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U.S. Mint rationing silver American Eagle coins… again

Spiking demand for silver American Eagles has forced the U.S. Mint to ration sales of the bullion coins … again. Via a special allocation program announced last week (per ChristianPost.com), the Mint will restrict the number of Silver Proof coins authorized purchasers can buy.

Similar allocation measures have been implemented off and on since 2009 as the Mint struggles to meet demand. This comes despite a law mandating coin production “in quantities and qualities that the Secretary determines are sufficient to meet public demand.”

Extraordinary times call for extraordinary measures.

SilverCoinsToday.com, in fact, has suspected that silver coin rationing has tacitly been going on since February.

“In January this year Authorized Purchasers were buying 2011 Silver Eagles nearly every day,” the site reports, “but by March that sales trend changed. Daily sales updates became less frequent and weekly sales increases were capped at or very close to the 700,000 level after the week ending March 4.”

That could explain why we haven’t seen record-breaking sales numbers for the coins since the start of the year. In fact, January 2011 saw the most American Silver Eagle sales in history with the Mint offloading 6,422,000 of the coins, according to SilverCoinsToday.com. The next closest month came in November of 2010 when 4,260,000 American Eagles were sold.

Silver prices have risen more than 40 percent since the start of the year. That’s on top of a more than 80 percent gain in 2010. At some point, those high prices could start eating into demand for silver bullion coins, but for now, at least, it looks like the eagles are still flying high.

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Utah gold standard takes pot shot at the Federal Reserve

Utah just got a lot of street cred by firing the first bullet in the war against the Federal Reserve’s loose monetary policies. The state’s Governor Gary Herbert signed a bill into law last month that recognizes gold and silver coins issued by the U.S. Mint as legal tender in the state.

Unfortunately, the bill doesn’t go so far as letting you exchange gold and silver for goods and services based on the value of the underlying metal. Instead, Utah residents would have to use face value on the coins to purchase goods and services. That means people probably won’t be using Eagles to pay their mortgages or car payments (since the face value is far less than market value), but nonetheless it’s a symbolic jab at the Fed. And it’s a jab that’s representative of the pent up anger out there.

It’s not just Main Street that’s upset about government spending; it’s state governments, businesses and voters, too. And there are few voices speaking more loudly against rampant inflation than Texas Congressman Ron Paul.

“The gold standard would keep you from printing money and destroying the middle class,” Paul says. “Every country where you have runaway inflation, there’s no middle class. Mexico, there’s no middle class, you have a huge poor class, and a lot of wealthy people. Today we have a growing poor class, and we have more billionaires than ever before. So we’re moving into third world status.”

While Utah’s bill stops short of recognizing all forms of gold and silver as currency, it does contain a nice tax benefit. Utah investors who buy and sell gold and silver coins for investment purposes no longer have to pay state capital gains taxes on the metal.

A number of other states appear to be following Utah’s lead by introducing their own gold and silver currency bills. Georgia and Iowa have put forth legislation that would mandate state taxes be paid in gold and silver, according to MotherJones. Indeed, more than a dozen states have floated or are in the process of debating alternative currency bills.

It’s a step in the right direction, but I’m still not convinced we’ll start seeing progress until banks are allowed to issue gold- and silver-backed debit cards that can electronically exchange bullion for U.S. dollars at checkout terminals.

I wrote about just such a scheme recently in my post How would a gold standard work in the 21st Century? It’s Utopian thinking right now, but if the government can’t rein in spending before we’re subject to runaway inflation, I suspect I wouldn’t be the only one who would sign up for a gold- or silver-backed debit card.

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How to invest in palladium

Since it doesn’t end up in the news very often, individual investors rarely look to palladium as an investment option in the precious metals field. That could change in the coming year as 2010’s return on palladium (+83 percent YTD) has out-paced gold (+24 percent), silver (+71 percent) and platinum (+16 percent YTD).

Why the spike in palladium?

Of the big four precious metals (gold, silver, platinum and palladium), platinum and palladium are closely tied to economic development. Since both metals are used extensively in the production of catalytic converters for automobiles, they do well when economies are expanding (think China and India). Palladium could also see increased investor demand thanks to new ETFs and plans by the U.S. Mint to start producing American Eagle palladium bullion coins.

How can I invest in palladium?

There are a handful of ways to legitimately (and fairly safely) invest in palladium:

  • Buy palladium bullion coins
  • Buy stock in a palladium ETF (exchange-traded fund)
  • Buy stock in a palladium mining or palladium recycling company

Where can I find palladium bullion coins?

U.S. President Barack Obama signed a bill into law on Dec. 14, 2010, that would “authorize the production of palladium bullion coins” by the U.S. Mint. No word yet on when the palladium bullion coins will hit the market. Expect them to be a hot commodity, though, if for nothing else than owing to their scarcity.

After being discontinued in 1999, the Canadian Mint started producing its Palladium Maple Leaf one-ounce palladium bullion coin again in 2005. Individuals cannot purchase coins directly from the mint, but Canadian palladium bullion coins are available through coin dealers and occasionally on auction sites like eBay. Still, they’re difficult to find.

Other palladium bullion bars and coins from countries like Switzerland, China, Russia and France are available on various web sites and via coin dealers. Make sure you FULLY understand what you’re buying before you try to acquire these coins or bars.

Palladium ETFs

Palladium ETFs are a newcomer on U.S. stock exchanges. There are currently two palladium ETFs on the NYSE that I’m aware of:

  • ETFS Physical Palladium Shares (NYSE:PALL): A palladium ETF that looks to match movements in the palladium spot price minus fees
  • ETFS White Metals Basket Trust (NYSE:WITE): A physical silver, platinum and palladium ETF that started trading on Dec. 3, 2010

Finding the best palladium stocks

Palladium mining stocks operate in a small niche. Most of the world’s palladium deposits are concentrated in just four countries: Russia, which produces 44+ percent of the world’s palladium, South Africa, which produces 40 percent, Canada, which produces 6 percent and the U.S., which produces 5 percent.

The biggest deposit in the U.S. is concentrated in the Stillwater igneous complex in Montana (incidentally the home state of Rep. Dennis Rehberg who introduced the American Eagle Palladium Bullion Coin Act of 2010). Stillwater Mining Company (NYSE:SWC) is an obvious candidate for buying a palladium stock. Stillwater’s shares are up 116 percent YTD.

Here are some palladium stock suggestions for further research as we move into 2011:

  • North American Palladium Ltd. (AMEX:PAL), +89 percent YTD
  • Noril’skiy nikel’ GMK OAO (PINK:NILSY), +64 percent YTD
  • Anooraq Resources Corporation (AMEX:ANO), +66 percent YTD

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