Gold’s first new bull market since 2011 last year was overwhelmingly driven by stock investors flooding into gold ETFs. Traditional physical bar-and-coin demand was actually quite weak, falling considerably year-over-year. Nevertheless, it’s still important to stay abreast of classic gold and silver investment demand. One key microcosm of that comes in the form of the US Mint’s sales of its popular American Eagle coins.

When American investors buy physical gold and silver bullion, it’s often in the form of these American Eagle 1-ounce coins. They have a really interesting history. Back in the early 1980s, foreign national gold coins led by South Africa’s famous Krugerrand were soaring in popularity. The US Congress didn’t want the States to be left out of the prestigious national-gold-coin business, so it finally acted in 1985.

American lawmakers crafted the Gold Bullion Coin Act of 1985, which president Ronald Reagan then promptly signed into law. It mandated the US Mint start producing a family of 22-karat gold-bullion coins containing one, one-half, one-quarter, and one-tenth of a troy ounce of fine gold. There were a couple of interesting restrictions, including the origin and age of the gold and the amount of coins to be produced.

The GBCA required all gold-bullion coins to be minted from “gold mined from natural deposits in the United States, or in a territory or possession of the United States, within one year after the month in which the ore from which it is derived was mined.” If that source ever proved insufficient, the Mint could “use gold from reserves held by the United States to mint the coins”. It makes sense to support American miners.

But far more importantly, this law requires the US Mint to produce these gold-bullion coins “in quantities sufficient to meet public demand”. Unfortunately the unaccountable bureaucrats at the US Mint have failed miserably on this front, and should’ve faced the wrath of Congress. There have been multiple times since the deep secular-bear gold lows of the early 2000s where bullion-coin sales have been suspended.

The most famous was probably in August 2008 heading into that year’s stock panic, when demand was growing. The US Mint claimed its suppliers couldn’t produce enough planchets, the blank flat disks of 22-karat gold that are ultimately stamped into American Eagle coins. That ignited a firestorm among gold conspiracy theorists, and went mainstream with a major Wall Street Journal story published on page C1.

The US Mint’s history of producing sufficient silver-Eagle coins to meet public demand is even worse, with these popular coins rationed for as long as 18 months at a time. This was even a big problem in 2015, when these silver coins’ sales were severely restricted for the last 5 months of that year.  Because the US Mint has such an ongoing problem meeting demand as mandated, its coin sales don’t reflect true demand.

There are additional factors limiting the usefulness of this data for drawing conclusions about broader gold investment demand. It’s primarily American investors buying these American Eagle bullion coins, effectively excluding the rest of the world. On top of that, these coins are never destroyed. So the true supply and demand in the marketplace encompasses the entire stockpile of coins minted since 1986.

Nevertheless, the US Mint’s sales of newly-produced bullion coins offer a useful peripheral read into American gold and silver investment demand as long as their limitations are kept in mind. This small piece of overall global gold demand is a valuable barometer of American physical investment demand.  Trends within this dataset help illuminate broader trends in gold investment, which dominates gold’s price.

The US Mint doesn’t sell coins directly to ordinary investors. Instead a network of authorized purchasers acts as middle men, which have to be fairly-large businesses to qualify. The US Mint’s minimum order requirements for gold Eagles and silver Eagles are 1k and 25k ounces. At current prices this equates to order sizes of $1209k and $438k, not including the 3%-gold and $2-per-silver-coin premiums the US Mint charges!

So buying American Eagles certainly isn’t cheap for investors, who are forced to eat these big wholesale premiums. And the retail coin dealers naturally charge additional premiums on top of that to keep their businesses running. Thus paying 5%+ over prevailing gold prices is common, which is very inefficient. That’s one reason why gold ETFs led by the flagship American GLD SPDR Gold Shares have grown so popular.