There is currently much discussion of American Gold Eagle coins being "rationed" and whether this will create a supply crisis. This discussion is not unlike the one about whether Warren Buffet's 120 million ounce silver purchase, announced about this time last year, would create a silver supply crisis. Anyone who reacted to this "silver supply crisis", like me, by buying silver has actually lost money. The current silver price is well below the average of $6.18 I paid per ounce between January and May of last year, especially when dealer fees are added on. So, all this talk of a "supply crisis" has me somewhat skeptical. Not that I regret buying silver mind you; if nothing else it will hold its value and I can use it when the Social Security system collapses and refuses to pay me retirement benefits. Precious metals are a long-term investment, designed to protect value over the long term. If I wanted pricing gyrations, with all the mental neurosis that goes with daily pricing of value; I would have invested in the stock market.

When this rationing talk first started happening last week, I decided to investigate further. So I went to my local coin dealer and talked with him about it. The answer was surprising to me, but here it is. The official local coin dealer answer to the direct question of "Is there a shortage of Gold American Eagle coins" is-the envelope please-"Sorta". Say what? There is no shortage of American Eagle Gold coins at this time. The dealer went on to say that there was a shortage of blanks used to make certain types of American Eagle coins. He also said that his wholesaler, the guy one step up the food chain from him, placed an order for 100,000 1/10 ounces coins with the following result. He was only given 25,000 and told the reason was the blank shortage.

Smelling blood, I moved in for the kill. Knowing that January sales were nearly 300,000 and equal to several months of 1998, I confidently asserted that the Y2k panic had happened and tanks would be in the street within a few hours. Then my coin dealer, actually his mother, crushed me with her answer, commented about " Internet hysteria" and then proceeded to talk me out of buying an American Eagle that day. That is ethics and personal integrity. I will be buying from them forever.

It is logical to assume that talk of gold coin rationing implies a gold shortage. It is also logical to assume that a gold shortage is caused by an increase in demand. Unfortunately, logic always isn't the best guide to finding out the truth. Or what the comic group FireSign Theater from the 1970's used to call "the rumors behind the news". I'm afraid the truth behind the so called American Eagle coin shortage is really quite banal and technical. You see, it has to do with a dead white guy and a more politically correct dead Native American girl. Seriously. Now remember the shortage refers to blanks and not the coins. So we know that there couldn't be an actual gold shortage, unless Fort Knox has been quietly emptied. And we know that there is no actual American Eagle coin shortage since people having been buying them up, granted at a higher rate than last year, with little trouble. One fact is undisputed: there is a production logjam, or bottleneck, due to a shortage of blanks in certain sizes of coins. The logical fallacy is that gold bugs assume the bottleneck is due to increased demand. This is simply not true. For starters, the 300,000 ounce figure merely represents a zeroing out and not a deficit. Zeroing out, for those international readers who don't know, is when Americans get paid and then gradually reduce the checking balance to zero. Except, being Americans we blow right past zero and into negative territory using our credit cards.

The key question is why are the blanks in short supply? And the answer to that has nothing to do with gold, Y2k or even the American Eagle coin demand. The reason blanks are in short supply is simple. There is a dead white guy on the American coin called the quarter, George Washington, and the Mint is now making 5 billion, as in billion, during 1999. It takes up a lot of production capacity to make 400 million quarters a month. Being a politically correct nation, America has now decided to replace the universally despised Susan B. Anthony, a dead white 19th century Feminist, dollar coin with a Native American Princess Sacajewa. Sacajewa helped Lewis and Clark in their 1804 cross country journey and is to be honored on a new dollar coin. Now guess what-it takes up a lot of production capacity to mint a new dollar coin!

Yes, I can feel your pain. Your pain was my pain, when I watched my preconceived notions die a cruel death in the coin shop. For some unknown spiritual reason, preconceived notions always die a horrible death when confronted with the truth. The truth being that even selling 300,000 ounces a month isn't enough to cause a gold coin shortage. It took the introduction of a new dollar coin and minting quarters to do that. Gold bugs done in by copper and zinc quarters. How humiliating!

As I pondered this sad state of affairs several things bubbled up to the surface of my mind. The first being that we have here a repeat of the Euro introduction. Namely, that two big projects are being attempted at the same time, draining resources away from Y2k efforts. For political reasons, what can be more politically correct that a Native American woman who is a single mother?, the new dollar coin will be given priority over gold coin production.

The second is that, in the minds of the economic powers that be, gold has been totally crushed as a serious threat. They must know by now that gold coin purchasing has increased to zero out current production. They got blind sided. How else can you explain their locking into a fixed production rate for all of 1999? Locking gold coin production to 1998 levels when they have already admitted they will print $50 billion more in paper, fiat, cash? Denying the possibility of increased demand for gold during 1999? Taking no action when public discussion of gold coin rationing is rampant? They must either be very sure of themselves or been caught off guard. Probably a combination of both. At any rate, there is a great gnashing of teeth in the money temple over the rabble's Y2k induced demand for gold coins. Don't the people trust paper money?

The third is that it doesn't really matter. Assuming the "shortage" produces significant price spikes, which I'm not, the Fed will strike without mercy. Isn't there a lawsuit alleging the gold price is fixed around $300 an ounce? And hasn't the gold price fallen, for whatever reason, whenever it hits $315 an ounce? So why won't it happen again? The definition of insanity is to do the same action several times and expect a different result. To which I offer two plausible solutions to the current "gold coin crisis". The first being Mr. Greenspan or Rubin simply picks up the phone, when the ounce price hits $315, and tells the mint to stop using blanks to make quarters or dollar coins and give priority to American Eagles. The resulting flood of coins depresses the price down to around $300 and life goes on normally. The second being something of my own invention. The strategic American Eagle coin reserve is what I will call it. Just as the American government has a Strategic Petroleum Reserve, to prevent oil price spikes, who can say whether there are millions of ounces of American Eagles stored in Fort Knox? Assuming you over-minted one million ounces a year since 1986, the Federal Treasury would have some 12 million gold ounces to dump on the market. This is a possibility that GOLD-EAGLE readers shouldn't discount. I firmly believe that golden moment will arrive, but for now the shortage is much ado about nothing. Y2k will hit and people will react to it as the 300,000 ounce January sales figures show, but I also believe the temple masters will remain in control for a while longer. By all means buy gold now if you want to. Just be sure you buy your survival supplies first. My best guess now is you have until June before things really get strange. One other thing to keep in mind, as my coin dealer put it, is that there are still Austrian, Australian, South African and even Chinese gold coins in plentiful supply. Gold is gold, although I do prefer the Eagle for sentimental reasons.