Gold’s first new bull market since 2011 last year was overwhelmingly driven by stock investors flooding into gold ETFs. Traditional physical bar-and-coin demand was actually quite weak, falling considerably year-over-year. Nevertheless, it’s still important to stay abreast of classic gold and silver investment demand. One key microcosm of that comes in the form of the US Mint’s sales of its popular American Eagle coins.

When American investors buy physical gold and silver bullion, it’s often in the form of these American Eagle 1-ounce coins. They have a really interesting history. Back in the early 1980s, foreign national gold coins led by South Africa’s famous Krugerrand were soaring in popularity. The US Congress didn’t want the States to be left out of the prestigious national-gold-coin business, so it finally acted in 1985.

American lawmakers crafted the Gold Bullion Coin Act of 1985, which president Ronald Reagan then promptly signed into law. It mandated the US Mint start producing a family of 22-karat gold-bullion coins containing one, one-half, one-quarter, and one-tenth of a troy ounce of fine gold. There were a couple of interesting restrictions, including the origin and age of the gold and the amount of coins to be produced.

The GBCA required all gold-bullion coins to be minted from “gold mined from natural deposits in the United States, or in a territory or possession of the United States, within one year after the month in which the ore from which it is derived was mined.” If that source ever proved insufficient, the Mint could “use gold from reserves held by the United States to mint the coins”. It makes sense to support American miners.

But far more importantly, this law requires the US Mint to produce these gold-bullion coins “in quantities sufficient to meet public demand”. Unfortunately the unaccountable bureaucrats at the US Mint have failed miserably on this front, and should’ve faced the wrath of Congress. There have been multiple times since the deep secular-bear gold lows of the early 2000s where bullion-coin sales have been suspended.

The most famous was probably in August 2008 heading into that year’s stock panic, when demand was growing. The US Mint claimed its suppliers couldn’t produce enough planchets, the blank flat disks of 22-karat gold that are ultimately stamped into American Eagle coins. That ignited a firestorm among gold conspiracy theorists, and went mainstream with a major Wall Street Journal story published on page C1.

The US Mint’s history of producing sufficient silver-Eagle coins to meet public demand is even worse, with these popular coins rationed for as long as 18 months at a time. This was even a big problem in 2015, when these silver coins’ sales were severely restricted for the last 5 months of that year. Because the US Mint has such an ongoing problem meeting demand as mandated, its coin sales don’t reflect true demand.

There are additional factors limiting the usefulness of this data for drawing conclusions about broader gold investment demand. It’s primarily American investors buying these American Eagle bullion coins, effectively excluding the rest of the world. On top of that, these coins are never destroyed. So the true supply and demand in the marketplace encompasses the entire stockpile of coins minted since 1986.

Nevertheless, the US Mint’s sales of newly-produced bullion coins offer a useful peripheral read into American gold and silver investment demand as long as their limitations are kept in mind. This small piece of overall global gold demand is a valuable barometer of American physical investment demand. Trends within this dataset help illuminate broader trends in gold investment, which dominates gold’s price.

The US Mint doesn’t sell coins directly to ordinary investors. Instead a network of authorized purchasers acts as middle men, which have to be fairly-large businesses to qualify. The US Mint’s minimum order requirements for gold Eagles and silver Eagles are 1k and 25k ounces. At current prices this equates to ordersizes of $1209k and $438k, not including the 3%-gold and $2-per-silver-coin premiums the US Mint charges!

So buying American Eagles certainly isn’t cheap for investors, who are forced to eat these big wholesale premiums. And the retail coin dealers naturally charge additional premiums on top of that to keep their businesses running. Thus paying 5%+ over prevailing gold prices is common, which is very inefficient. That’s one reason why gold ETFs led by the flagship American GLD SPDR Gold Shares have grown so popular.

Trading like any stock, GLD’s commissions for purchasing shares are the usual trivial broker fees. Then GLD’s managers charge a 0.4%-of-assets fee annually to pay their operating expenses including storing and transferring huge amounts of physical gold bullion. GLD shares offer investors portfolio-diversifying gold exposure for well under an order of magnitude cheaper than traditional coins including gold Eagles.

Thus the rise of gold ETFs led by GLD has certainly cannibalized classic gold-coin demand. There is no doubt physical gold ownership in one’s own immediate possession is far superior to gold-ETF shares in extreme market-breakdown situations. But the vast majority of the time when markets are functioning normally, gold-ETF shares offer the same portfolio-diversification benefits of gold coins at a fraction of the cost.

So the investors still buying gold coins tend to be hardcore true believers. They want to own gold for a long time, making the high premiums more palatable. I amassed my core portfolio foundation of national gold coins including Eagles in the early 2000s, and would never trade them for GLD shares. Gold held in your own personal control is the ultimate insurance policy against devastating black-swan events.

The US Mint’s gold-Eagle sales offer insights into how the American physical gold market dominated by traditional investors is faring. This chart superimposes monthly gold-Eagle sales over gold prices since 2001. Since gold-Eagle production and thus sales are highly volatile, annual averages are included in yellow to smooth the trends. Provocatively gold-Eagle demand proved strong in 2016, defying world precedent.

