US Mint Modifies Bulk Purchase Requirements for Silver Bullion Coins

Requirements to become an Authorized Purchaser for U.S. Mint silver bullion coins have recently been revised. While these changes will be transparent for the average investor who buys the coins for their portfolio or for collectors adding to their collection, they will affect any business firms that are interested in applying to become a purchaser under the program.

Since the inception of the American Silver Eagle series in 1986, and recently applicable to the America the Beautiful Silver Bullion Coins debuting this year, the United States Mint has refrained from selling its silver bullion products directly to the public. Instead, it uses a network of Authorized Purchasers who buy the silver coins in bulk to resell them in smaller quantities for modest premiums.

Currently, only twelve firms are participating in the silver bullion program. In addition to silver costs, the Mint charges a $2 premium per Silver Eagle sold to the network to cover manufacturing, marketing and distribution costs. That premium was raised earlier this month from $1.50 where it had stood since February of 2009.

A large portion of the agreement changes were to include a section for the upcoming America the Beautiful Silver Bullion Coins which had been absent. Modifications were also made to the "Purpose," "Marketing Support," "Experienced Market-Maker in Silver Bullion Coins" and "Tangible Net Worth" sections along with some adjustments to the accounting certification requirements and agreement terms.

Perhaps most significant, the United States Mint added a section entitled "Right to Temporarily Refrain from the Review of New Applications," which suspends review of new Authorized Purchaser applications during times of silver coin rationing, and for several months thereafter.

"The United States Mint reserves the right to temporarily refrain from the review of new AP applications during periods in which the allocation of any bullion product is required. The temporary refrain period of refrainment will continue until a minimum of nine months after all allocations have been lifted, but no more than one year after all allocations have been lifted," states a new section added to the US Mint’s "Procedures to Qualify for Bulk Purchase of Silver Bullion Coins."

American Silver Eagle rationing has occurred over the last two years as the Mint was unable to keep up with silver bullion coin demand.

Stipulations in the agreement are quite stringent as the Mint strives to maintain a smooth flow of its bullion products to the end customers. Among some of the more severe requirements is a provision necessitating a tangible net worth of at least $10 million dollars for applying firms, or the ability to obtain an irrevocable letter of credit for the difference between a firm’s net worth and $10 million.

That fluidity is required as the Mint wants to insure the firm can survive in both rising and falling markets. It is also important owing to the large minimum quantities the Mint requires the authorized purchasers to order. For the Silver Eagles, the Mint has a minimum order level of 25,000 ounces in place — at $20 an ounce for example, that comes to a total of a half a million dollars, not including the premiums. The new America the Beautiful Silver Bullion Coin Program will have a minimum order level of 10,000 ounces.

These changes will have no effect on the numismatic versions of the American Silver Eagle. Those will still be sold directly by the Mint to the public, as they always have been.

To read the Mint’s AP guidelines, visit http://www.usmint.gov/consumer/?action=americanEagles.