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A-Mark Financial Corporation - Mercurial Precious Metals Market: Late 1980s

Mercurial Precious Metals Market: Late 1980s

A policy change early in 1987 opened the door for more firms to become authorized distributors of the American Eagle gold and silver bullion coins. The U.S. Mint altered its net worth requirements to allow companies to use letters of credit to reach the minimum standards—a stipulation that fell away after a six-month period of solid performance. A-Mark, already an authorized distributor of silver bullion coins, had protested the policy that excluded it from the network of distributors, according to the American Metal Market. The resulting out-of-court settlement with the firm prompted the new rules. Once authorized as a dealer of the Gold Eagle coins, A-Mark quickly became one of the U.S. Mint's largest customers.

Gold, by June 1987, was trading at about $455 per ounce, up from less than $290 per ounce in early 1985. Mining stocks and gold mutual funds thrived. "Gold has become downright respectable. No longer is the typical gold buyer an oddball preparing for imminent financial catastrophe. 'Mr. and Mrs. Main Street are buying now,'" A-Mark's Kaplan told U.S. News & World Report.

Coins were accessible to everyday investors, affording the advantages of variable purchase size, ease of transport, aesthetic qualities, and ready resale when compared with an investment such as gold bars. When the American Eagle was first introduced demand outstripped production, driving up the premium, or markup price, for a time. Other gold coins included the Canadian Maple Leaf, the Chinese Panda, and the South African Krugerrand.

Mass-produced bullion coins were judged for their value based on metal content. Numismatic coins—valued for rarity, condition and beauty, in addition to metal content—presented more of a challenge for investors. "You can't just pick up the paper and see what a coin is worth," A-Mark's Kaplan told the Journal Record. "You have to really know your stuff."

Platinum was the precious metal leader around mid-1988, trading above $600 per ounce. Kaplan told the Wall Street Journal the metals market had been bullish for about the past two years. By 1988, large brokerage houses, such as Merrill Lynch, Prudential-Bache, and Shearson Lehman Hutton, had entered into coin marketing.

The Gold Corporation, wholly owned and guaranteed by the state of Western Australia, issued a platinum coin in 1988. The only other non-special issue platinum had been offered in 1983 by the Isle of Man—located between England and Ireland. Kaplan told the Los Angeles Times that it "looks like it's going to be blockbuster. It's not just because it's the first platinum bullion from a major, popular country, but because (people) love the koalas [featured on the coins]. It's like the (Chinese) panda. It's a wonderful design concept."

As platinum made inroads in investment metal, word of a technological development drove down its price. Ford Motor Co. announced that it had come up with a catalytic converter made without the use of platinum. The automotive application accounted for the leading use of platinum, followed by jewelry. Kaplan told the Wall Street Journal that downturn for the metal was "sheer overreaction," given the Ford program was perhaps years in the making.

During the spring of 1989 another precious metal created a stir with revelations regarding scientific experiments. Palladium prices climbed in response to news that it played a key role in a cold fusion. But in terms of portfolio potential, little palladium was available for trade.

Gold, meanwhile, had been pulled out of the ground in record levels during 1988, increasing supply. Concurrently, rising interest rates drew investors to other markets. Moreover, relative peace in the Middle East created a political climate less than conducive to gold buying. But jewelry and industrial demand continued to be strong.

Although the top-selling Canadian Maple Leaf retained much of its strength and the South African Krugerrand remained popular in the resale market due to its lack of premium over gold price, other gold coin sales suffered. Kaplan told the Jewelers Circular Keystone that gold coin sales were a "disaster area."