Last year the US Mint sold 985k ounces of gold Eagles to its wholesalers. That was a major 22.9% jump over 2015’s 802k ounces sold! Averaging out to 81.5k ounces per month, 2016 was actually the fourth best year of gold-Eagle coin sales in gold’s modern secular-bull era. Only 2009, 2010, and 2011 were better. Since the recent trough year for gold-Eagle sales in 2014, their monthly average rocketed 86% higher!

Despite the gold carnage seen in the wake of Trump’s surprise election win, this metal had a solid year in 2016. Gold rallied 8.5% higher last year, its first up year since 2012’s 7.0% gain. So it shouldn’t be surprising that American physical investors started to return to chase gold’s young new bull. Investment demand growth is inverted, with higher prices fueling higher demand unlike normal commodities markets.

Provocatively these rising gold-Eagle sales really defied the world trend in bar-and-coin demand. The definitive arbiter of gold fundamental data is the venerable World Gold Council. It publishes awesome quarterly reports detailing global gold supply and demand. Until Q4’s report is finalized and published in a couple weeks, the latest available is still Q3’16’s. So we can analyze the first three quarters of 2016.

American Eagle gold-bullion coin sales ran 692.5k ounces in the first 9 months of 2016, which equates to just 21.5 metric tons. That was only a slight 3.4% improvement from the 670.0k ounces or 20.8t seen in the first 9 months of 2015. As this chart shows, the US Mint didn’t start getting caught up with the surging gold-investment demand in 2016 until Q4. Gold-Eagle sales exploded last quarter, likely also on bargain hunting.

According to the World Gold Council, total global physical bar-and-coin demand in the first three quarters of 2016 was 664.2t. Thus new US Mint gold-Eagle sales are a vanishingly-small 3.2% of that. A subset of that bar-and-coin demand, only official coins, ran 129.9t. New gold-Eagle sales accounted for about 1/6th of that. But the surprising thing is gold-Eagle sales still rose year-over-year in the first 9 months of 2016.

Overall world bar-and-coin demand excluding ETFs and central banks actually fell 12.9% year-over-year in the first 9 months of 2016, from 762.9t to 664.2t! So it’s rather impressive to see new gold-Eagle sales buck that trend. This big 98.8t YoY drop in bar-and-coin demand was far more than offset by an epic 785.8t YoY surge in gold-ETF demand! That also outweighed falling jewelry demand, driving overall demand higher.

The sole reason overall global gold demand climbed 7.4% or 229.8t YoY in the first 9 months of 2016 was this massive gold-ETF buying. And that overwhelmingly came from GLD alone, the world’s biggest-by-far and dominant gold ETF. Its holdings grew 305.6t in that span, well exceeding the 229.8t growth in world gold demand! So realize new gold-Eagle sales are almost inconsequential relative to the gold ETFs.

Still, it’s very encouraging to see American investors’ demand for new gold Eagles defy the world bar-and-coin demand slump to rise year-over-year in 2016. That implies gold psychology is really improving. Investors don’t want to pay the high premiums to hold physical gold in their own possession unless they think gold is going to climb on balance for years to come. Only true believers go to the trouble of buying coins.

But despite the strong 2016 gold-Eagle demand in ounces terms, in dollar terms it is still way down. At 2016’s average gold price of $1250, the 985k ounces of gold Eagles sold were worth about $1.2b. That is nothing in market terms, a rounding error. Back in 2011 when gold averaged $1573, a similar 1000k ounces of new gold Eagles sold were worth around $1.6b. But 2009 saw the biggest modern gold-Eagle sales.

That year they ran a mammoth 1435k ounces, surging as gold soared emerging from 2008’s first stock panic in a century. But at 2009’s average gold price of $974, they were still only worth about $1.4b. So at $1.2b last year, new gold-Eagle sales have lots of room to grow before they hit normal levels for gold bull-market years. If the US Mint can keep up, odds are they will power considerably higher again in 2017.

Arguably the smart thing to do if you own physical gold coins in your own possession is to tell no one. If the wrong people hear you have substantial gold bullion on your property, that makes you a target for theft. And since gold is usually well-hidden, any thief thinking you had some would likely torture you to get its location. Thankfully most gold investors tend to be well-armed too, ready to defend with lethal force.

Security concerns aside, gold coins are a powerful evangelism tool to promote gold investment. When I get the chance to speak to new investors or kids about gold, I always bring a handful of gold Eagles to pass around. Portfolio diversification through gold is a broad and abstract topic that is hard to grasp at first. But when someone holds physical gold bullion in their own hands for the first time ever, their faces light up!

All of a sudden gold transcends an academic concept to become tangible and real. Decades ago when I was young, the same thing happened to me. My interest in gold and contrarian investing grew out of a friend letting me actually hold some gold coins. They happened to be South African Krugerrands, but the timeless allure of gold is universal for all people. I hope the growing gold-Eagle sales boost such opportunities.

