At the July 20 House of Representatives subcommittee meeting on “The State of U.S. Coins and Currency,” Michael Clark, President of Diamond State Depository, expressed his industry’s belief that the American Eagle Bullion Coin Program should be broadened with the addition of palladium bullion coins.

The US Mint’s bullion coin program originally included only gold and silver coins, but was broadened in 1997 with the introduction of the American Platinum Eagle. This might set the precedent for another broadening of the program with the American Palladium Eagle.

Statements provided at the hearing cited potential demand for Palladium Eagle bullion coins from both collectors and investors. The coins were presented as an interesting pricing point for precious metals investors at $450 per ounce, compared to higher priced gold and platinum. The possibility that the new coins would absorb some of the demand for Silver Eagles was also mentioned.

During the question and answer session of the hearing, Rep. Ron Paul observed, “If we get the palladium coin… where are we going to get the planchets?”

The question referred to earlier discussions about the US Mint’s current reliance on just three suppliers for precious metals blanks, the apparent bottleneck in the production of bullion gold and silver bullion coins. Platinum bullion coins have not been produced since late 2008, presumably due to the same planchet procurement problem.

Past efforts for U.S. coins struck in palladium have included bills introduced by Rep. Dennis Rehberg and Sen. Max Baccus, both from Montana. These bills have sought the production of Saint Gaudens Ultra High Relief Double Eagle Palladium Coins in numismatic and bullion versions. The bills S. 758 and H.R. 3405 were introduced on April 1, 2009 and July 30, 2009, but have not made any progress.

The United States was the world’s fifth largest producer of palladium. The metal is mined in Montana and refined in New Jersey, California, and South Carolina.

The Royal Canadian Mint is the only major world mint to currently produce palladium bullion coins. They initially produced the Palladium Maple Leaf coins from 2005 to 2007, but the program was ended due to low sales. The RCM revived the program in 2009 when they identified greater market demand for a palladium bullion.

Testimony recently delivered by US Mint Director Edmund Moy to a Senate Subcommittee on Domestic Monetary Policy and Technology includes new developments for the 2010 Proof Silver Eagle. The fate of this coin has remained unknown due to the continued high demand for the bullion version of the coin.

Under current law, the United States Mint is legally obligated to produce American Gold Eagle and American Silver Eagle bullion coins in quantities sufficient to meet the public demand. The recent heightened demand for physical bullion coins has left the US Mint unable to keep up. For nearly two years, the US Mint has been sourcing all precious metals blanks to the production of bullion coins, resulting rather than collector coins. This led to the premature end of production for the 2008 Proof Silver Eagle and the cancellation of the 2009 Proof Silver Eagle.

Director Moy provided testimony on July 20, 2010 during a hearing of the House of Representatives Subcommittee on Domestic Monetary Policy and Technology on “The State of U.S. Coins and Currency.” In his statement he acknowledged the disappointment of collectors and expressed his encouragement that the Subcommittee was considering an amendment to the law that would allow issuance of collectible versions of the American Silver Eagle even if the full public demand for bullion coins is not met. The US Mint has already provided technical drafting assistance for the change in law. Until this hearing, the possible amendment to the law had been unrevealed.

If such a change is enacted, the Director explained that the US Mint could produce 200,000 coins per month. If production began in September, total production of about 830,000 coins could be accomplished by the end of 2010.

Planned collectible versions of the coin would include the 2010-W Uncirculated Silver Eagle and 2010-W Proof Silver Eagle.

Moy’s statement did not include any mention of collectible versions of the 2010 Gold Eagle, but this might suggest that the prospects for these coins is more likely. This year, the US Mint has managed to catch up with gold bullion offerings faster, and even quietly ended their allocation program for the one ounce coins. With the gold bullion coins apparently being minted in quantities sufficient to meet public demand, this should clear the way for production of uncirculated and proof 2010-W Gold Eagles, even without amendment to the law.

