11 June 2010

Coin shortages coming

I have been going on about the coming shortage of coins due to limited minting capacity in the industry for a while now. This interview with refiner Argor-Heraeus by Mineweb confirms this, see quote below.

Geoff Candy: Are we likely to see a shortage of supply of these sorts of denominations.

Bernhard Schnellmann: A shortage yes, but that's not because of the metal, it's just because of the minting capacity. You have to same situations of the four coins - if the bullion coin - if we are sold out it's not because there is not enough gold around but also because there are not enough minting presses around.


If you believe there will be increased mass market demand for gold going forward and like your minted coins or bars, then stock up now because you will face premium increases and/or rationing. Once that happens small cast bars will be the other economical option and I think it would be a while before industry capacity is maxed out for them.

I would also draw attention to Bernhard's comment that being sold out does not indicate that "there is not enough gold around". The "selling out" of retail size coins and bars is an indicator of mass market demand and is bullish, but it is not an indicator of no gold. If you see any commentator claiming this, then the only thing it is indicating is that the commentator has no precious metals industry experience on the physical side and in my view any basic commercial sense, in which case you should consider carefully any of their other claims. It is a very good indicator of a hype merchant rather than someone trying to give you good advice.

15 comments:

Chris Polis said...

Not sure if this is a reasonable place to query this, but has there been any consideration of producing woven gold notes? It seems to me this would allow the production of much smaller weights of gold without them becoming too small to handle / too expensive to produce.

A fine weave, jacquarded for design effect, sealed between clear polypropylene sheeting should be able to handle weights in the order of 0.1 - 10 g of gold, above which you could use coinage.

Would mean you have trade-able weight portions of gold, rather than the big (and apparently likely to get bigger) chunks of value that coins represent.

Bron said...

This is something I have been giving thought to as current fractional coins and even small minted bars are very expensive fabrication wise and thus won't work as money.

I think weights above 1 gram would be too heavy for thin sheets of polypropylene and you really need harder plastics (see http://www.perthmint.com.au/investment_bullion_bars_coins_barspage.aspx for a pic of a minted bar) to contain it securely.

The real problem is accurately weighing out very small amounts of gold and the work required to get the gold into a form for weaving or even just very thin sheets. That is why you really don't see bars below 1g on the market, too much cost involved working gold into sizes smaller than that.

Chris Polis said...

Will get back to you on this; have to travel now, but I believe the issues you have noted can be worked around..

Keith said...

Hi Bron,
Re: coin shortages.
Are we going to see a repeat of late 2008 again ?
I recall Perth Mint (PM) responded fairly well, and I don't recall my orders taking much longer to be delivered, even though PM staff warned me they might.
I think PM's response was to run more production shifts, essentially keeping the minting machinery running for longer periods per week.
I recall you mentioning that your blank production to support other mints like the US Mint was running flat out to the extent of impacting PM products.
Has Perth Mint ramped up its infrastructure since then ?
Cheers.

Bron said...

Keith,

We have always been working on increasing efficiency and capital improvements, but 2008 did focus us and we have brought forward some capital expenditures. If we get the same demand as 2008 we will be better able to service it.

However, I think the next wave of demand will be stronger, hence I can see all Mints again struggling to meet retail demand.

Chris Polis said...

I would have thought drawing gold into a fine wire, given its extraordinary ductility would have just been a matter of appropriate machinery, and that weight would then be directly calculable by length at that point?

Quick numbers suggest a credit card sized chip (reasonable size to give you the ability to stiffen it up nicely?) could be ~0.01oz with 1/16 mm diameter wire at 0.0800mm pitch.

For comparison, this is basically a 320 count fabric.

Dropping that down to a 180 count fabric with the same diameter gives a 0.1g weight.

Thicken the wire to say 1/5 mm, and 100 and 55 count weaves would give ~1/10 oz and 1g.

There's probably some error in this, but not by too much. Either way, all weaves mentioned ought to be relatively easily incorporated into a 'card' or 'note' at that size and weight.

Farbication costs for doing so compared to the value of the finished product I wouldn't know, and whether normal fabric weaving equipment would be suitable for processing.

Companies like http://www.uniquewire.com/metals/gold.cfm would probably be able to give decent advice and better estimates..

Then again, maybe its simpler just to substitute silver for the lower range.

Bron said...

Note with interest this comment from United States Mint Director Edmund Moy (http://news.coinupdate.com/edmund-moy-interview-part-two-proof-silver-eagles-u-s-coin-design-0328/):

"When bullion demand went sky-high, we reached out to our suppliers, the Perth Mint for example, for more planchets (blanks) and many of them almost tripled their production for us. Yet, we still could not keep up with demand, and last year alone, and we sold almost 28 million ounces of silver and gold coins of which about 22 million of which was silver. This was a record amount for us, which made the U.S. Mint the largest producer of bullion coins in the world, and we still could not keep up with the worldwide demand!"

Anonymous said...

Well done for the great work running this site Bron! I wished there was a column for collectors' views on Perth Mint's designs with each new release. In short, I'd like them to chill and go easy with the colourised coins. One of the many aspects of numismatics is the enjoyment of coins inspection and counting the colour dot matrix pixels of those coloured coins under a loupe is a joke. It's getting to a point of obsession with colour pad printing and way too many irrelevant themes.

Anonymous said...

I noticed that the mint's website is showing some more sizes available in the minted bars Bron. Is that a case of a bit more capacity coming on line?

Bron said...

Coloured coins, well lets just say they appeal to the mass market.

Minted bars - I think they went off for a while as we moved to a new range/design. Capacity wise we are humming along OK, not maxed out.

Anonymous said...

Would the Perth Mint look at increasing their fabrication premiums in the event of a coin shortage or would they just continually extend the delivery date as they did in 2008?
Quite concerned about this very valid issue.

Bron said...

The 2008 situation was very unique and we were a bit unsure how long it would last and how to deal with it. There was a reluctance to increase premiums lest wholesalers saw it as taking advantage and they have long memories.

I think next time we will begin to extend lead times initially but eventually we will have to use price to ration our capacity.

Anonymous said...

Could you clarify about the different products and how they might be affected in the event of a coin shortage due to minting capacity - how would the availability of different product lines be expected to differ - eg coins vs minted bars vs cast bars? In the event of a coin shortage would the mint still be able to pump out bars in sufficient quantities?

It doesn't seem to to me to be a big issue if coins are not available as long as various other reasonably priced product is available, if one is wanting to protect against the ultimate backwardation event/ unavailability of the physical metal?

Bron said...

Anything minted we have capacity restrictions in the face of large retail demand. Cast bars much less so, they are faster to make and we are making some production improvements, so I'd be surprised if we get caught out with cast products.

Anonymous said...

If you are after the max amount of physical gold, why would anyone want to buy the coins anyhow? the buy/sell spreads quoted at PMT are several percentage points higher for 1oz coins compared to 1oz cast bars