has otherwise remained robust in recent decades, and given all the issues the Mint has faced in recent years securing planchets, it is unclear if it still makes sense to outsource planchet production as the Mint continues to do.
Another factor is that the Mint is required not to pay more than the spot price for the silver it buys to make planchets. But in the current bullion market, that’s a tall order. In the current environment, obtaining physical delivery of silver when paper contracts mature is often very difficult or does not happen when desired.
So the Mint must find vendors (companies) that can meet its needs for silver planchets and the high standards that the Treasury Department requires for its coins (especially in terms of weight and fineness). And anytime the government signs contracts with a vendor, it is all subject to the strict requirements of Federal Acquisition Regulations (FAR). For example, the vendors and their processes must be vetted, and the planchets must meet stringent quality-control measures.
Not long ago, the Mint had four vendors who could supply the silver planchets it requires and that meet its strict specifications for Silver Eagles as well as silver medals of the same size. But experts say that at moment it only has one main supplier, Sunshine Minting of Idaho, with some additional planchets coming from a second company, Leach Garner in Massachusetts.
The COVID-19 pandemic and the high spike in demand for silver bullion since the pandemic began in 2020 have added a variety of new twists to this issue, but the Mint has had problems in the past securing enough silver planchets – especially for Silver Eagles, which by law it is required to prioritize over anything else other than circulating coin production.
In 2009, for example, the Mint canceled production of the Proof version of the Silver Eagle in order to have enough planchets on hand for the increased demand for the bullion coins that arose because of the global financial crisis at the time.
Back then, securing gold planchets to meet demand was also a problem. It was reported at the time that the Mint outsourced some of the necessary gold planchets from the Perth Mint. The Mint also indicated that this problem was occurring last year as well, mainly because the pandemic resulted in production slowdowns and supply chain disruptions.
Plus, Sunshine also makes its own silver products, which it can sell for a higher profit margin than the planchets it makes for the Mint, and also produces planchets for some other mints and coin dealers.
Last month, U.S. Representative Alex Mooney (R-WV2) sent a letter dated August 25 to Treasury Secretary Janet Yellen and Mint Director Ventris C. Gibson alleging that “a long-running production slowdown has led to shortages and dramatically higher market prices for this iconic silver coin [the Silver Eagle] as compared to its peers.” It also says that he feels the Mint is currently in violation of Chapter 31, Section 5112 (e) of the United States Code that requires the Mint to produce the coins in quantities sufficient to meet public demand and compares that to the situation at mints such as The Royal Mint, which makes Britannia silver coins among others, and the Perth Mint, which issues a long line of bullion coins.
The letter asks why the Mint has not made it a policy to build a reserve of planchets for situations like the one it currently faces, whether it has consulted those other mints to see if it could learn from their practices, and when the Mint will be able to once again meet demand.
So far, the Mint has not issued a response that has been made public. But if or when it does, it will undoubtedly highlight the legal constraints it is under as addressed above. Unless or until Congress makes modifications to those provisions, or unless Mint management decides that the Mint should make its own planchets, this issue is not likely to go away.