Market plunge sets Gold Eagle off on wild birthday flight
The American Gold Eagle bullion coin celebrated its first birthday with a hair-raising flight. On ``Black Monday,'' it rode an updraft that carried most commodities to higher prices as stock prices took their 508-point plunge. The next day - its one-year anniversary - the coin took a dive of $15 as the stock market rebounded. Analysts don't expect the Gold Eagle to cruise at low altitudes for long, however. ``There's going to be a flight from currencies and into precious metals,'' says Claire Longden, an analyst at Butcher & Singer, ``and that will drive up the price of gold.''
The country's first gold coin entered the world because of political controversy, and soon stirred some financial controversy of its own. For a long time, South Africa's Krugerrand was pretty much the only game in town. So when the US banned imports of the gold coin to demonstrate its opposition to apartheid, Americans were left looking for a gold coin to call their own.
Enter the Gold Eagle on Oct. 20, 1986. The pent-up demand, spurred by a measure of nationalism, caught even the US Mint by surprise. ``We thought we had a 45-day inventory,'' says Donna Pope, director of the Mint. ``At the close of the second day, our shelves were bare.''
Thus began the financial controversy. Was the Gold Eagle a smart buy? Gold analysts said the coin was way overpriced. ``The premiums were ridiculous,'' says Alan Posnick, vice-president of Manfra Tordella & Brookes, a major coin dealer.
For the smallest coins, the one-tenth ounce, people were paying some 50 percent more for the coin than the spot price of the same amount of gold. Even for the one-ounce coin, folks were paying $20 to $30 more for the coin than the spot price, which then was about $400. Today, the premiums are more in line with reality, about 5 or 6 percent, because the initial rush to get the national coin is over. As recently as April the American coin was the most popular in the world, capturing 37 percent of the world market. Today, Ms. Pope says, it's ``neck and neck'' in overseas sales with the Canadian Maple Leaf, which has been around for some time. (The Eagle has 65 percent of the US market.) Over the last 12 months, the Mint sold 2.7 million ounces of gold coins, exceeding the Mint's expectations by 23 percent.
The skies the Gold Eagle is flying in today are far more crowded than when it was a fledgling. In the past year, Australia has introduced the Nugget, Japan the Hirohito, China the Panda, Britain the Britannia, and Belgium the Ecu.
While these new coins are giving the Eagle some competition, Pope and others say they expand the whole market for gold coins. Since the profit margins are small, ``there's not a lot of money in gold coins for advertising,'' Pope says. Thus, the more gold coins, the more aggregate advertising, which boosts public awareness - and sales.