While you don’t want to advertise your physical-gold hoard, you can buy fractional gold Eagles to gift on special occasions. You can show trusted close friends the latest few Eagles you bought, and use that opportunity to tell them about the vast upside potential in gold. So while gold Eagles remain a small fraction of world gold demand, their possible impact on gold psychology lets them punch far above their weight.

For over 17 years now as a newsletter writer, I’ve strongly recommended every investor amass a core portfolio foundation of at least 5% of investable assets in physical gold and silver bullion held in their own immediate possession. Eagles are a great way for Americans to do that. Physical gold and silver is the ultimate portfolio insurance, protecting investors from various extreme market or political situations.

While the odds are thankfully very small, there’s always the chance that paper markets could crash or be inaccessible indefinitely. When such black-swan events smash the rest of your portfolio, your small gold allocation will soar and offset some of those losses. Physical gold and silver you possess can also be used for transactional purposes if severe market upheavals are accompanied by disruptive real-world unrest.

Interestingly the increase in new gold-Eagle demand last year didn’t translate into higher silver-Eagle sales. This next chart looks at the US Mint’s monthly and annually-averaged silver-Eagle sales along with silver prices. They actually fell rather sharply last year, which is somewhat surprising given silver’s 15.1% gain in 2016. But the silver-Eagle market is really considerably different from the gold-Eagle one.

Last year the US Mint sold 37.7m new silver-Eagle coins, down 19.8% from 2015’s 47.0m. This pushed the monthly average sales down to 3.1m, the lowest seen since 2012. That implies silver demand was weaker. Unfortunately world silver fundamental data comparable to the World Gold Council’s gold data isn’t available quarterly. It is only published once a year by the Silver Institute, and that’s not until May.

So unfortunately we can’t do a silver-coin analysis on par with the gold-coin analysis above. But silver Eagles are very different from gold Eagles. While silver Eagles are certainly very beautiful and thus highly desirable, they are an expensive way to own silver bullion. Once again the US Mint charges the large wholesale dealers a whopping $2 per coin in premiums. At prevailing silver prices, this is a staggering 11.4%!

Once the retail coin dealers take their cut on top of that, silver Eagles are not an economic way to amass silver bullion. They make great gifts, but serious silver investors generally don’t bother with them since they are so expensive. When building up core investment positions in both gold and silver bullion, the prudent thing to do is buy the forms of these metals with the lowest premiums to get the most bang for your buck.

Silver-Eagle demand is also exceedingly volatile. When silver surges and excitement grows, the coin dealers often steer newer naive investors towards high-margin silver Eagles. But as silver inevitably falls out of favor again, this demand collapses. These big swings are impossible to forecast, making it very challenging for the US Mint to achieve its Congressional mandate of producing sufficient coins to meet demand.

2015 is a great recent example. Though silver-Eagle demand surged to record highs that year, by July the US Mint had already run out of these coins thanks to a strong early-year silver rally. So as the Mint struggled to catch up, it actually had to ration silver-Eagle sales for 5 whole months! So these new sales the Mint reports aren’t necessarily a true reflection of investor demand, but often reveal Mint limitations.

Silver actually acts as a gold sentiment gauge. Investors only start getting excited about silver after gold has rallied long enough and far enough to convince them its upside is sustainable. Gold embarked on a new bull market in December 2015 out of deep secular lows, and powered 29.9% higher by early July 2016. During that short 6.7-month span, silver surged up 47.7%. But a half-year isn’t much in the grand scheme.

The shift in investors’ silver-coin demand from bear to bull levels will take some time. Silver may have to rally on balance for a year or two before sustained new demand kicks in. And the US Mint will take even longer to respond to that demand shift, since it requires considerable lead time to source and fabricate raw silver bullion into finished Silver Eagles. So I suspect 2017 will better reflect growing demand than 2016.

Precious-metals physical-bullion demand among American investors should only grow as gold and silver mean revert higher this year and beyond. There’s no doubt the US Mint will be able to sell every last American Eagle coin it produces. Since the Mint has to buy this gold and silver from American miners, all this bullion-coin demand will certainly contribute to driving gold and silver prices higher as well.

If you’ve never bought gold and silver bullion coins, it’s a fantastic time to get started and stockpiling with gold and silver prices still low. All you have to do is find a reputable local coin dealer who’s been in business a long time and stop by to chat. He’ll help you understand what kinds of coins are available, and the premiums they command. Buy your coins, take them home, hide them, and forget about them.

Bottom line

US Mint bullion-coin sales were mixed in 2016. While gold-Eagle sales surged with the new gold bull, silver-Eagle sales fell despite silver following gold higher. American investors’ gold-coin demand as evidenced by new Eagle sales grew last year, bucking the world trend of weakening bar-and-coin demand. The return of hardcore physical investors here in the US is very bullish for gold.

It reflects improving gold psychology, as investors are more willing to pay high gold-coin premiums that are far larger than gold-ETF fees. This only makes sense if they expect gold to climb on balance for years to come in a major new bull. As gold continues mean reverting higher out of recent years’ deep secular lows, global bar-and-coin demand should really start growing again. Investors love chasing a winner.