FOR bullion coin collectors and investors, 1986 is a period of significant developments that could reignite the gold market. Among them, the United States will mint its first such general-circulation coins since 1933, while Australia and Japan also plan to produce new bullion coins. In addition, it is the first full year since Washington banned the importation of Krugerrands from South Africa.
But 1986 has also been a time of reduced activity by buyers in the coin market, stemming largely from a low inflation rate and low expectations of any immediate increase. As a result, overall volume in the first half was level to slightly lower, with funds that had previously gone into tangible investments being drawn to the stock, bond and foreign exchange markets.
”It’s been kind of quiet and there’s been a lack of interest in gold,” said Martin Armstrong, chairman of Princeton Economic Consultants of Princeton, N.J. ”But that will probably change after the fall as inflation is beginning to pick up on our economic models.”
Bullion coins are one of the two categories of gold coins for investment. Unlike numismatic coins, which are priced on the basis of their rarity, condition and artistic value, bullion coins are usually sold at a small premium over the current price of gold, which yesterday stood at $344.75 an ounce. Their market price is related to the gold price rather than the denomination on the coin.
For many years, the Krugerrand was the most popular bullion coin among Americans and at one time represented about three-quarters of all of these coins sold here. Krugerrands peaked in this country in the late 1970’s, but sales dropped afterward. President Reagan halted imports of Krugerrands on Oct. 1, 1985, as an element in his program of limited economic sanctions against South Africa, and distribution to the public, according to coin dealers, has since plummeted.
”The Krugerrand is down to almost nil,” said Harvey Stack, a partner of Stack’s Coin Company of New York. ”But there is sufficient supply already here for any demand for the foreseeable future.”
Because of this falloff in sales, the Krugerrand’s premium over the spot price of gold – a fee imposed to cover the costs of production and distribution – has declined from a range of about 5 percent to 7 percent to as little as one-half of 1 percent. Moreover, because of the lack of interest, in some cases the coins can be purchased for less than gold’s current market price.
Some of the slack, however, has been taken up by other bullion coins, especially the Canadian Maple Leaf, now the best seller in this category. The Maple Leaf – issued in four sizes containing different amounts of gold – at one time was outsold by the Krugerrand by a ratio of 9 to 1 but now is selling at a faster rate than the South African coin in the United States. At present, it claims 65 percent of the worldwide market for bullion coins.
Also on the list of gold bullion coins widely available are the Austrian 100 corona, the Mexican 50 peso and the Chinese Panda. The Panda, which was first minted in 1982, is particularly strong, with sales quintupling to about 125,000 units last year.
”The initial price in 1982 was around $425 and now the bid price of that issue is about $1,550,” said Luis Vigdor, vice president of Manfra, Tordella & Brookes, a major coin and bullion dealer, who calls the Panda a numismatic bullion coin, since it has attributes of both classifications. ”There has also been a very good performance of other issues, with the 1983 Panda bid at $1,000 and the 1984 Panda bid at $775.”
Many of the new coins coming on the market in the months ahead are expected to stimulate bullion coin sales in general. For example, the Australian Nugget will be issued in four varieties – one-ounce, half-ounce, quarter-ounce and tenth-ounce – each with a rendering of a different gold nugget. ”The Australians are using gold to sell gold,” said John H. Lutley, director of the Gold Institute in Washington.
The big excitement in the field, though, is likely to come from the minting of the new American coins, which marks the re-entry of the United States into the international bullion gold market and could lure some buyers for patriotic, if for no other, reasons. There are also bullion ”pieces,” not legal tender of course, being issued by California, Texas and South Dakota.
In addition to four gold bullion coins carrying denominations of $50, $25, $10 and $5, each with the same gold content as the Australian coins, the United States series will include one containing a troy ounce of fine silver with a face value of $1. With a design of a male eagle flying over his family’s nest on one side and the classic Augustus Saint-Gaudens design of Liberty on the other, the coins are not scheduled to go on sale until Oct. 1 in order to avoid conflicts with the current marketing of commemorative coins honoring the Statue of Liberty.
Mr. Vigdor said that the retail premium on American gold bullion coins, which will be legal tender, is likely to be 5 percent on the one-ounce, 7 percent on the half-ounce, 9 percent on the quarter-ounce and 11 percent on the tenth-ounce. ”This is almost a quasi-endorsement of gold by the United States Government,” he added. ”It will bring a lot of people to the market who may have never bought a piece of gold before.”