Wednesday, November 05, 2008

Gold shortage

gold1 In response to increased demand, private producers generally produce more.  The same is not true of government, however.  In response to rapidly increased North American demand for gold coins, "the U.S. Mint, citing unprecedented demand, has actually halted sales of many gold coins until 2009. " Story here.

Why? Good question.  It's not a shortage of gold, it's simply that the US Mint, is a government organisation.  And the US government prohibits anyone else from producing coins -- even in times of financial collapse when people are desperate for real money. George Selgin gives part of the story:

    Coin dealers and collectors are still reeling from the US Mint's announcement that it had run out of American Eagle gold coins. But what ought to surprise every American isn't that a government agency came up short. It's that the US government should be making little metal discs at all.
   
Coin shortages are nothing new. A few months before running out of gold Eagles, the US Mint had to ration silver Eagles. Not long before that, pennies were in very short supply. Nor are other government mints any better. Back in 2007, for instance, Argentina had such a severe change shortage that its panhandlers nearly starved to death, while in southern China, 100-yuan coins commanded a whopping 25 percent premium.
   
Why are coin shortages so common? Governments typically blame unexpected changes in demand. But suppliers of all sorts of other goods manage to avoid running out, despite even more dramatic demand changes. So what's special about coins? An old chestnut says that if the government were put in charge of the desert, pretty soon there'd be a sand shortage. Recall the plight of consumers under socialism: socialist governments tried to make everything and eventually ran out of everything.
   
Now socialism is dead, but not when it comes to coining. So coin shortages keep breaking out, as they have ever since governments first monopolized coin making in ancient times...

If only their production of paper money would run out.

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6 Comments:

Anonymous Greg said...

Actually, it is a shortage of gold. It's not just the US Mint; it's a worldwide shortage - you can buy "gold" on the COMEX, etc., but that's all paper; nobody can deliver physical gold at the moment!

11/05/2008 06:05:00 pm  
Blogger Mark Herpel said...

I agree with Greg!

Booo. Comex gold is a paper obligation. Demand has caused the physical gold shortage while paper prices are falling.

Well it can't go on forever. Buy gold now while it's cheap.
Mark

11/06/2008 05:18:00 am  
Blogger Jeff Perren said...

'Now socialism is dead, but not when it comes to coining. "

If only socialism really were dead!

Fear not, though, Americans have recently joined Europe and the rest of the world in giving in another shot in the arm (instead of the shot in the head it deserves).

11/06/2008 06:08:00 am  
Blogger Jeff Perren said...

By the way, I know nothing about the gold market, but just in general principle how can there ever be a shortage when prices are not capped? If the price were to, say, double wouldn't the demand be met by those holding gold at the current price?

11/06/2008 06:12:00 am  
Anonymous Anonymous said...

See http://seekingalpha.com/article/91357-the-disconnect-between-supply-and-demand-in-gold-silver-markets

11/06/2008 07:27:00 pm  
Anonymous Anonymous said...

Sorry, it gets cut off. This is what I meant.

11/06/2008 07:28:00 pm  

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