The 2008-W Proof and Uncircualted Gold Buffalo Coins have been one of the most successful US Mint products in years, when considering the secondary market price appreciation. The coins have been a frequent topic of comments and I have been meaning to write about them for some time. I decided that I would come up with a deconstruction of some of the factors leading to the phenomenal success of the coins.

Before examining these factors, I wanted to start with a review of some of the sales prices for 2008-W Gold Buffalo coins from recently completed eBay auctions. A 4 coin proof set graded PR70DCAM First Strike recently sold for an incredible $16,999.00. Some 4 coin proof sets graded NGC PF 70 Ultra Cameo have sold for around $8,000 – $9,000, and some of the 4 coin uncirculated sets grading NGC MS 70 have sold for $6,000 – $7,000 per set. These sales prices compare to original US Mint prices of $1,959.95 for the uncirculated set and $2,219.95 for the proof set.

Individual coins and raw coins have also sold for dizzying amounts. A 2008-W $5 Gold Buffalo graded PCGS MS70 just closed at $875.00 and a raw 2008-W Proof $10 Gold Buffalo sold for $1,500. Here are all of the current eBay auctions for 2008-W Gold Buffalo Coins.

Personally, I have been somewhat in awe of the prices for these coins and have no idea whether prices have peaked or whether they have more room to grow. As mentioned, what I wanted to do with this post is examine some of the factors which contributed to the enormous success of the coins.

First, the design for the American Gold Buffalo is based on James Earle Fraser’s extremely popular Buffalo Nickel design. Coins which feature classic designs tend to create higher demand, as it expands the number of collectors interested in the coins. When the US Mint first introduced the Gold Buffalo in 2006, the one ounce proof version sold 246,267 coins, demonstrating the potentially large collector base.

Second, seven out of the eight 2008-W Gold Buffalo coins currently represent one-time only issues. In January 2008, the US Mint announced that they would offer collectible proof and uncirculated Gold Buffalo coins in one ounce, one-half ounce, one-quarter ounce, and one-tenth ounce sizes. For the prior two years, the US Mint had offered only the one ounce version for collectors. In November 2008, the US Mint abruptly announced the discontinuation of all of the newly introduced Gold Buffalo options. This made all four of the 2008-W Uncirculated Gold Buffalo Coins and the 2008-W Proof Gold Buffalo one-half ounce, one-quarter ounce, and one-tenth ounce coins one year only issues.

Third, the pricing and economic conditions surrounding the US Mint’s offering period for the coins resulted in extremely low sales, which translated to unusually low mintages. The US Mint released the 2008-W Proof and Uncirculated Gold Buffalo Coins on July 22, 2008. This was the exact day when gold reached a temporary peak of $961.50 per ounce. Gold subsequently entered a period of extended decline that would bring the price as low as $712 per ounce. The US Mint did not adjust coin prices until November, resulting in high premiums above gold value for nearly the entire offering period. These high premiums likely turned off some potential buyers. The state of the economy may have also held some potential buyers at bay, as the second half of 2008 was a period of extreme economic and financial uncertainty.

Fourth, the coins sold out before the close of the year. In rapid succession, the US Mint announced the discontinuation of most of the collectible Gold Buffalo products and then adjusted prices based on the lower value of gold. At that point, sales assumed a rapid pace which did not diminish until all options were sold out in early December 2008. In general, products which are deemed to sell out early, tend command instant premiums which sometimes expand over time. By contrast, products which linger in the US Mint’s product catalog or go off sale at a pre-announced cut off date, tend to appreciate slower or not at all. (There are some exceptions to this, but it has seemed to play out this way in recent years.)

Fifth and final, collector money has to go somewhere. The United States Mint canceled many of their most popular collectible precious metals products last year and offered relatively little to fill the void. I think that at least a portion of the money that would have been spent on 2009 Proof and Uncirculated Gold and Silver Eagles is chasing prior year precious metals products, such as the 2008-W Gold Buffalo coins.

I think that the incredible price appreciation of these coins is the result of perfect storm of circumstances that likely will not be repeated for some time. We can certainly watch for some of these factors in future offerings and try to catch the next blockbuster early.